In recent years, the financial industry has witnessed unprecedented regulatory changes and challenges, and your investment firm and advisers are no exception.
COMPLY Director of Regulatory Research and Content Jason Vinsonhaler said, “Based on current regulatory trends, it is more important than ever for compliance professionals to clearly understand the specific compliance risks faced by the firm. Only after the firm understands these risks can it take specific steps to mitigate those risks and grow its culture of compliance.”
Now, more than ever before, your compliance team is tasked with the near impossible – mitigating heightened risk points while navigating the ever-increasing complexities of the regulatory landscape. These expectations have placed an enormous burden on your compliance team.
It’s easy to become overwhelmed. The good news?
The trends of the past year have presented your compliance team with not only new challenges but new opportunities to improve your firm’s compliance program. We’ve compiled a list of the top five regulatory compliance trends in 2023 that affect your investment firm.
Top five regulatory compliance trends for investment firms
In 2023, investment firms and advisers need to keep an eye on the following five regulatory compliance trends:
- Reacting to the regulators.
The Securities and Exchange Commission (SEC) has proposed more than 30 rules in 2022, covering a wide range of topics from private fund investor protection to cryptocurrency and cybersecurity. The number of outstanding rule proposals indicates that a significant number of new rules will be adopted in 2023, which compliance professionals need to proactively assess. Investment firms and advisers need to be ready to implement new policies and processes to address the risks highlighted by the SEC’s rule proposals.
2. Learning from failures.
The SEC imposed a record-breaking $6.4 billion in penalties and disgorgement in 2022. This underscores the SEC’s efforts to deter future misconduct and enhance public accountability. Compliance professionals need to review the SEC’s risk alerts and guidance on critical compliance matters and make necessary adjustments to meet the requirements of applicable rules.
3. The macro effects of market trends.
The market took a significant downswing recently, resulting in firms across industries tightening their budgets and rolling back pricey investments. However, compliance departments cannot justify reducing their budgets, as the SEC has stated multiple times that market downturns are not a justification for reducing compliance efforts. Compliance-minded firms will invest in regulatory compliance technology as requirements and a lack of internal resources converge to demand a technology-enabled solution.
4. Passing fads or investment mainstays?
Investment firms and advisers need to differentiate between passing fads and investment mainstays. Environmental, social and governance (ESG) investment strategies, cryptocurrency, Fintech platforms, payment for order flow compensation and off-channel communications have created distinct challenges in recent years. Compliance professionals need to establish the right protocols and procedures to ensure latching onto a new fad does not create gaps in their firm’s compliance program and failures in risk mitigation. The SEC has communicated its intention to advance or continue its enforcement of specific compliance requirements for these topics.
5. More opportunities and more risk
The advancement of technology and financial products has created additional prospects and capabilities for investment firms, but it has also brought significant risk points that have the potential to harm firms and clients alike. Investment firms and advisers need to be vigilant in monitoring the emerging trends and associated risks and establish the necessary protocols and procedures to ensure compliance with the regulations.
Your compliance team must proactively assess new regulatory requirements, learn from past failures, invest in regulatory compliance technology, establish the right protocols and procedures and monitor emerging trends and associated risks. By doing so, your firm can ensure compliance with the regulations and maintain investor protection, all while taking advantage of the emerging opportunities in the financial industry.
Considering all these expectations, it’s easy to become overwhelmed. Fortunately, we can help!
How?
The 2023 edition of COMPLY’s CCO Playbook details the kinds of sophisticated risk and red flags which will continue to impact the regulatory compliance landscape over the course of the next year. By analyzing enforcement actions and 2023 exam priorities from regulators, we aim to provide compliance professionals with tactical strategies which will help them achieve compliance and continue to mitigate risk.
Need further guidance on how to navigate the regulatory compliance landscape in 2023? Download the COMPLY CCO Playbook now.