Compliance innovation moves fast, but the news moves faster. To keep you and your team up to speed on the latest happenings and goings-on in the compliance world, we’ve aggregated the top five articles from the past few weeks to provide you with an in-depth look at the regulatory ecosystem.
Stay up-to-date and in the know on everything happening in the compliance world as of May 12, 2023.
Number of brokerages fell, registered rep total increased in 2022, FINRA reports – Author Mark Schoeff, Jr.
According to statistics released by the Financial Industry Regulatory Authority (FINRA), the number of brokerages regulated by FINRA decreased in 2022, while the total number of registered representatives increased. The aggregate net income in the brokerage industry also saw a substantial decline compared to the previous year. Some noteworthy statistics are:
- The number of brokerage firms that FINRA oversees fell for the fourth-straight year in 2022 to a total of 3,378, which is down from 3,607 in 2018.
- The number of representatives increased to 620,882 in 2022, which is up from 612,435 in 2021.
- There were 3,021 small firms (those with one to 150 representatives) in 2022, down from 3,048 in 2021.
- The number of large firms (those with 500 or more representatives) grew to 165 in 2022, up from 161 in 2021.
- There were 192 midsize firms (those with 151 to 499 representatives) in 2022 compared to 185 in 2021.
Financially, brokerages of all sizes faced challenges during the market downturn, with a significant decrease in pretax net income. The 2023 FINRA report included additional data categories, aiming to enhance transparency and visibility into the evolving securities industry.
Advisers out in force against SEC’s custody rule proposal – Author Dan Shaw
Advisers and their representatives are opposing a proposal by the Securities and Exchange Commission (SEC) that aims to revamp the methods used to protect the assets entrusted to them by clients. The proposed overhaul of the custody rule, announced in February, expands the requirement for advisers to hold client assets at third-party institutions for safekeeping, encompassing not only traditional assets like stocks and mutual funds but also investment vehicles such as cryptocurrencies, real estate and derivatives. However, financial planners expressed the most concern about another provision of the proposed rule, which would assign custodial responsibilities to advisers whenever they have been authorized to trade on behalf of their clients.
SEC issues $279 million whistleblower award, its largest ever – Author Mengqi Sun
The SEC has awarded a record-breaking $279 million to an unidentified whistleblower who aided the SEC and other agencies in their enforcement actions. The whistleblower provided original information that expanded the SEC’s investigation into a company’s potential misconduct, and their ongoing assistance through written submissions and interviews proved crucial. The SEC acknowledged that the whistleblower’s information also influenced related actions by other agencies, leading to an increased award amount. The SEC maintained its policy of not disclosing the case or the whistleblower’s identity during the investigation.
SEC boosts private fund reporting requirements – Author Melanie Waddell
The SEC has adopted amendments to Form PF, a confidential reporting form for SEC-registered investment advisers to private funds.
The amendments aim to enhance visibility into private funds and protect investors by requiring large hedge fund and private equity fund advisers to make current reports on certain events to the SEC. These reports will inform financial regulators about events that may indicate significant stress or systemic risk. The amendments also introduce additional reporting requirements for private equity fund advisers, including information on general partner and limited partner clawbacks.
The changes are intended to strengthen the SEC’s oversight of private fund advisers and its investor protection efforts, as private funds have significantly evolved in size, complexity and investment strategies over the years. The amendments will be implemented in stages, with current reporting requirements taking effect within six months and remaining amendments within one year of publication in the Federal Register.
Wealthtech Roundup: Luma, Envestnet, COMPLY, Vestmark, SYSTM And more – Author Chris Latham
In the latest edition of the Wealthtech Roundup, the spotlight is on COMPLY and its newly released 2023 Chief Compliance Officer Playbook. The playbook, produced in collaboration with subsidiaries ComplySci and RIA in a Box, offers industry insights, reviews key rulings from 2022 and outlines expectations for 2023. It highlights significant SEC cases in areas such as Reg BI, books and records, pay-to-play, cryptocurrency and Form CRS, providing compliance strategies and risk mitigation solutions for financial firms.
John Gebauer, COMPLY’s Chief Regulatory Officer, emphasizes the importance of considering enforcement actions and exam priorities, stating that “The 2023 edition of COMPLY’s CCO Playbook details the kinds of sophisticated risk that will continue to impact the regulatory compliance landscape. By considering the enforcement actions of the major regulators and their 2023 exam priorities, we provide strategies to achieve compliance and risk mitigation for firms across the financial services landscape.”