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. This week’s recap focuses on a ruling on crypto, takeaways from the SEC’s recent WhatsApp sweep, the classification of small advisers, the new NASAA study guides and advisers home office models.
Here are our top investment adviser compliance articles as of October 6, 2023:
SEC’s ‘cryptos are securities’ court appeal denied (Author Bloomberg News, Investment News)
A federal judge, Analisa Torres, has denied the Securities and Exchange Commission’s (SEC) request to appeal a previous ruling that Ripple Labs Inc.’s cryptocurrency, XRP, does not constitute a security when sold to the general public.
“Torres’s ruling was widely hailed as a victory for the crypto industry, which has resisted attempts to categorize digital assets as securities subject to regulation. In her July 13 decision, Torres drew a distinction between sales of XRP to institutional investors, which she said met the test for an investment contract under federal securities law, and sales to the public on exchanges.”
Latest WhatsApp sweep shows value of cooperating with SEC (Author – Dan Shaw, Financial Planning)
The SEC imposed fines totaling nearly $80 million on several financial firms for recordkeeping violations related to employees’ use of encrypted messaging apps like WhatsApp. The SEC stressed the benefits of self-reporting, remediation and cooperation. All firms admitted to employees using these services for investment discussions since 2019, violating recordkeeping provisions. The SEC has recently prioritized preventing off-channel communications and imposed fines on other Wall Street firms for similar violations.
Advisors increasingly rely on home office models, survey says (Author – Emile Hallez, Investment News)
A report from Fuse Research Network reveals that most financial advisers rely on home office models for investment decisions, highlighting a shift towards planning and customer service in the industry. While many advisers use these models as a starting point and customize them, only 10% follow them with minimal modifications. Wirehouse advisers are more influenced by home office models, while RIAs and independent broker-dealers tend to create their own allocations from scratch. The trend of increased model usage allows advisers to focus on other aspects of their businesses, such as growth, but some advisers still emphasize their ability to pick strategies and create custom asset allocation plans. The use of models shows a positive correlation with assets under management.
SEC regulations give ‘short shrift’ to potential cost for small advisors (Author – Mark Schoeff Jr., Investment News)
The Investment Adviser Association (IAA) has petitioned the SEC to redefine what qualifies as a “small adviser.” Currently, the SEC defines a small adviser as one with less than $25 million in assets under management (AUM). However, the threshold for SEC registration is $100 million AUM, with advisers under that limit registering with their states. The IAA argues that this definition hampers the SEC’s ability to assess the economic impact of its rules on small advisers. They propose defining small advisers based on the number of employees, suggesting 100 or fewer employees as the criterion. The IAA contends that most advisory firms are small businesses with limited resources to implement complex regulations, and this change would help create more effective and tailored regulations.
NASAA Releases New Study Guides for Qualification Exams (Author – Melanie Waddell, Think Advisor)
NASAA has released new study guides for the Series 63, Series 65 and Series 66 qualification exams. These materials provide a comprehensive description of the exams, helping candidates and educators better understand their scope and testing standards. NASAA aims to support individuals pursuing careers in the financial industry with these guides, although they are not a substitute for thorough study and preparation. NASAA previously launched an Exam Validity Extension Program, allowing eligible individuals to maintain their Series 63 license even if they leave the industry for up to five years, with plans for a similar extension for Series 65.
Check out our previous round up, which focused marketing documents requested by the SEC during examinations, the results of an SEC vote on the fund names rule, firm classification, the custody rule plan, and succession planning.