A look back: learning from FINRA and SEC enforcement actions in 2021.

What’s that old saying from philosopher George Santayana? “Those who cannot remember the past are condemned to repeat it.”

Applying this same theory to the compliance landscape, enforcement action from both the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA), while a definitive reaction to wrongdoing, also acts as a precautionary measure. And by analyzing and learning from said actions, firms can more clearly define their compliance programs to ensure they do not repeat the errs of others.

FINRA and SEC 2021 enforcement actions: a summary.

In many ways, 2021 was a precedent-setting year. While “typical” enforcement actions recurred, groundbreaking endeavors were undertaken, which, in the long run could reshape the compliance landscape at large.

“This year has seen a number of critically important and first-of-their-kind enforcement actions, as well as record-breaking achievements for our whistleblower program, which we expect will lead to even more successful actions in the future,” said Director of the Security and Exchange Commission’s (SEC) Division of Enforcement Gurbir S. Grewal.

To recap, the SEC:

  • Brought 697 enforcement actions.
  • Obtained $1.456 billion in penalties.
  • Obtained $2.396 billion in disgorgement.

Some of the most notable cases and “first-of-their-kind” actions included those:

  • Involving securities using decentralized finance “DeFi” technology.
  • Charging securities law violations on the “dark web.”
  • Enforcing a key rule on the duties of municipal advisors.
  • Involving regulation crowdfunding.
  • Charging an alternative data provider with securities fraud.
  • Involving failures to timely file and deliver Form CRS.
  • Involving an order and execution management system provider that facilitated electronic trading for failing to register as a broker-dealer.

FINRA exam findings report identified issues related to:

  • Anti-money laundering.
  • Cybersecurity.
  • Firm short positions and fails-to-receive in municipal securities.
  • Trusted contact persons.
  • Funding portals and crowdfunding offerings.
  • Communications with the public.  
  • Reg BI and Form CRS.

The top five takeaways for 2022.

While every firm faces unique compliance challenges, one thing remains constant: continually achieving compliance requires an active, and not apathetic, approach to your compliance program.

By analyzing the past year of enforcement activity, it’s clear that:

1.Firms must incorporate proactive compliance activities where possible.

While not every aspect of compliance can be anticipated, taking a proactive approach – where possible – frees up time to react to those regulatory actions that “pop up.”

2. Compliance is a firm-wide endeavor.

You CCO and compliance team may head up your compliance program, but in order to avoid potential fines or enforcement action, the entire firm must act in accordance with your Code of Ethics. Achieving a culture of compliance is the only means to remain compliant today and tomorrow.

3. It’s not team or technology, but rather a synergy between the two.

With the pace of regulatory activity in the past few months alone, it has become increasingly clear that compliance teams require technological backing. Automation relieves the manual work that can burden compliance teams and distract from bigger scale projects.

4. Firms must be able to scale their compliance program with their growth.

Scalability is crucial to remaining in compliance even as your firm grows. Creating processes and procedures that can grow with you – and investing in a compliance technology that can streamline your workload – will ensure you never risk regulatory enforcement action.

5. The regulatory landscape is constantly evolving, and a stagnant program will only create increased risk.

Compliance isn’t a set it and forget it kind of endeavor. Firms must constantly analyze and address new regulatory compliance challenges.

Meet new challenges with new compliance plays. Download the 2022 CCO Playbook for tactical strategies to address the regulatory landscape.