Each Friday, 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’s (SEC) supposed plans to hire more RIA examiners, a summary of a recent SEC risk alert, the North American Securities Administrators Association’s (NASAA) new testing standards and the SEC’s proposed cybersecurity regulations.
Here are our top investment adviser compliance articles for the week of Mar. 31, 2023:
SEC could hire more RIA examiners with budget boost: Gensler (Author – Melanie Waddell, ThinkAdvisor)
The SEC could hire more investment adviser examiners with a proposed budget increase. SEC Chairman Gary Gensler has reportedly requested a 5% increase in the agency’s budget for fiscal year 2023, which would include additional resources for examinations. Gensler has indicated the SEC’s examination program is a top priority for him and as such, he would like to increase the number of examiners who are specifically focused on investment advisers. The proposed budget increase would also include funds to enhance the SEC’s technology and cybersecurity capabilities. The budget request is subject to approval by Congress.
3 Compliance failures of newly registered advisers: SEC (Author – Melanie Waddell, ThinkAdvisor)
The SEC has identified three common compliance failures among newly registered investment advisers. According to an SEC risk alert, the three compliance failures are related to advertising and marketing, compliance program implementation and disclosure of conflicts of interest. The SEC noted that some newly registered advisers may be using marketing materials that do not comply with SEC rules or that contain false or misleading information. In addition, some advisers may not have implemented an adequate compliance program or may not have disclosed all relevant conflicts of interest to their clients. The SEC’s risk alert provides guidance on how investment advisers can avoid these common compliance failures and ensure that they are meeting their regulatory obligations.
NASAA Lowers Passing Score for Series 65 Exam (Author – Melanie Waddell, ThinkAdvisor)
The NASAA has lowered the passing score for the Series 65 exam, which is required for individuals who wish to register as investment adviser representatives. The passing score has been reduced from 72% to 70%, effective immediately. NASAA made the decision to lower the passing score after conducting a review of the exam, which found that the higher passing score was not necessary to ensure that individuals have the knowledge and skills necessary to be effective investment adviser representatives. The lower passing score is expected to make it easier for individuals to pass the exam and become registered investment adviser representatives. However, NASAA notes that the lower passing score does not diminish the importance of the exam or the responsibilities of investment adviser representatives.
SEC proposes new cybersecurity rule and amendments (Author – Paul Hastings LLP, JD Supra)
The SEC has proposed a new cybersecurity rule which would require investment advisers and registered investment companies to adopt and implement written policies and procedures to protect client data and the security of their technology systems. The proposed rule would require investment advisers and registered investment companies to conduct periodic assessments of their cybersecurity risks and to have a plan in place to respond to any cybersecurity incidents. The proposed rule would also require investment advisers to provide cybersecurity training to their employees. The SEC’s proposal is intended to enhance the protection of client data and to strengthen the cybersecurity practices of investment advisers and registered investment companies. If adopted, the new cybersecurity rule would apply to investment advisers and registered investment companies which are subject to SEC regulations.
Marketing trap: SEC warns new advisers of their compliance shortcomings (Author – Dan Shaw, Financial Planning)
The SEC has warned newly registered investment advisers that some of their marketing materials may not comply with SEC rules. According to an SEC risk alert, some newly registered advisers are using marketing materials that contain false or misleading information, make prohibited performance claims, or fail to disclose important information to clients. The SEC has urged newly registered advisers to review their marketing materials and ensure that they comply with SEC rules and regulations. The SEC’s risk alert provides guidance on how advisers can avoid these common compliance failures and ensure that they are meeting their regulatory obligations. The SEC noted that it has observed a significant increase in the number of investment advisers who are registered with the agency, which has led to increased scrutiny of marketing practices.
Don’t forget to check out last week’s top RIA compliance news articles recapping on tips RIA firms can implement to increase their organic growth, the SEC’s new proposed cybersecurity rule and more.