The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently issued a Risk Alert summarizing deficiencies in controls of certain broker-dealers related to sales of structured products to retail investors. The Risk Alert follows a series of examinations of branch offices of broker-dealers that distribute structured products issued as securities. The SEC staff found that in connection with these structured products sales all of the examined firms:
- failed to maintain and/or enforce adequate controls relating to determining the suitability of recommendations; and
- failed to conduct both compliance and supervisory reviews of registered representatives’ determinations of customer suitability as required by their internal controls.