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 the impact of the SEC’s private fund adviser rule, the SEC’s first Marketing Rule action and the extended comment period for the proposed Safeguarding Advisory Client Assets rule.
Here are our top investment adviser compliance articles for the week of Aug. 25, 2023:
Advisors must document annual compliance review in writing under new SEC rule (Author – Mark Schoeff Jr., Investment News)
The SEC’s recently approved private fund adviser rule contains a significant provision on page 302 that mandates ALL investment advisers to document their annual compliance reviews in writing. This change, approved in a 3-2 SEC vote, modifies the Investment Advisers Act compliance rule to enhance policy and procedure assessments aligned with securities regulations. Meanwhile, the SEC reopened public comments on its custody proposal, known as the “safeguarding proposal,” which would reform rules for advisers controlling client funds.
“During the SEC open meeting Wednesday when the commission approved the private-fund rule, Commissioner Hester Peirce asked SEC staff whether the requirement to put the compliance review in writing would cause concern among advisory firms that they’re giving the agency a “road map” to examinations and enforcement.”
SEC’s private fund reform could add more work, costs for RIAs (Author – Tobias Salinger, Financial Planning)
The reform package, proposed in February 2022, involves increased disclosures, audits, and the end of certain industry practices. Compliance experts suggest these changes could burden RIAs. Alongside mandatory annual reviews for all RIAs, the package includes provisions like mandatory audits for private fund advisers and increased disclosure of private fund information. Industry concerns about overreach have arisen, with experts urging RIAs to carefully assess compliance requirements.
“RIAs should avoid being confused by the name of the “private fund” rules since the yearly analyses apply to all firms and may usher in “a new approach to the annual review that many small advisors aren’t taking right now,” John Gebauer said.”
SEC Seeks More Comments on Controversial Custody Rule Plan (Author – Melanie Waddell, Think Advisor)
The SEC has reopened the comment period for its proposed Safeguarding Advisory Client Assets rule, which aims to redesignate and amend the current custody rule under the Investment Advisers Act. The initial comment period ended on May 8, but the SEC has extended it due to significant feedback. This move allows interested parties more time to analyze the issues and prepare comments. Alongside this, the SEC has adopted new rules to enhance private fund adviser regulation and update compliance rules for all investment advisers. These rules intend to improve transparency, competition and efficiency while introducing an annual compliance review requirement for all advisers.
SEC Brings First Marketing Rule Action; Firm to Pay $1M (Author – Melanie Waddell, Think Advisor)
The SEC’s first action under its new Marketing Rule involves ordering a New York fintech RIA to pay over $1 million for misleading advertisements using hypothetical performance metrics. The SEC also charged the firm with various compliance failures, including misleading crypto asset custody disclosures, improper use of client signatures and lack of policies for employee crypto asset trading. The firm advertised “annualized” performance of up to 2,700% for its crypto strategy without clarifying that short-term results were projected over a full year. This violated the Marketing Rule due to inadequate policies and procedures.
Regulator roadmap: Could new SEC rule force advisors to give too much away? (Author – Dan Shaw, Financial Planning)
SEC Commissioner Hester Peirce has expressed concern that the requirement for advisers to document findings from internal compliance reviews could inadvertently provide regulators with a “roadmap” to uncovering violations, potentially discouraging comprehensive reviews. Despite her reservations, the SEC voted 3-2 in favor of the documentation rule, which applies to compliance reviews and aims to create more robust assessments. Concerns have been raised about smaller advisers facing challenges due to regulatory changes.
Check out our previous round up, which focused on new rules to watch from the SEC, the top frequently asked wealth management questions, recent SEC charges and the future of AUM fees.