The past year has seen an onslaught of new regulations and risk alerts from the Securities and Exchange Commission (SEC), including the new marketing rule for investment advisers and the increased focus on cybersecurity risks. Not only are financial advisory firms like investment advisers, hedge funds and broker-dealers tasked with amending their programs to meet these new regulatory requirements, but they are also making great strides to incorporate regulatory compliance technology to do so, equipping themselves with the appropriate compliance protocols and procedures to proactively maintain compliance standards.
In RIA in a Box’s propriety research, in conjunction with the COMPLY portfolio of firms, we examined how investment firms are functioning amid heighted regulatory activity, what risks are taking priority and where investments are being made. In doing so, we aggregated data and insight into not only how investment firms are approaching the SEC’s new marketing rule, for instance, but also how firms feel their compliance programs stand against the kind of regulatory fluctuation we saw this year.
How investment firms are approaching the new marketing rule
The SEC’s new marketing rule for investment advisers was one of the most highly anticipated regulations to come into effect in 2022. The new rule offered firms an opportunity to be creative with their marketing strategy and include testimonials in their marketing materials.
See how investment firms are approaching the new marketing rule:
- 61% of SEC-registered firms don’t plan on taking advantage of the new marketing rule, whereas 39% do.
- Firms which do plan on to take advantage of the new marketing rule anticipate their marketing strategy will change in these top three ways: increase their use of testimonials (54%), increase or decrease their social media spend (53%) and decrease spend on content creation and newsletters (38%).
How investment firms perceive regulators’ increased focus on cybersecurity
The push towards a digital environment within the financial industry has created huge opportunities for investment firms and clients. However, it has also created significantly increased risk in terms of cybersecurity. And the SEC has taken note. To help decrease potential harm for investors, the regulatory body has increased their focus and proposed new regulations which they feel would improve market protection. How do firms feel about this increased focus?
In regard to cybersecurity risks:
- 51% of firms indicated the SEC’s prioritization of information security/operational resilience is most concerning for their compliance program.
- 61% of firms indicated the SEC’s recently proposed rules/amendments regarding cybersecurity risk management will impact their firm’s compliance program the most.
Takeaways your investment firm should consider as it implements new SEC regulations
2022 has been a landmark year for regulators, new regulations highlighting the enforcement activity sure to come in the new year. Keeping up with all these changes can be overwhelming, so we gathered some pointers for you to keep in mind:
- The timeline for the implementation of a proposed rule is generally long, so if you see a proposed rule that hasn’t been finalized, take note of it but don’t panic.
- Risk alerts often precede proposed regulations. Treat risk alerts like a roadmap for how to manage your compliance program more effectively.
- Although regulators provide guidance on how to follow new regulations, each firm must make its own decision on how to implement those rulings based on their activities. For many firms, it is necessary to seek outside counsel to ensure the policies and procedures match the fundamentals of the newly adopted rule.
Download our comprehensive guide to compliance and regulatory technology to learn more about the state of the industry and what it could mean for your compliance program in 2023.
