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 the SEC’s take on AI, an update on the overturned SEC Private Fund rule, cybersecurity rules creating challenges for firms, the transition to a T+1 Standard Settlement Cycle, and a report from NASAA highlighting common causes for enforcement actions.
Here are our top compliance articles as of September 13, 2024:
Gensler warns advisors and BDs about AI washing … again (Author – Emile Hallez, Investment News)
SEC Chair Gary Gensler released another statement, sharing his viewpoint on AI and Machine Learning:
“As we’ve seen an increase in the disclosures around artificial intelligence by SEC registrants, public companies as you know them, it’s important that companies making these disclosures remember that the basics of the securities laws still apply,” Gensler said in one of his “Office Hours” videos posted on YouTube.
“Companies should ask themselves some basic questions, such as if we’re discussing artificial intelligence in our earnings calls or having extensive discussions with our board of directors, maybe this information is potentially material to our business and to investors,” he said. “Investment advisors, broker-dealers also should not mislead the public by saying they’re using AI when they’re not, nor say that they’re using it in a particular way and not do so.”
As firms await the adoption of the SEC rule targeted at AI they must continue to contend with regulatory uncertainty. However, based on Gensler’s comments, one thing is clear: AI is, and will likely remain, firmly in the SEC’s crosshairs.
SEC’s battle for hedge fund fee transparency dies in Supreme Court (Author – Bloomberg, Investment News)
Legal challenges have put a halt to the SEC’s Private Fund Advisers; Documentation of Registered Investment Adviser Compliance rule. After industry groups challenged the regulator, and the 5th US Circuit Court of Appeals ruled ” the SEC had overstepped its authority,” the Supreme Court would have been the last avenue for the regulator. However, the SEC did not “didn’t act by a Tuesday deadline to ask the Supreme Court to revive new disclosure requirements for the private funds industry over fees it charges…”
Companies Grapple With Expanding Cyber Rules (Author – James Rundle, Wall Street Journal)
As cybersecurity rules continue to be piled on, firms have found themselves now struggling to maintain compliance with varying requirements and rulings. A particular pain point for many firms lies in the reporting of cyber incidents. Per the SEC’s Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure Rule, cyber incidents must be reported within four business days.
“Organizations without hardy legal and compliance resources could miss reporting deadlines or fail to provide the detail needed for government authorities to assess security threats.”
These Are the Biggest Causes of State Enforcement Actions, Securities Regulators Say (Author – Melanie Waddell, Think Advisor)
NASAA’s latest report shed light on the landscape of state-registered RIAs, with takeaways including a decline in the number of firms as well as top causes for enforcement actions, which include:
- Failure to register as an investment adviser
- Failure to register as an investment adviser representative
- Fraud
- Failure to maintain adequate compliance policies and procedures
- Breach of fiduciary duty, failure to disclose conflicts of interest (tie)
- Fees
- Violating adviser’s existing policies and procedures
- Suitability violations
- Equities, ETFs, private placements, failure to disclose a disciplinary action (four-way tie)
Wall Street’s T+1 switch proves tougher than expected (Author – Greg Ritchie, Financial Planning)
According to a Citigroup survey, the T+1 Standard Settlement Cycle has created difficulties for many firms and institutions.
“From overhauling arcane funding processes to relocating traders across oceans, the late-May switch to the system known as T+1 proved tougher than expected, the bank found in a survey of market participants.”
While proactive preparations eased some of the strain, challenges persist, which has many reporting that the change “significantly affected headcounts at their firms.”
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