What’s the latest news in the world of regulatory compliance? Welcome to our biweekly recap, where we are giving you our report highlighting the top compliance news articles from various industry news publications. We have selected the most relevant and important news articles related to registered investment adviser (RIA) compliance and regulatory issues. Today’s recap focuses on the Department of Labor (DOL) Fiduciary Rule, SEC 2023 enforcement actions, the growth of the RIA space and AI.
Here are our top investment adviser compliance articles as of November 17, 2023:
DOL Denies Request to Extend Fiduciary Rule Comment Period (Author – Melanie Waddell, ThinkAdvisor)
The Assistant Secretary of Labor for the Employee Benefits Security Administration, Lisa Gomez, rejected a request from industry trade groups to extend the comment period on the Labor Department’s fiduciary rule.
“EBSA believes that its current proposal reflects significant input it has received from public engagement with this project since 2010, and looks forward to another robust comment period, public hearing, vigorous public debate, and stakeholder meetings.”
A public hearing is scheduled for December 12 and 13, with the comment period ending on Jan. 2. Gomez affirmed that EBSA had engaged with stakeholders on the proposed rulemaking package and, as of now, has no plans to extend the comment period or postpone the hearing.
7 takeaways from the SEC’s $5B enforcement year (Author – Dan Shaw, Financial Planning)
In the 2023 fiscal year, the SEC collected nearly $5 billion in enforcement penalties, the second-highest in its history, surpassed only by the 2022 figure of over $6.4 billion. The SEC emphasized that the slightly lower total for 2023, from 784 enforcement actions, did not signify a decline in enforcement zeal. SEC Chairman Gary Gensler asserted that the results showcased the division’s effectiveness in holding wrongdoers accountable, emphasizing a commitment to following facts and the law.
“Marketing and social media infractions, off-channel texting on WhatsApp and other messaging services and cryptocurrency scams all topped the SEC’s list of regulatory priorities this past year.”
More advisors are making the move to RIA, independent models (Author Josh Welsh, Investment News)
Financial advisers are increasingly moving into the RIA space, as evidenced by the substantial growth over the past few years. Cerulli reports that independent and hybrid RIA channels saw significant year-over-year growth in adviser head count over five- and 10-year spans.
“Cerulli found that the number of independent RIA firms has grown at a compound annual growth rate of 2.4% over the last decade, while the number of advisors operating at independent RIAs has grown at a CAGR of 5.2% over the same period.”
Gensler says proposal on AI conflicts aligns with Reg BI (Author – Mark Schoeff Jr., Investment News)
SEC Chair Gary Gensler clarified that the agency’s proposal targeting conflicts of interest for financial advisers using artificial intelligence (AI) is not an attempt to modify Regulation Best Interest (Reg BI). The proposed rule, introduced over the summer, requires advisers to address conflicts arising from AI, predictive data analytics and similar technology. Gensler assured that the goal is not to change Reg BI but to focus on situations where predictive analytics may prioritize adviser revenue over investor returns. The proposal aims to eliminate or neutralize such conflicts, ensuring investor interests are prioritized in algorithmic recommendations.
SEC Reports Its Second-Biggest Fine Total Ever for 2023 (Author – Melanie Waddell, ThinkAdvisor)
In fiscal year 2023, the Securities and Exchange Commission (SEC) filed 784 enforcement actions, marking a 3% increase over the previous year. The SEC obtained orders for $4.949 billion in financial remedies, the second-highest in its history. The actions included 140 against broker-dealers and 139 against investment advisers and investment companies. Of the 501 stand-alone actions, there was an 8% increase from the previous fiscal year.
“The financial remedies comprised $3.369 billion in disgorgement and prejudgment interest and $1.58 billion in civil penalties.”
The SEC barred 133 individuals from serving as officers and directors, the highest in a decade. Whistleblower awards totaled nearly $600 million, a record-breaking amount.
Check out our previous round up, which focused on a ruling on the need for consolidation in the financial services industry, the converging roles of compliance and cybersecurity professionals, updates from the SEC about recent proposals, fiscal year 2023 and exam priorities for 2024 and responses to those updates.