Each week, we are giving you our weekly report highlighting the top compliance news articles from various industry news publications. We have selected the most relevant and important news articles related to registered investment adviser (RIA) compliance and regulatory issues. This week’s recap focuses on the Securities and Exchange Commission (SEC) recent private fund risk alert, Form PF proposed amendments, the upcoming proposal of cybersecurity rules, and the February 1st Department of Labor (DOL) Fiduciary Rule enforcement date.
Here are our top investment adviser compliance articles for the week of January 28th, 2022:
1. SEC Keeps Up Pressure on Private Fund Advisers (Author – Mark Schoeff Jr., Investment News)
The Securities and Exchange Commission, on Thursday January 27th, released a risk alert outlining compliance problems it observed during five years of examinations of private fund advisers. The SEC found that private fund advisers failed to act in accordance with fund disclosures regarding the calculation of management fees, investment strategy and liquidation procedures, among other areas. This alert was secondary to a similar survey of private funds released in June 2020. They also recently released a proposal that would amend Form PF to require private funds to report within one business day events that could cause significant stress to the fund. This additional information would help the SEC and the Financial Stability Oversight Council monitor funds for their potential impact on financial markets.
2. SEC Sets Vote on Cyber Rules for Advisors (Author – Melanie Waddell, ThinkAdvisor)
A new cybersecurity rules for advisors will be proposed on February 9th. According to the meeting agenda, the commission will consider whether to propose new rules to address cybersecurity risk management for registered investment advisors as well as related amendments to certain rules regarding advisor and fund disclosures under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. Gensler stated that he’d asked SEC staff to make recommendations for the commission’s consideration around how to strengthen cybersecurity hygiene, data privacy disclosures and incident reporting. Also to be considered will be proposed rules and rule amendments under the Securities Exchange Act of 1934 to shorten the standard settlement cycle for most securities transactions.
3. Smaller Firms May Not be Ready for DOL Fiduciary Rule Now in Force (Author – Mark Schoeff Jr., Investment News)
The fiduciary rule became effective last February and the Department of Labor (DOL) was slated to begin enforcing it in December. The agency delayed implementation, until Tuesday, February 1st, for most of the rule and began enforcing regulation for retirement accounts; advisers must document and disclose why a rollover recommendation is in a client’s best interests. Despite the lengthy regulatory road, some smaller firms are not fully aware of the new requirements and could have inadvertently missed the Feb. 1 deadline, said Fred Reish, a partner at Faegre Drinker Biddle & Reath. There’s also the risk that their policies and procedures won’t withstand regulatory scrutiny. Additionally, Barry Salkin, a senior attorney at Wagner Law Group. says firms “have had a substantial amount of time to do it,…I don’t know if they’re there yet. There are still items you’d like to have the DOL provide more guidance on.”
4. Why a Privacy Checkup Can Keep You Out of Trouble (Author – Thomas D. Giachetti, ThinkAdvisor)
With the emergence of privacy laws, generally, if you are collecting or using personal information for purposes outside of providing financial products or services to your client or collecting Non-public Personal Information (NPPI) not covered under The Gramm-Leach-Bliley Act (GLBA), then your firm may be subject to the evolving privacy obligations required by certain state and international privacy laws. Its important to consider this during your annual compliance evaluation. It’s prudent for the advisor to conduct a privacy checkup to determine if your firms privacy notice complies with Regulation S-P notice/disclosure requirements. To address your firm’s privacy readiness, first consider creating an inventory of the NPPI the firm collects as well as additional items discussed by Giachetti in this article.
5. Four Factors for Advisors to Consider in 2022 (Author – Mike Watson, WealthManagement.com)
In this article, Mike Watson discusses change in 2022 and what to anticipate for your firm as your business navigates the landscape. He touches on the following four factors: 1) Shifting Client Expectations, 2) New Technology, 3) Changing Demographic Trends and, 4) A Fiduciary Regulatory Environment. Here we will explore technology and the fiduciary rule. The digital revolution is impacting the financial advisor industry, advisors need to find the right balance between offering services digitally and in-person. It is key to learn how to understand and meet both the virtual and in-person needs of clients. Client related tasks like new account onboarding, risk profiling, tax-loss harvesting and account rebalancing can be leveraged with technology. The DOLs Fiduciary Rule impact has brought attention and publicity. Many advisors recognized the advantage to being a fiduciary and altered their business practices and become fiduciaries to avoiding the appearance of any conflicts of interest with their clients. For RIAs, there’s an opportunity to use the designation to differentiate your firm from your competitors.
Don’t forget to check out last week’s top RIA compliance news articles that focus on changes to Form PF for private equity and hedge fund advisors, a SEC cybersecurity rule, and a SEC warning on regulatory gray areas.