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 July 21, 2023.
Wealthtech Roundtable: Risky Business as Wealthtech Firms Move Beyond Compliance as Core Offering? – Authors Andy Kalbaugh, Founder & Managing Partner, Cassique Strategies
In this article, wealthtech experts were asked series of questions as it pertains to compliance and regulatory risk management. COMPLY Chief Regulatory Officer John Gebauer had this to say:
“Technology, education and consulting play critical roles in an RIA’s compliance program. And while it may seem obvious, it’s worth noting these areas must be aligned and support each other. Ensuring synchronicity among disparate solutions is challenging in the best of times. However, given the dynamic regulatory environment and evolving best practices, it is often nearly impossible to maintain a correlation between them. Rapidly evolving financial products and services –digital advice platforms, cryptocurrencies and ESG – only add to the complexity.
While consultants can normally turn on a dime and provide new guidance in days, technology solutions and education resources often take months to change and adapt. Wealth management firms with the most successful compliance programs proactively engineer integrated compliance resources to meet the needs of their business.
First and foremost, successful firms select compliance-minded vendors and service providers that can work together. Consultants should be familiar with any technologies implemented so their guidance is properly targeted, and education about the tools and changing nature of the industry can be firm specific.
Next, the solutions must be able to support the firm’s compliance program, not the other way around. Far too often, inflexible systems are implemented that don’t comport with a firm’s policies and procedures, and they are forced to adapt the policies and procedures to the system’s capabilities.
Finally, the firm strategically chooses providers that offer the broadest set of capabilities possible. Partnering with such a provider eliminates the need to coordinate with multiple vendors as your compliance program evolves.”
SEC Would Add 83 Examiners With Budget Boost – Author Melanie Waddell
SEC Chairman Gary Gensler informed senators that the SEC plans to utilize the 2024 budget increase from a Senate appropriations bill to add 83 more full-time examiners. The SEC had been granted $2.4 billion, $194 million more than the previous fiscal year but $73 million less than the budget request. The agency’s fiscal 2024 request aims to increase the SEC Examinations Division to 1,144 full-time examiners to keep up with the market challenges of the past decade. The growth in registered investment advisers and equity market trading necessitates the SEC’s expansion.
“The agency’s fiscal 2024 request would help the SEC Examinations Division grow to 1,144 full-time examiners, “allowing it to keep pace with the market challenges of the last decade.”
FINRA Sends More Remote Office Updates to SEC – Author Melanie Waddell
The Financial Industry Regulatory Authority (FINRA) has submitted a filing to amend its Residential Supervisory Location plan with stricter eligibility criteria. The proposed changes aim to include associated persons with less than one year of supervisory experience if they have experience at a member firm’s affiliate or subsidiary registered as a broker-dealer or investment adviser. The scope of location ineligibility criteria related to associated persons under investigation would be clarified, and a risk assessment for each office or location would be required before designating them as Residential Supervisory Locations. The revised plan also excludes offices involved in proprietary trades or direct supervision of such activities.
Investment advisor numbers escalate while ideas for stronger oversight remain stuck – Author Mark Schoeff Jr.
Over a decade ago, a proposed bill to establish a self-regulatory organization (SRO) for investment advisor oversight faced strong opposition from David Tittsworth, the executive director of the Investment Adviser Association, citing increased regulatory costs for small advisory firms. His testimony led Republicans on the House Financial Services Committee to abandon the bill.
Presently, concerns have resurfaced as the number of advisers has increased to a record 15,114, with the SEC examining only about 15% of them annually.
“The IAC made two recommendations at its June 22 meeting. One was for the SEC to request legislation from Congress that would allow it to impose user fees on advisors to fund exams. But, again, the prospects for such a bill are limited under the current political makeup of Capitol Hill.
The other IAC recommendation was that the SEC issue a request for public comment on third-party compliance examinations to explore questions about the potential qualifications for outside examiners, the scope and timing of probes and the types of advisors who would be reviewed.”
SEC’s Gensler warns AI risks financial stability – Author Lydia Beyoud, Bloomberg News
SEC Chairman Gary Gensler has issued a warning about the potential risks of artificial intelligence (AI) to financial stability. Gensler emphasizes that while AI presents many opportunities for the financial industry, it also poses significant challenges and risks. He expresses concerns about potential market manipulation, fraud and cyber threats related to AI-driven technologies. Gensler highlights the need for regulatory measures and oversight to ensure that AI is used responsibly and ethically in the financial sector. He calls for increased collaboration between regulators and the private sector to address the evolving risks associated with AI implementation.
Learn more about key regulatory issues like those discussed in this blog by downloading our 2023 CCO Playbook.