Q1. MemorandumTo: Mr. Financial AdvisorFrom: Mr. SmithDate: 8 Oct’ 2016Subject: Common regulatory violationsRegulatory ComplianceIt is defined as the adherence to laws, guidelines, regulations and specifications which are relevant to an organization. The violation of regulations leads to the legal punishment which includes federal fines. The rules and regulations are rapidly increases which makes the compliance most prominent in the various organizations. The ethical issues in the financial services affect an organization. The financial service sector is more ethical than other sector which becomes the image in the eyes of the public. The financial sector comprises of banks, insurance companies, investment banks, mortgage lenders and the financial industry garners many headings due to which ethics lapses. The three violations are explained below:Selling awayThe selling away is defined as the incorrect practice of investment professionals in the securities brokerage industry of Unites States in which the securities are sold by the brokerage firm. The
list of a product is approved by the company which means the sales are not approved by the company. It is done by the investment professionals which includes financial advisor, stockbroker, representatives who are registered and others. The lists of products which are approved by the company for selling by the brokers are subjected to the process of due diligence of the company (Gentzoglanis et al., 2014). The process of due diligence includes receiving the approvals and reviews from the risk and compliance department of the company. For example, the investment is sold by the broker who is away from the company. The broker marketing securities must get the license for different types of securities. The license is issued by the financial industry regulatory authority to the brokerage firm in the U.S. It is basically a selling oftransaction which is not approved by the firm. The securities are involved in the private placement. The transaction can be deliberated or intentional. The selling away can be avoided through avoiding the various mistakes such as changing in last minutes, completes understandingof the working of deals, a disclosure of important details and avoid bad habits at the table of negotiation. ChurningIt is defined as the practice in which trade are executed for investment account which is done by the broker for generating the commission from the particular account. It is the breach of securities law and the actions taken by the holder of account regarding the returning of commission paid by the account holder for any losses due to the choice of stock made by a broker. In this case, court firstly look at the balance in the investment account and then the number of times churning has been done. The critics of giving money to the brokers for encouraging the behavior of brokers indirectly. The investments which are providing stable returns with less fluctuation's in the price leads to generate zero commission for brokers due to
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