News in Personal Trading Software & Compliance Monitoring Tools

What’s in the news: the top five compliance articles for Jan. 7 – 20, 2023

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 Jan. 20, 2023.

Top five compliance articles

5 ways for wealth management firms to keep compliant in 2023 – Author Dan Shaw

From the Securities and Exchange Commission’s (SEC) new marketing rule to a renewed emphasis on the books and recordkeeping regulations, 2022 presented investment advisers with a lot to consider and implement into their compliance programs. To ensure firms are compliant with regulator requirements in 2023, they should do the following:

  • Perform annual compliance reviews. RIA in a Box recommended firms conduct frequent internal reviews and annual meetings to talk about compliance with employees.
  • Stay up to date on what proposed regulations are up for adoption this year, like the SEC’s proposed outsourcing rule.
  • Ensure mandatory reports and documentation are organized and conveniently stored so chief compliance officers (CCO) can easily access them during examinations and visits from regulators.
  • Especially in light of the recent trend of working from home, ensure your firm is doing all it can to protect online data.
  • Relatedly, monitor employees’ electronic communications on email and messaging services.

Compliance rescues firms and FAs from crypto dumpster fire – Author Sander Ressler

Many financial advisers approach cryptocurrencies with skepticism because they’re relatively new and not heavily regulated. Financial advisers are concerned with maintaining their clients’ best interest, and some financial advisers argue compliance regulations have helped them avoid the pitfalls associated with cryptocurrencies.

A survey at the end of 2022 found:

  • 92 percent of respondents “strongly agreed” cryptocurrencies are “unlikely to become a credible investment asset for the foreseeable future.”
  • 78 percent of respondents “strongly agreed” compliance supervision restrictions were “the primary obstacle” which prevented advisers from engaging with cryptocurrencies when the asset was booming.
  • Within this group of respondents, 64 percent “strongly agreed” they received the most pressure about engaging with cryptocurrencies from younger members of client families, as well as third-party vendors which “did not have a strong background in product diligence or asset management.”

John Gebauer, President of the NRS subsidiary of COMPLY, said although some clients might be upset about their financial advisers’ lack of enthusiasm or challenges to investing in cryptocurrencies, “part of the core mandate of any firm’s compliance functions is to avoid unsuitable products that are overly-risky, over-hyped and under-regulated as part of their fiduciary duty as responsible advisers, and these are terms that most certainly apply to the recent crypto mania.”

FINRA keeps focus on Reg BI in 2023 exam report – Author Bruce Kelly

The Financial Industry Regulatory Authority (FINRA) recently published its 2023 report on its Examination and Risk Monitoring Program. In the report, FINRA provides member firms with key insights and observations to use in strengthening their compliance programs. The report draws attention to industry concerns for the next 12 months, especially new areas for broker-dealers to watch for, such as manipulative trading, fair pricing of fixed income securities and fractional shares, along with its repeated focus on key topics, like Regulation Best Interest (Reg BI).

In the report, FINRA added a series of questions financial advisers should be asking about a variety of client transactions to determine whether or not those meet the standards of Reg BI. Those questions focus on reasonable diligence in investment recommendations to clients, heightened scrutiny for high-risk or complex products, recommendations of new accounts for clients and rollovers.

Beware of breaching your fiduciary obligations related to client data – Author Sid Yenamandra

Among the SEC’s data-related rules is Rule 30(a) of Regulation S-P, which is commonly referred to as the Safeguards Rule. This rule was developed to ensure firms do their part in protecting client data. The rule requires registered broker-dealers, investment advisers and investment companies to have written policies and procedures intended to:

  • Ensure the confidentiality of customer records and information.
  • Protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to any customer.
  • Protect against any anticipated threats or hazards to the security or integrity of customer records and information.

To ensure that firms don’t violate the agency’s data-related regulations, they should:

  • Notify their clients about the opportunity and methods to opt out of sharing nonpublic personal information with nonaffiliated third parties.
  • Develop policies and procedures which thoroughly consider the regulations and explain how the firm must safeguard client data.
  • Know where all their client data is. (Many firms don’t have a handle on this.)
  • Have controls in place to ensure they anonymize data to protect it with security controls.

Justice Department offers new incentives for companies to self-report wrongdoing – Author Dave Michaels

The U.S. Department of Justice (DOJ) is expanding its leniency policies to persuade companies to report their own misconduct to prosecutors. These policies already exist, but the DOJ intends on applying them to a greater variety of white-collar matters.

As a part of the expansion of these policies, the DOJ may not prosecute even under aggravating circumstances if companies meet certain guidelines. The guidelines include:

  • Immediate disclosure of issues to the appropriate offices and persons at the DOJ.
  • Immediate disclosure of issues when these issues are uncovered.
  • “Extraordinary” cooperation with the DOJ and remediation.