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 August 4, 2023.
Concerns percolate about how SEC’s AI proposal aligns with Reg BI – Author Mark Schoeff Jr.
The SEC proposed a new rule aimed at eliminating conflicts of interest in financial advisers’ use of technology that predicts investor behavior. The proposal requires brokerages and investment advisory firms to eliminate or neutralize conflicts related to artificial intelligence and predictive data analytics. However, concerns are raised about how this new requirement will interact with Regulation Best Interest (Reg BI), implemented in 2020. Reg BI prohibits brokers from prioritizing their revenue interests over customers’ interests. The new AI proposal’s broader scope may require brokers and advisers to rethink how they identify and manage conflicts, potentially leading to additional obligations beyond current fiduciary duties. Republican SEC commissioners argue that existing regulations can address AI and technology use, and they question the proposal’s broad definition of AI.
UK retail financial services set for biggest overhaul in 20 years – Author The Guardian
As of July 31, the UK’s Financial Conduct Authority (FCA) has enforced a significant regulatory overhaul of retail financial services to tackle rip-offs and poor customer service. The new “consumer duty” regime requires financial companies to prioritize delivering good outcomes and preventing foreseeable harm for customers, with stronger rules on value for money and fair pricing. The FCA will closely scrutinize banks’ compliance, warning of potential interventions, investigations or disciplinary sanctions if harm is evident. The changes aim to boost consumer confidence, especially during the cost of living crisis, and address issues like debanking. Companies may have to withdraw older products that don’t meet the new standards.
SEC proposal would require brokers, advisors to remediate conflicts related to use of AI – Author Mark Schoeff Jr.
The SEC has released a proposal that requires brokers and investment advisers to address conflicts of interest arising from interactions with investors through artificial intelligence and predictive analytics. They would need to eliminate or neutralize conflicts and implement related policies, procedures, and record-keeping. Predictive analytics can benefit investors, but they can also create harmful conflicts if used to optimize firms’ interests. SEC Chair Gary Gensler believes the rules will protect investors, but Commissioner Hester Peirce opposes the proposal, claiming it is hostile to technology and unnecessary since existing regulations address conflicts. The Investment Adviser Association is also concerned about the proposal, questioning its necessity and operational difficulties.
Permanent remote supervision? Not so fast – Author Investment News
The brokerage industry is urging the SEC to expedite its review of proposals by FINRA that would allow firms to conduct permanent remote supervision of their registered representatives. FINRA’s proposals include a three-year pilot program for remote office inspections and allowing remote brokers to supervise others without designating their home as a branch office. The temporary rule allowing remote supervision, instituted during the pandemic, expires at the end of the year. State regulators and the plaintiff’s bar have expressed concerns about the potential risks of inadequate supervision and misconduct due to technology limitations. The industry seeks certainty, but balancing investor protection and modern working conditions is crucial.
SEC Tells Some Wall Street Brokers to Clean Up Their Anti-Money-Laundering Controls – Author Dylan Tokar
The SEC issued a risk alert, urging Wall Street stockbrokers to improve their anti-money laundering (AML) efforts. The SEC’s examinations unit observed broker-dealers not allocating enough resources to their AML programs and being inconsistent in implementing policies to prevent financial crimes. The regulator found flaws in timely testing, inadequate independent testing, and outdated training materials. Some broker-dealers failed to comply with requirements to identify beneficial owners behind legal entities they do business with, potentially facilitating money laundering. The SEC aims to strengthen AML controls, especially amid growing concerns over sanctions evasion linked.
Learn more about key regulatory issues like those discussed in this blog by downloading our 2023 Regulation Rundown.