Northern Financial Corp. today announced that Market Regulation Services Inc. intends to initiate enforcement proceedings against its brokerage subsidiary Northern Securities Inc. relating to an alleged failure to meet internal trading supervision obligations found in Universal Market Integrity Rules 7.1 “Trading Supervision Obligations”.
RS has provided Northern Securities until October 11, to settle this matter, failing which a Notice of Hearing will be issued.
RS alleged that Northern Securities failed to make implementation of an effective internal trading supervision and compliance system a priority for most of the period from January 2003 to August 2005. RS conducted a Trade Desk Review of Northern Securities in August 2005 and has stated it found some improvement in the Northern Securities testing procedures and other compliance and supervision issues since the 2004 Trade Desk Review. However, RS alleged that many of the same issues relating to alleged inadequate internal policies and procedures, testing methodologies and documentation of such testing remained as findings in the 2005 Trade Desk Review.
Responding to the allegations, Northern Securities says compliance “is inextricably part of the firm’s culture.”
Northern Securities says it has previously raised with RS its concerns about the certainty of the specific requirements of UMIR particularly in the context of the internal supervision systems of boutique investment dealers.
Northern Securities says RS itself acknowledged these concerns in its own Strategic Review Progress Report dated July 29, 2005 (the “RS Report”) where RS concluded: “there is considerable scope to better clarify and communicate its expectations for trading supervision and compliance in Part 7 of UMIR.”
Northern Securities says it has not seen appropriate flexibility on the part of RS to permit the customization of internal supervision systems for different sizes and types of boutique firms. The firm says “it has experienced with RS a large dealer ‘one size fits all’ approach to internal supervision and compliance which the firm believes is not appropriate and is contrary to UMIR.”
The firm says it has improved its compliance platform by hiring of Brian Driscoll as chief compliance officer as well hiring Fasken Martineau DuMoulin LLP to conduct a comprehensive review of the firm’s compliance system.
Northern says it believes the issues raised by RS concern technical matters such as the internal documentation of in-house trading and review procedures rather than material or egregious matters involving fraudulent, unfair, dishonest or unethical trading or business practices.
It is calling upon “RS to exhibit an appropriate level of fair dealing, good faith and cooperation in resolving these matters, especially as a one size compliance system does not fit all boutique securities firms such as Northern Securities.”
If the matter cannot be resolved, Northern says it intends to raise these issues in the context of contested proceedings against RS.
Northern Securities in dispute with RS over supervision
“One size fits all” approach contrary to UMIR, firm says
- By: IE Staff
- September 23, 2005 September 23, 2005
- 10:25