In an ever-evolving financial landscape, regulatory compliance is paramount for the success and credibility of brokerage firms. In the past few years, the U.S. Securities and Exchange Commission (SEC) has been actively shaping the regulatory framework to ensure the integrity of the financial markets, sharing several significant proposed rule changes.
Jason Vinsonhaler, the COMPLY Director of Regulatory Research & Content, emphasizes the importance of staying informed about these proposed rules: “The SEC has been in a period of active rulemaking with many new and updated rules being proposed and adopted in recent years. It is critical that firms remain diligent in understanding and applying these rule adoptions to continue operating in a compliant manner. The SEC appears committed to enhancing its oversight of registrants in its jurisdiction.”
Through careful consideration and proactive action, your compliance team can anticipate how to adapt your firm’s compliance program and quickly make changes as necessary. Let’s dive into some of the key proposed rules that might affect your brokerage firm.
Five proposed SEC rules for brokerage firms
Detailed below are five of the major SEC proposed rules that may affect your brokerage firm. For a full list of proposed and adopted rulings, visit the SEC website.
Enhancement and Standardization of Climate-Related Disclosures for Investors
The SEC’s proposal aims to require registrants to disclose certain climate-related information in their registration statements and annual reports. This includes details about climate-related risks that could materially impact the business, as well as disclosure of greenhouse gas emissions. As the world focuses more on sustainability and environmental concerns, brokerage firms need to prepare for new disclosure requirements that may necessitate monitoring and reporting on metrics like greenhouse gas emissions.
Level of impact: 4
The SEC has proposed new rules under the Securities Exchange Act of 1934 relating to a broker-dealer’s duty of best execution. The proposed Regulation Best Execution aims to strengthen the current regulatory structure concerning this obligation. It mandates comprehensive policies and procedures for all broker-dealers, with particular emphasis on more rigorous protocols for broker-dealers involved in conflicted transactions with retail customers. Additionally, the proposal introduces requirements for thorough reviews and documentation in connection with these matters.
Level of impact: 5
Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Customer Information
The SEC has put forth proposed changes to rules that mandate brokers, dealers, investment companies, and registered investment advisers under the Commission to establish written protocols for incident response programs. These programs are aimed at addressing situations involving unauthorized access or usage of customer information. The proposed rules necessitate the timely notification of affected individuals in case of incidents related to sensitive customer data. The Commission is also seeking to expand the range of information covered by modifying requirements for safeguarding customer records and data, as well as appropriately disposing of consumer report information. Furthermore, the suggested changes would extend the safeguarding provisions to apply to transfer agents. These amendments would additionally introduce the need to maintain written records that demonstrate adherence to the revised rules. Lastly, the proposed adjustments would align annual privacy notice deliveries with an exception introduced by a statutory amendment to the Gramm-Leach-Bliley Act (GLBA).
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Level of impact: 4
Cybersecurity Risk Management Rule for Broker-Dealers
With the increasing frequency and sophistication of cyber threats, the SEC’s proposed cybersecurity risk management rule is of utmost importance. Brokerage firms will need to establish robust policies and procedures to address cybersecurity risks, provide immediate notification to the Commission about significant incidents and enhance public disclosure to improve transparency. This rule underscores the need for a proactive and comprehensive approach to cybersecurity risk mitigation.
Level of impact: 4
Conflicts of Interest Associated with Predictive Data Analytics
In a technology-driven era, predictive data analytics have become central to investment strategies. Most recently, the SEC has proposed amendments to the rule under the Investment Advisers Act of 1940 aim to modernize conditions for certain investment advisers using predictive data analytics. Brokerage firms must adapt to these changes to ensure they meet the evolving standards while utilizing predictive data analytics effectively and ethically.
Level of impact: 5
These proposed SEC rules represent a significant shift in the regulatory landscape for brokerage firms. Staying informed and taking proactive steps to align with these proposed SEC rules is crucial for maintaining compliance and reputation. By embracing these changes and acting in accordance with the proposed rules, brokerage firms can position themselves for success in an increasingly regulated financial industry.
To address this need for guidance, COMPLY developed its inaugural edition of the COMPLY Regulation Rundown. This publication aims to provide compliance professionals and financial advisory firms with an overview of the regulations they must adhere to, educating them on how to avoid violations and safeguard their firms’ integrity.
For a deeper understanding of these rules and their implications download the 2023 COMPLY Regulation Rundown today!Top of Form