To keep you and your compliance team up to speed on the latest happenings and goings-on in the compliance world, we’ve gathered the top five articles from the past few weeks. We have selected the most relevant and important compliance news articles related to the financial services industry and regulatory issues.
Stay up-to-date and in the know on everything happening in the compliance world as of Apr. 13, 2023.
SEC faults new advisers for compliance shortcomings – Author Mark Schoeff, Jr.
The Securities and Exchange Commission (SEC) has issued a warning to newly registered investment advisers (RIA) regarding compliance shortcomings. According to the SEC, many new RIAs are failing to implement adequate compliance programs, which is a violation of regulatory requirements. The warning comes as the number of new RIAs has increased significantly in recent years due to regulatory changes which have made it easier for individuals to start their own advisory firms.
The SEC has identified several areas where new RIAs are particularly vulnerable to compliance failures. These include failure to implement effective compliance policies and procedures, inadequate record-keeping and failure to conduct annual compliance reviews. The SEC also found that many new RIAs are not properly disclosing conflicts of interest to clients, which is a violation of their fiduciary duty. The warning is a reminder that compliance with regulatory requirements is essential to protecting clients and ensuring the long-term success of RIA firms.
Just before deadline, FINRA redoes home work assignment – Author Dan Shaw
The Financial Industry Regulatory Authority (FINRA) has revised its proposal to reduce the frequency of home office inspections. Under the revised proposal, firms which meet certain eligibility criteria will be able to move to a three-year inspection cycle, as opposed to the current two-year cycle. The revised proposal is part of FINRA’s ongoing efforts to streamline its examination and supervision processes and reduce regulatory burdens on firms.
To be eligible for the three-year inspection cycle, firms must have a “clean” regulatory history and meet certain financial and operational criteria. Firms which are not eligible for the three-year cycle will continue to be subject to the current two-year cycle. FINRA will also have the authority to conduct additional inspections if it deems it necessary to address specific concerns or risks.
The revised proposal has been welcomed by industry groups, who have praised FINRA’s efforts to reduce regulatory burdens on firms. However, some investor advocates have expressed concerns that less frequent inspections could increase the risk of misconduct going undetected. The revised proposal is expected to be implemented later this year, pending approval by the SEC.
Latest SEC budget request emphasizes an enforcement agenda – Author Dan Shaw
The latest budget proposal for the SEC emphasizes the importance of enforcement of securities rules. The proposal calls for a total budget of $2.5 billion for the SEC in the fiscal year 2023, an increase of $327 million from the previous year. The additional funding will be used to strengthen the SEC’s enforcement capabilities and improve its ability to protect investors and maintain fair and orderly markets.
The budget proposal also calls for increased funding for the SEC’s Office of Compliance Inspections and Examinations (OCIE), which is responsible for conducting examinations of registered entities to ensure compliance with securities laws. The OCIE will receive $388 million in funding, an increase of $45 million from the previous year, to support its efforts to detect and prevent fraud, protect investors and maintain market integrity.
The budget proposal reflects the SEC’s continued focus on enforcement and its commitment to protecting investors from financial misconduct. The SEC has recently taken several high-profile enforcement actions, including cases related to insider trading, market manipulation and investment fraud. The additional funding will help the SEC to further strengthen its enforcement capabilities and ensure that securities rules are being followed.
SEC proposes requiring BDs to file forms electronically – Author Melanie Waddell
The SEC has proposed a new rule that would require broker-dealers (BDs) to file certain forms electronically. Under the proposed rule, BDs would be required to file Forms BD, BDW and ADV electronically through the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The proposed rule is part of the SEC’s ongoing efforts to modernize its regulatory framework and improve its data collection capabilities.
Currently, BDs have the option of filing these forms either electronically or on paper. However, the SEC believes that requiring electronic filing would improve data quality, reduce processing times and make it easier to access and analyze the information contained in the forms. The proposed rule would also align with the SEC’s goal of increasing the use of technology in its regulatory processes.
The proposed rule has been welcomed by industry groups, who have praised the SEC’s efforts to modernize its regulatory framework. However, some industry groups have raised concerns about the potential costs and administrative burdens associated with electronic filing. The SEC is accepting comments on the proposed rule until May 22, 2023, and will consider feedback from industry groups and other stakeholders before making a final decision.
Here’s what BDs should do after SVB, signature failures – Author Melanie Waddell
FINRA has issued a regulatory notice to broker-dealers with deposits at Silicon Valley Bank and Signature Bank. The notice states that all bank deposits at SVB and Signature may continue to be treated as allowable assets for net capital purposes. Balances in Customer and PAB Reserve Bank Accounts at SVB and Signature may also continue to be treated as qualified reserve bank account deposits for purposes of SEA Rule 15c3-3(e), the customer protection, reserves and custody of securities rule. However, any withdrawals of funds from accounts held at SVB and Signature must comply with the requirements of all applicable rules.
Experts recommend broker-dealers review their own compliance procedures to ensure they are properly recording and maintaining records of securities transactions, as well as conducting regular internal reviews to identify potential compliance deficiencies. Broker-dealers should also ensure that their employees are properly trained on regulatory requirements and that they have adequate resources to monitor compliance. By taking proactive steps to review and improve their compliance procedures, broker-dealers can help mitigate the risk of regulatory enforcement action and maintain the trust and confidence of their clients.