News in Personal Trading Software & Compliance Monitoring Tools

What’s in the news: the top five compliance articles for August 6 – August 19, 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 August 19, 2022.

Top five compliance articles

SEC Proposes More Changes to Private-Funds Form – Author Melanie Waddell

The Securities and Exchange Commission (SEC) voted recently to propose amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisors to private funds – particularly large hedge fund advisors. The amendments are designed to enhance the Financial Stability Oversight Council’s “ability to assess systemic risk as well as to bolster the SEC’s regulatory oversight of private fund advisers,” the agency said.

At an open meeting, SEC Chairman Gary Gensler said that, if adopted, the proposal “would improve the quality of the information we receive from all Form PF filers, with a particular focus on large hedge fund advisers. That will help protect investors and maintain fair, orderly, and efficient markets.”

IAA Fears SEC’s ESG Rules Could Lead to Client Confusion – Author Patrick Donachie

The Investment Adviser Association (IAA) is asking the Securities and Exchange Commission to change its proposal on ESG disclosures for investment advisers and companies. The IAA is concerned that proposal’s current wording could mislead investors into believing ESG factors are more important to the advisor than “other, material, factors.”

The SEC’s proposal is intended to reduce “greenwashing.” The proposal is also intended to help investors differentiate between advisors and funds that are effectively integrating ESG criteria in investment decisions from those using the terminology as more of a marketing tactic.

“The proposal would require funds and advisors to provide more detailed disclosures about ESG strategies on fund prospectuses, annual reports and disclosure documents, and was approved in a 3-1 commission vote in May.”

SEC Should Nix Fund-Names Rule: ICI’s Plan – Author Melanie Waddell

During the comment period, Investment Company Institute (ICI) President and CEO Eric Pan recently asked the Securities and Exchange Commission (SEC) to eliminate its plan to “require certain funds to adopt a policy to invest at least 80% of their assets in accordance with the investment focus that the fund’s name suggests, updating the rule’s notice requirements and establishing recordkeeping requirements.”

Currently, the rule “prohibits all funds from using a name that the Securities and Exchange Commission finds by rule, regulation, or order to be materially deceptive or misleading.”

In a comment letter, Pan told the SEC that its current fund names rule “has worked well for 20 years. It recognizes that a fund’s name does not, and cannot, communicate everything that investors want to know about a fund before investing.”

According to Pan, the new rule would place enormous costs on funds to comply. He said it “would place enormous costs on funds to comply with this new, complex regime,” and that the costs “will ultimately be paid by investors. The proposal also places the Commission in the position of second-guessing how investment professionals choose investments and execute strategies. This is not the SEC’s job.”

Managing More Data Means Managing Greater Expectations – Author Amy Kadomatsu

As firms grow, their growing client bases and employee counts bring additional, data-related challenges. Firms must find ways of complying with ever-changing federal regulations, managing a significant amount of data and meeting the expectations of their investors.

“Access to data is only half the battle though. Developing a process or finding a technology partner to help log, organize and monitor all types of information and activities for both the firm and its employees is imperative.”

Therefore, finding the right technology partner plays a critical role in mitigating risk of noncompliance, damage to a firm’s reputation and the overall success of the firm in the future.

FINRA Warns BDs of Spike in E-Signature Forgeries – Author Melanie Waddell

In a recent regulatory notice, the Financial Industry Regulatory Authority (FINRA) is warning broker-dealers that allow digital signatures to have adequate controls in place to detect signature forgery or falsification.

In the notice, FINRA says that it has received “an increasing number of reports” regarding registered reps forging or falsifying investor client signatures. The organization also said that in some cases signatures of colleagues or supervisors, through third-party digital signature platforms.

According to the notice, forgery “occurs when one person signs or affixes, or causes to be signed or affixed, another person’s name or initials on a document without the other person’s prior permission.” Falsification, however, “occurs when a person creates a document or entry in a firm’s system that creates a false appearance by including altered or untrue information.”

“Both forgery and falsification violate FINRA Rule 2010, which requires associated persons to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business. FINRA points to five scenarios the broker-dealers have seen that involve forgery or falsification — customer complaints, administrative staff inquiries, reps’ circumventing the digital signatures authentication process as well as email correspondence and digital signature audit trail reviews.”