News in Personal Trading Software & Compliance Monitoring Tools

What’s in the news: the top five compliance articles for June 25 – July 8, 2022

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 July 8, 2022.

Top five compliance articles

Transaction monitoring: How we can do better – Author Teodora Harrop

“Ahead of the launch of a new virtual classroom workshop, the International Compliance Association offers a look at transaction monitoring: what it is, what risks to look out for, and what can be learned from poor examples of transaction monitoring to ensure staff have the relevant skills and knowledge to carry out this integral business function.”

The guidance the ICA offers references the U.K. Financial Conduct Authority’s (FCA) “Financial Crime Guide.” In light of the FCA’s strict regulations, it is imperative that firms monitor transactions. Failing to complete timely transaction monitoring can have a detrimental impact on a firm’s overall performance and result in FCA enforcement action.

Here’s How FINRA Spent Its 2021 Fine Money – Author Melanie Waddell

“FINRA issued $90.1 million in fines in 2021, a big jump from the $57 million levied in 2020.

In 2021, FINRA invested $11.4 million to modernize and enhance the systems and tools supporting enforcement investigations and disposition processes.

FINRA also invested $6.3 million to enhance the technology that supports the platform FINRA examiners and risk monitoring analysts use to manage their work efficiently.

Last year, FINRA invested $11.8 million in a multi-year initiative to integrate and implement the Consolidated Audit Trail (CAT) data into its surveillance and CAT compliance programs.

Another $3.9 million was invested in various investor education programs. In 2021, FINRA enhanced BrokerCheck, the Fund Analyzer and other tools and created new, virtual events.”

Small Businesses Plead With SEC to Show Restraint on Climate Rules – Author Richard Vanderford

“Small businesses, normally outside the domain of the Securities and Exchange Commission (SEC), say the regulator’s proposal on climate disclosures will saddle them with a compliance burden they won’t be able to handle.”

Some small businesses have voiced concern with the proposed requirement for public companies to disclose what are known as Scope 3 emissions, those related to a company’s activities but outside its operational control. Many small businesses do not have the resources to catalog, much less report, their emissions. Therefore, the proposed rule would impose “unrealistic, unwarranted and costly obligations” on these businesses.

“The SEC rules aren’t final, and they are almost certain to face a legal challenge.”

5 Rules the SEC Plans to Review This Year – Author Melanie Waddell

“The SEC plans to review five rules this year affecting registered investment advisors, according to the agency’s just released “Reg Flex” agenda.” These plans and recommendations are as follows:

  1. “The Division of Investment Management is considering recommending that the SEC propose amendments to existing rules and/or propose new rules under the Investment Advisers Act of 1940 to improve and modernize the regulations around the custody of funds or investments of clients by RIAs.
  2. The Division of Investment Management is considering recommending that the SEC propose rules related to the use of predictive date analytics, differential marketing and behavioral prompts.
  3. The commission sought public input to evaluate the listing and trading of exchange-traded products (ETPs) in the marketplace, assess the risks posed by ETPs with certain characteristics and explore areas of focus in reviewing exchange proposals to list and trade new ETPs for consistency with the Exchange Act. The Division is considering appropriate next steps with respect to these issues.
  4. The SEC could recommend to propose rules to address registrant cybersecurity risk and related disclosures, amendments to Regulation S-P and Regulation SCI, and other enhancements related to the cybersecurity and resiliency of certain commission registrants.
  5. The SEC is considering recommending to propose requirements for investment companies and RIAs related to environmental, social and governance (ESG) factors, including ESG claims and related disclosures.”

However, some believe that the SEC’s agenda ignores many of the problems facing retail investors today.

“The SEC failed to tackle ‘major issues,’ Rhoades said, including whether there exists any justification for continuing 12b-1 fees, ‘given their lack of benefit to fund shareholders,’ and whether Regulation Best Interest ‘was founded upon a decade-old legal misinterpretation of case law’ by the Financial Industry Regulatory Authority, Rhoades opined.”

Similarly, Amy Lynch, president and founder of FrontLine Compliance, said, “the SEC wants to implement rule changes that reflect recent unofficial guidance.”

SEC Makes Stealth FINRA Oversight Changes – Author Tobias Salinger

“According to a report from the Government Accountability Office (GAO) last month, the SEC is tightening its FINRA reviews’ focus on ‘performance measure,’ ‘deficiencies’ and ‘corrective actions.’”

Although the SEC allowed the GAO’s prior reports on its oversight of FINRA to be fully public in 2012, 2015 and 2018, it has determined that its current report has “confidential supervisory information.” However, an anonymous report, supposedly from a government watchdog, indicates the latest status on the “priority adjustments” to the SEC’s exams of FINRA as follows:

  1. “Performance metrics with enhanced tracking of the outcomes of the exams would ‘provide greater assurance that FINRA is carrying out its regulatory responsibilities and that SEC is meeting its mission, including protecting investors and maintaining efficient markets.
  2. Bulked-up procedures to monitor deficiencies and corrective actions would ‘provide [the] SEC with reasonable assurance that it is gaining key information about the state of risk in its oversight of FINRA and the extent to which identified risks have been appropriately mitigated.
  3. Specific identification of the most important findings of the exams and coordination among the two regulators about them would help the SEC ‘gain reasonable assurance that it has correctly and consistently identified and communicated its most important findings internally and to FINRA.’”

“The report didn’t provide an expected timeline for the SEC to carry out the recommendations.”