2022 was quite the year for the Securities and Exchange Commission (SEC), with a record-breaking $6.4 billion in fines and $37 million paid out through their whistleblower program. Not to mention the many proposed and finalized rules we saw throughout the past 12 months. In this blog, we’ll review some of the most major rules and regulations put out by this regulatory body in pursuit of protecting consumers and the marketplace.
For investment advisers, broker-dealers and similarly SEC-regulated financial firms, an understanding of these rules is essential to conducting an effective compliance program in 2023 and beyond.
New SEC rules 2022: A review of proposed and finalized rules
1.Proposed: Regulation Best Execution
In line with the FINRA rule, the Regulation Best Execution proposal, “would require broker-dealers to establish, maintain, and enforce written policies and procedures reasonably designed to comply with the proposed best execution standard. Further, the proposal would require these policies and procedures to address how broker-dealers will comply with the best execution standard and how they will determine the best market and make routing or execution decisions for customer orders.”
The comment period for this proposal closes on Mar. 31, 2023.
2. Proposed: Outsourcing by Investment Advisers
The crux of the proposed ruling would expand due diligence requirements for Investment Advisers, necessitating the oversight of third-party providers which support advisory services and certain books and record-keeping services. Investment advisers would also be required to perform “periodic monitoring” of said third parties.
The comment period for this proposal closed on Dec. 27, 2022.
This proposed amendments directly support the commission’s effort to better clarify and define the requirements for Environmental, Social and Governance (ESG) investing. If finalized, “The proposed amendments seek to categorize certain types of ESG strategies broadly and require funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue.”
The comment period for this proposal closed Aug. 16, 2022.
4. Proposed: Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure
As stated by the SEC, “The proposed amendments would require, among other things, current reporting about material cybersecurity incidents and periodic reporting to provide updates about previously reported cybersecurity incidents.”
One of the earlier proposed rule amendments for 2022, the comment period for this proposal closed on May 9, 2022.
In an effort to digitize processes and create more efficiencies for firms and the SEC alike, the amendment, “require certain documents filed by investment advisers, institutional investment managers, and certain other entities to be filed or submitted electronically. The amendments also make technical amendments to modernize Form 13F and enhance the information provided.”
The effective date for the majority of the amendment was Jun. 30, 2022. However, the effective date for the amendment to form 13-F is not until Jan. 2, 2023.
6. Finalized: Whistleblower Program Rules
On Aug. 2, 2022, the SEC adopted two amendments to its Whistleblower Program, which:
- Allows the SEC to pay whistleblowers for information on non-SEC specific cases, including cases brought by other regulatory bodies.
- Allows the SEC to take the dollar amount of a reward into consideration with the specific purpose of increasing the amount.
The effective date of this rule was Oct. 3, 2022.
Finalized on Oct. 12, 2022, “the amendments add an audit-trail alternative under which electronic records can be preserved in a manner that permits the recreation of an original record if it is altered, over-written, or erased. The audit-trail alternative is designed to provide broker-dealers with greater flexibility in configuring their electronic recordkeeping systems so they more closely align with current electronic recordkeeping practices while also protecting the authenticity and reliability of original records.
The effective date for this amendment is Jan. 3, 2023.
It should be noted, the compliance date for the SEC’s new Marketing Rule was Nov. 4, 2022. This new ruling combined two existing rules and amended the requirements to be more representative of the market as it stands today.
The number of proposed and finalized regulations introduced by the SEC in 2022 has created a level of heightened regulatory risk for compliance firms, as chief compliance officers (CCOs) and professionals are tasked with incorporating new requirements into their existing programs. To effectively meet these standards, firms must prioritize proactive compliance measures, instilling a firm-wide culture of compliance to mitigate the potential of noncompliance in 2023.
