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 7, 202.
FINRA Posts $218M Loss for 2022 – Author Jeff Berman, ThinkAdvisor
The Financial Industry Regulatory Authority (FINRA) reported a net loss of $218.1 million for 2022, in contrast to the $218.8 million profit it had reported in 2021. The net loss was primarily due to investment losses of $166.9 million and operating losses of $60.2 million, according to FINRA CEO and President Robert W. Cook and Chief Financial and Administrative Officer Todd T. Diganci. Revenue also declined from $1.4 billion in 2021 to $1.34 billion in 2022, mainly due to a decrease in the number of public offerings and lower Trading Activity Fees.
FINRA attributed its increased operating expenses in 2022 to investments in staff and technology aimed at strengthening regulatory capabilities and addressing expanding responsibilities and new market challenges. The higher costs also accounted for measures taken to manage evolving workforce conditions, including wage inflation and competitive labor markets.
SEC Pushes Back Against Fidelity, BlackRock Spot Bitcoin ETF Filings – Authors Katherine Doherty & Lydia Beyoud, ThinkAdvisor
The U.S. Securities and Exchange Commission (SEC) is pushing back against recent filings by asset managers seeking to launch the first U.S. exchange-traded fund (ETF) that directly invests in Bitcoin. The SEC has stated that the applications lack clarity and require further information before they can be considered for approval. Previous attempts to launch Bitcoin-related products have faced regulatory opposition, citing concerns over market stability and investor protections.
“It’s important to note that the SEC is not saying that the proposed provisions to meet the 1933 Securities and Exchange Act are ‘inadequate,’” said Sui Chung, chief executive of CF Benchmarks, which provides the index set to be used by in the BlackRock proposal. “But that the filing in themselves are ‘inadequate,’ being not clear and comprehensive. In short the SEC needs more descriptive detail around the proposed provisions to be able to make a judgment.”
Compliance Chief Charged With Insider Trading on Information Pilfered From Girlfriend – Author Richard Vanderford, Wall Street Journal
A compliance executive at a payments company has been charged with insider trading for allegedly accessing his girlfriend’s laptop – who worked as an executive assistant at an investment bank – to obtain details about upcoming corporate transactions. According to the article, the compliance executive allegedly passed the information to his stockbroker friend, who compensated him with Rolex watches. The executive made $29,000, while the stockbroker made over $730,000 in illicit profit. The unauthorized access occurred while the compliance executive and the girlfriend worked from their shared home during the Covid-19 pandemic.
The compliance executive has pleaded guilty, while the stockbroker has been arrested. The girlfriend is not charged with wrongdoing.
SEC investor committee eyes user fees to fund more frequent exams – Author Dan Shaw, Financial Planning
During a virtual meeting on June 22, members of the Securities and Exchange Commission’s Investor Advisory Committee expressed the need for more frequent examinations of advisory firms by the SEC. Currently, advisory firms are examined by the SEC approximately once every seven years on average. The committee suggests conducting reviews once every four or five years, with more frequent examinations for firms deemed to be high-risk.
To support the increased regulatory oversight, the committee proposes that advisers pay new user fees, providing additional funding to the SEC’s division of examinations. The recommendation for additional funding is driven by the fact that SEC budgets and headcounts have not kept pace with the growth of the advisory industry in recent years. The number of registered advisers in the U.S. has increased by over 25% since 2016, surpassing 15,000 in 2021, while the SEC examination staff has only grown by 4% during the same period.
Number of Investment Advisers Hit Record High in 2022 – Author Alex Ortolani, PlanAdviser
The number of investment advisers in the U.S. reached a record high of 15,114 in 2022, according to a report by the Investment Adviser Association and COMPLY’s National Regulatory Services. This growth of 2.1% compared to the previous year was driven by increased demand from individuals seeking guidance in navigating turbulent markets. However, assets under management (AUM) experienced an 11.1% decline, marking the first decrease since 2008. Despite this, investment advisers managed a total of $114.1 trillion for 61.9 million clients.
The report also highlighted the impact of the SEC’s new marketing rule, with nearly 40% of advisers including performance information in advertisements to comply with the rule. Additionally, the report revealed that private equity funds have outpaced hedge funds in terms of growth in both the number of funds and AUM over the past decade.
Learn more about key regulatory issues like those discussed in this blog by downloading our 2023 CCO Playbook.