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 Mar. 31, 2023.
SEC faults new advisors for compliance shortcomings – Author Mark Schoeff, Jr.
The Securities and Exchange Commission (SEC) has found that new registered investment advisers (RIAs) are failing to comply with certain regulatory requirements, according to a recent report. The report found that 36% of examined new RIAs had compliance deficiencies, compared to 19% of all examined RIAs. The most common deficiencies were related to compliance programs, registration and reporting and books and records. The SEC has urged new RIAs to prioritize compliance efforts and seek guidance from the agency if needed. The report also found that there has been an increase in the number of newly registered RIAs in recent years, which may be contributing to the compliance shortcomings.
SEC’s dive into messaging apps poses new compliance challenge – Author Mark Schoeff, Jr.
The SEC is now scrutinizing messaging apps as part of their compliance efforts, posing a new challenge for financial advisers and broker-dealers. The SEC has indicated that the use of messaging apps, such as WhatsApp or WeChat, may be considered “business communications” and therefore subject to regulatory requirements. This presents a challenge for firms, as these apps are often used for informal communication between colleagues or with clients. In addition, these messages are not typically recorded and preserved, as required by SEC rules. To address this challenge, firms are encouraged to develop policies and procedures for the use of messaging apps and to educate their employees on compliance obligations. The article notes that the SEC’s focus on messaging apps is part of a broader trend of increased regulatory scrutiny of technology in the financial industry.
SEC charges celebs for touting crypto without disclosing compensation – Author Patrick Donachie
The SEC has charged three celebrities for promoting cryptocurrencies without disclosing their compensation. The SEC alleges that these celebrities used their social media accounts to promote Initial Coin Offerings (ICOs) to their followers without revealing that they were paid for these endorsements. The SEC considers these ICOs to be securities, which means that promoting them without disclosing compensation could be a violation of securities laws. The celebrities have agreed to pay fines and disgorgement, and to not promote securities for a certain period of time. The case is part of the SEC’s broader efforts to enforce securities laws in the rapidly evolving world of cryptocurrency and digital assets.
Advisers, BDs continue to avoid crypto: CFA Institute study – Author Melanie Waddell
Financial advisers and broker-dealers in the US are continuing to avoid cryptocurrency investments, according to a new survey by the Chartered Financial Analyst (CFA) Institute. The survey found that only 9% of financial advisers and 13% of broker-dealers currently recommend cryptocurrency investments to their clients. The majority of respondents cited concerns about the lack of regulation and volatility in the cryptocurrency market. Additionally, the survey found that many financial advisers and broker-dealers lack knowledge and confidence in cryptocurrencies, with only 30% of respondents reporting they feel “very” or “extremely” familiar with digital assets. Despite the low adoption of cryptocurrencies, the survey found that financial professionals are increasingly interested in learning about this asset class and expect to see increased demand from clients in the future.
SEC proposes requiring BDs to file forms electronically – Author Melanie Waddell
The SEC has proposed a rule that would require broker-dealers to file certain forms electronically through the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The proposed rule would apply to Forms BD, BDW and ID, which are used by broker-dealers to register with the SEC and report changes in ownership and control. Currently, broker-dealers are allowed to file these forms in paper format, but the SEC believes requiring electronic filing would improve the accuracy and efficiency of the registration and reporting process. The proposed rule would also align with the SEC’s broader efforts to modernize and digitize the regulatory process.
The public comment period on the proposed rule ended on May 9, 2023.