With an ever-changing regulatory landscape, it is essential that your compliance team be forward-thinking and take a proactive approach to compliance. Meeting the minimum standards is no longer sufficient, and your investment firm must prepare for emerging trends and issues.
We had the opportunity to speak with John Gebauer, Chief Regulatory Officer at COMPLY, who shared his insights on the regulatory landscape and compliance challenges that investment firms should focus on.
Top five regulatory compliance trends your investment firm needs to look out for
The changing regulatory compliance landscape doesn’t just present challenges to your firm but opportunities to be forward-thinking and proactive.
Here are the top five trends your investment firm needs to look out for:
Gamification
Gamification is a trend that is here to stay, but it may face greater oversight and regulation. Gebauer emphasized that “more guardrails will likely be put into place sooner rather than later.”
Payment for order flow (PFOF)
Payment for order flow (PFOF) may also be subject to scrutiny, and Gebauer predicted that “PFOF will go away” since it is viewed as harmful to the industry. Firms that rely on PFOF as a method of compensation may face more difficulties in the future.
Off-channel communications
Off-channel communications will continue to challenge the industry as new communication channels emerge. Gebauer said, “There will always be new communication channels which emerge, and firms are going to be driven to surveil platforms which are used for business more closely, determining which platforms are appropriate for client communications. For instance, we’ve seen some anecdotal evidence that firms are moving away from Facebook and towards LinkedIn for their advertising, and I believe a similar dynamic will play out in messaging and communications as well.”
Gebauer advises firms to “determine which platforms are appropriate for client communications” and “surveil platforms used for business more closely.”
This advice is in line with enforcement actions from regulators involving off-channel communications.
Efficiently adopting new regulations
Regarding compliance issues that firms should proactively address, Gebauer emphasized that “if your firm hasn’t completed implementation of the new Marketing Rule, you should do so as soon as possible. Examinations will cover the rule and the indication is that the SEC will take action if policies and procedures aren’t reflective of new requirements.”
Impending compliance issues regulators will address
Gebauer said, “I believe anti-money laundering (AML) and books and records/recordkeeping rules are on the docket next. These rules have not been updated to reflect modern society and require updates to address the specifics of the new environment.”
He also mentioned the possibility of creating a Self-Regulatory Organization (SRO) for investment advisers, which has been proposed before but is still uncertain.
While it takes quite a bit of work to pass a rule, 2022 saw a significant number of rule proposals, a trend which has continued into 2023. For advisory firm, it can be almost too easy to get overwhelmed, but it’s important to go back to the basics to manage within the chaos. Remember to:
- Conduct a risk assessment of your business.
- Focus on highest risk areas.
- Pay attention to SEC exam priorities, risk alerts and additional guidance.
The rapid pace of change might be overwhelming at times, however, your compliance team should use these opportunities to strengthen your investment firm’s compliance program, improve investors and clients’ trust and facilitate growth at your firm. Because at the end of the day, compliance shouldn’t be viewed as a cost center but rather a competitive advantage.
Need further assistance navigating these new challenges and setting yourself apart from the competition? Contact us today!
