2022 was one of the most active regulatory years in recent history, with the Securities and Exchange Commission (SEC) charges and enforcement actions resulting in a record-breaking $760 billion in penalties and disgorgement. And while SEC Director of the Division of Enforcement Gurbir S. Grewal stated, “we don’t expect to break these records and set new ones each year because we expect behaviors to change. We expect compliance,” it’s clear the regulatory body is taking strategic action to prevent further acts of noncompliance.
So, how is 2023 stacking up in comparison? In this blog, we’ll highlight some of the key themes from SEC charges in 2023 so far and provide tips for your advisory firm to avoid similar acts of noncompliance.
2023 SEC charges: How your investment advisory firm can mitigate risk and avoid acts of noncompliance
It would seem the new year did not bring about a slowdown in SEC enforcement actions, with several charges being brought in the first two months alone. Specifically, these charges have been in relation to:
- Crypto assets.
- Special purpose acquisition companies (SPAC).
- Conflicts of interest.
- Insider trading.
- Record keeping failures.
- Reporting failures.
- Internal controls.
So, what can we learn from these charges and how can your investment advisory firm maintain compliance with this and other regulatory bodies?
Many of these themes are not new to the SEC. In fact, almost all have been mentioned in recent risk alerts, exam priorities and statements by the regulatory body. However, what has become more clear than ever before is that the SEC is using it’s charges and enforcement actions to deter future acts of noncompliance, prompting firms to review any necessary policies and procedures to match critical requirements.
As stated in the SEC’s press release covering their FY22 enforcement actions and penalties, “A hallmark of the Enforcement Program in fiscal year 2022 was robust enforcement through resolutions that imposed penalties designed to deter future violations, establish accountability from major institutions and order tailored undertakings that provide potential roadmaps for compliance by other firms.”
In order to achieve and maintain compliance, firms must:
- Critically assess all policies and procedures to ensure regulatory requirements are being met, especially given newly adopted rules placing increased responsibility on firms.
- Assess firm-wide compliance with said policies and procedures. While documented processes help align your culture of compliance, if they aren’t being followed, your firm will likely quickly fall into noncompliance.
With only two months behind us, the SEC’s 2023 examinations and charges will only continue to shed light on areas of critical focus for the regulatory body and thus the entire financial landscape. Staying in the know on such information will help your firm arm itself against potential compliance violations, avoiding the penalties and reputational damage which so often comes with such charges.