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 August 18, 2023.
FINRA Adopts Stricter Expungement Rules – Author Melanie Waddell
The Financial Industry Regulatory Authority (FINRA) has implemented tougher rules, effective from October 16, based on Securities and Exchange Commission-approved amendments. These changes aim to make it more challenging for brokers to remove client disputes from their records. The amendments require unanimous agreement from an arbitration panel for expungement relief. Most changes focus on “straight-in expungement” requests, which FINRA finds problematic due to their high approval rate. The new rule establishes a dedicated panel of arbitrators for such cases, ensuring state regulators and clients are informed of expungement requests. Further adjustments involve panel composition, restrictions on arbitrator agreements, and time limits for filing requests.
Wall Street girds for what’s next in WhatsApp probe – Author Bloomberg News
Unauthorized communications on Wall Street have led to fines exceeding $2.5 billion, with ongoing investigations involving over a dozen firms, including major players in asset management, private equity, and hedge funds. Regulators are scrutinizing the use of unofficial channels like WhatsApp, personal texts, and email for business transactions. While inquiries don’t necessarily indicate enforcement actions, the scope of the investigation is wide-ranging, and cooperation is widespread. Firms failing to monitor and save business communications impede misconduct prevention, especially when auto-deleting messaging tools are used. The Securities and Exchange Commission’s probe reveals pervasive off-channel communication, even involving senior managers overseeing junior employees.
24 new rules and proposals to watch from the SEC and other regulators – Author Tobias Salinger
Financial advisors and wealth management firms face potential impact from regulations across two dozen aspects of their business in the coming years. A report by compliance and technology firm COMPLY highlights the surge in new rules and proposed guidelines affecting the financial sector, emphasizing the need for advisors to prioritize compliance. Regulatory activity has surged in the past 18 to 24 months, leading to increased costs for starting registered investment advisory firms. Key areas of impact include ESG initiatives, predictive analytics, changes to custody rules, cybersecurity, outsourcing guidelines, and private fund management requirements. The Securities and Exchange Commission has been active in driving these changes.
“Advisors, in general, should be very focused on this,” John Gebauer said in an interview. “The sheer magnitude of the wave of rules that are likely to be approved in the coming six to 12 months really means that advisors need to get their house in order.”
SEC hits ESG funds with subpoenas – Author Matthew Sellers
The SEC’s enforcement division has escalated its scrutiny of sustainable investment advertising practices, issuing subpoenas to multiple investment firms. Mainstream funds shifting to ESG-focused strategies and discrepancies in disclosure between funds marketed in the U.S. and Europe are areas of concern. The SEC, led by Kelly Gibson’s dedicated ESG misconduct team, seeks to ensure accurate climate-related disclosures for informed investment decisions. While 2022 saw settlements multiple settlements, this year’s ongoing probes indicate further regulatory actions. Despite global sustainable assets reaching $3 trillion in 2021, U.S. investor interest has waned, resulting in significant outflows.
How Advisors Can Manage 6 Big AI Compliance Challenges – Author Mike Pedlow
The rise of generative AI, exemplified by ChatGPT, has sparked interest among financial professionals for various tasks such as marketing and client analysis. However, compliance challenges arise in the dynamic AI landscape. Firstly, staying updated on AI advancements and adapting policies to guide appropriate usage is essential. Regulation S-P mandates stringent protection of client data, posing caution in entrusting sensitive information to AI. Preserving business confidentiality is equally vital, as the evolving nature of generative AI may risk proprietary information exposure. To ensure compliance, financial advisors should monitor AI developments, avoid sharing sensitive data, and safeguard both client and proprietary information.
Learn more about key regulatory issues like those discussed in this blog by downloading our 2023 Regulation Rundown.