What’s the latest news in the world of regulatory compliance? Welcome to our biweekly recap, where we compile the top compliance news articles from various industry news publications. We have selected the most relevant and important news articles related to regulatory compliance, industry news, and critical updates. Today’s recap focuses on FINRA’s perspective on AI, the impact of Supreme Court rulings, a new FINRA lawsuit, the latest updates on the DOL Fiduciary Rule, and a new SEC sweep.
Here are our top compliance articles as of July 19, 2024:
FINRA Reminds BDs of Their Duties When Using AI (Author – Melanie Waddell, Think Advisor)
In a recent notice, FINRA highlighted how their rules apply to AI usages for broker-dealers.
“Broker-dealers also may be able to leverage Gen AI tools “to aid in surveillance by, for example, generating reports with summaries for the member firm’s (human) compliance personnel of potential evidence of malfeasance, such as market abuse or insider trading,” the notice states.
“While these potential uses are promising, the development of Gen AI also has been marked by concerns about accuracy, privacy, bias, intellectual property, and possible exploitation by threat actors, among others,” FINRA states.”
Lawsuit builds on recent SEC case to curtail FINRA’s police authority (Author – Dan Shaw, Financial Planning)
A lawsuit against FINRA could have similar impact to the recent SEC vs. Jarkesy case, which saw the Supreme Court decide that when the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.
The FINRA lawsuit, which was filed on June 10, similarly questions the regulations authority as it pertains to FINRA’s in-house hearings.
“From an even bigger perspective, Blankenship’s case is the latest in a series challenging the role self-regulatory organizations play in monitoring markets in the U.S. A separate lawsuit filed last October by the embattled firm Alpine Securities questions whether a private organization like FINRA can be constitutionally granted sweeping authority to regulate the brokerage industry.”
DOL Fiduciary Rule Mania: What’s Happening and Where It’s Headed (Author – Melanie Waddell, Think Advisor)
The DOL’s Fiduciary Rule continues to receive backlash with both lawsuits and new bills being introduced which aim to halt the ruling. However, industry experts continue to advise that firms implement compliance processes to adhere to the September compliance date.
The Supreme Court had an eventful term — here’s what its decisions mean for financial advisors (Author – Tobias Salinger, Financial Planning)
The Supreme Court’s recent rulings will likely continue to create ripple effects for the advisory industry. This article highlights multiple court rulings including:
- Loper Bright Enterprises v. Raimondo
- Connelly v. Internal Revenue Service
- Moore v. United States
- Corner Post, Inc. v. Board of Governors of the Federal Reserve System
- Securities and Exchange Commission v. Jarkesy
Overarchingly, these rulings have showcased a curtailing of the regulator’s processes and powers.
SEC Launches Sweep of RIAs’ T+1 Compliance (Author – Melanie Waddell, Think Advisor)
The latest SEC sweep is underway, and it is targeting T+1 compliance. The rule, which was adopted in February 2023 and took effect this past May, included requirements for both broker-dealers and RIAs.
According to the article, “The scope of the SEC requests “go beyond the regulatory requirements for RIAs arising from the T+1 transition,” the alert states.
For instance, advisors are not specifically required to perform a compliance assessment of their ACA process.
Further, certain requests “may be overbroad and implicate communications that could be subject to privilege (e.g., the compliance training).”’
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