Compliance innovation moves fast, but the news moves faster. To keep you and your team up to speed on the latest happenings and goings-on in the compliance world, we’ve aggregated the top five articles from the past few weeks to provide you with an in-depth look at the regulatory ecosystem.
Stay up-to-date and in the know on everything happening in the compliance world as of September 15, 2023.
SEC Charges 9 More Firms With Marketing Rule Violations – Author Melanie Waddell
The SEC has charged nine registered investment advisers with violations for advertising hypothetical performance on their websites without complying with the Marketing Rule’s required policies and procedures. These firms have agreed to settle the charges by collectively paying $850,000 in penalties. Hypothetical performance ads, due to their attention-grabbing nature, pose risks to investors whose financial situations and goals may not align with the advertised strategies. Gurbir Grewal, the SEC’s Director of Enforcement, emphasized the importance of advisers implementing compliance measures to ensure adherence to the rule. The SEC remains vigilant, continuing its sweep to enforce Marketing Rule compliance, particularly regarding hypothetical performance ads.
NASAA exams unearth fewer violations but still failures with registration and recordkeeping – Author Dan Shaw
State regulators have found that common violations among investment advisers include incomplete registration forms and inaccuracies in bookkeeping. However, recent reviews by the North American Securities Administrators Association (NASAA) show significant improvements in compliance among firms. NASAA reported a sharp decline in violations among the 683 firms examined, with only 23% reporting registration-related violations compared to over 44% two years prior. Similarly, book and recordkeeping failures dropped to approximately 17% from just over 41%. Experts attribute this improvement to firms’ intentional efforts to maintain compliance.
SEC warns firms what will get them shortlisted for examination – Author Financial Planning Staff Report
The SEC has issued a risk alert outlining factors that may lead to regulatory examinations for investment advisory firms. The SEC annually examines around 15% of the over 15,000 registered investment advisers with $100 million or more in assets under management. Among the considerations mentioned in the alert are repeat deficiencies in previous reviews, a history of misconduct within the firm, tips or complaints, conflicts of interest, time since the last review, recent leadership changes, market vulnerability signs and media reports. The examinations focus on policies, disclosures, custody of client assets, portfolio management and compliance with new rules like the Marketing Rule and Regulation Best Interest.
New leader of state regulators places emphasis on ‘risky’ digital assets – Author Mark Schoeff Jr.
The president of NASAA, Claire McHenry, emphasized the role of state regulators in safeguarding investors from risks associated with digital assets. While recognizing the potential of cryptocurrencies and blockchain-based assets, McHenry stressed the need for debate and regulation in this evolving landscape. She highlighted the importance of state regulators and NASAA in overseeing digital assets, given their inherent risks, particularly for retail investors. McHenry called for expanded communication and collaboration among regulators and policymakers to establish consistent rules across states, providing clarity for digital asset providers and enhancing investor protection. NASAA’s conference discussed the changing role of regulators as digital assets become more prevalent in financial markets, with an increasing number of investors relying on technology for financial transactions. However, McHenry noted the rise in scams targeting older investors in the digital asset space, emphasizing the need for appropriate controls and enforcement measures.
Trade Groups Plead With SEC to Rethink Custody Rule Plan – Author Melanie Waddell
Over 26 trade groups, including the Securities Industry and Financial Markets Association and the Financial Services Institute, have urged the SEC not to adopt its Safeguarding Advisory Client Assets proposal in its current form. They suggest that the SEC should first gain a better understanding of the existing custodial framework before proceeding with the proposed changes. The proposal, which expands the scope of adviser custody rules to include cryptocurrencies and other assets, is criticized for making broad changes without a clear policy rationale. The trade groups argue that any significant changes should be carefully evaluated, and the proposal should be withdrawn and re-proposed if necessary to ensure public feedback and the integrity of securities market regulations.
Learn more about key regulatory issues like those discussed in this blog by downloading our 2023 Regulation Rundown.