RegEd Announces COVID-19 Resource Center

The site will support industry firms’ ability to manage the influx of new regulatory activity resulting from the COVID-19 pandemic.

RegEd, the leading provider of compliance technology solutions to the financial services industry, today announced that it has established the RegEd COVID-19 Resource Center, which aggregates regulatory activity impacting the financial services industry, related to the scope of regulations that RegEd products and services cover.

“At RegEd, nothing is more important than the health and well-being of our clients, employees, and our community. We’re committed to providing the support and resources to navigate this challenging time and support them in their day-to-day roles.” said John M. Schobel, RegEd CEO and Founder. “Our clients now must keep up with an increased volume of new regulatory updates related to COVID-19.  We’ve created this resource to ease the burden of doing so.”

While firms may already receive updates from industry organizations, regulators and other third parties, the RegEd COVID-19 Resource Center provides a single source of COVID-19 updates that specifically relate to the scope of regulations that RegEd products and services cover.

As some updates may have implications for the rules that drive specific RegEd solutions, RegEd Product Management will continue to use its standard methods to communicate any changes to RegEd solutions that support regulatory agency rule changes related to COVID-19.

Technology-Enabled Regulatory Change Management and Regulatory Intelligence Comes to the Forefront

There are more than 5,000 insurance and securities regulatory changes each year, which will increase significantly with the addition of COVID-19 related updates. RegEd’s Enterprise Regulatory Change Management solution delivers fully analyzed requirements and provides the most efficient means of managing the implementation of new requirements. Learn more.

About RegEd

RegEd is the market-leading provider of RegTech enterprise solutions with relationships with more than 200 enterprise clients, including 80% of the top 25 financial services firms.

Established in 2000 by former regulators, the company is recognized for continuous regulatory technology innovation with solutions hallmarked by workflow-directed processes, data integration, regulatory intelligence, automated validations, business process automation and compliance dashboards. The aggregate drives the highest levels of operational efficiency and enables our clients to cost-effectively comply with regulations and continuously mitigate risk.

Trusted by the nation’s top financial services firms, RegEd’s proven, holistic approach to RegTech meets firms where they are on the compliance and risk management continuum, scaling as their needs evolve and amplifying the value proposition delivered to clients.

Leverage Pre-Audit Questionnaires to Improve Efficiency and Reduce Risk of Non-Compliance

The introduction of RegEd’s Pre-audit questionnaire (PAQ) functionality for Audit Management has enabled compliance and audit professionals to ensure that all pertinent data collected via questionnaires is automatically populated, reducing the need for manual transfer and significantly improving audit cycle time, while reducing the risk of input error.

With PAQ’s, auditors and audit schedulers can complete their audit cycle workflows from within a unified tool – schedule audits, designate auditees, assign pre-audit questionnaires, or make changes to distribution recipients from within the solution, for example.

With pre-audit questionnaires, compliance programs are able to benefit from:

  • Reduced travel requirements, amount of time required onsite
  • Increased reach (program-wide and per audit)
  • Improved advisor/rep satisfaction (reduced disruption, time required outside of core activities, etc.)
  • Reduced risk of erroneous or untimely data
  • Increased time spend on core functions outside of audits

Three examples of how clients are using PAQ functionality to enhance their audit processes:

  1. Firm uses PAQ’s to deliver iterative sections of an audit module to intended recipients ahead of an audit. The firm is able to save time by allowing auditors to capture data without the need to schedule meeting time with those representatives that respond prior to the day of the audit. Additionally, any representatives that have scheduled unavailability (out of office, travel plans, etc.) or are otherwise remote have an extended window of time to provide the responses necessary to complete the audit.
  2. Firm utilizes PAQ’s to conduct their branch inspections. By using PAQ’s in combination with the Audit Management solution, the firm is able to collect, analyze and report on all of the necessary elements of the branch inspection module. This significantly reduces the amount of time required on-site per branch inspection, while allowing branch examiners the flexibility to prioritize onsite visits based on the results of the pre-audit questionnaire(s), associated risk of exposure, and potentially resultant heightened supervision status.
  3. Enterprise clients benefit from delivering a pre-defined number of pre-audit questionnaires to multiple audit modules ahead of the onsite audit to capture information that is not considered time sensitive. This provides firms with the capability of collecting vital information ahead of the audit cycle while assuring unannounced audits can be performed as often as required to maintain compliance with evolving regulations.

Advertising Review: Leverage Next Gen Annotation Tools to Streamline the Review Process

RegEd is excited to announce expanded support for annotations within the industry-leading Enterprise Advertising Review solution.  Reviewers and submitters can now annotate materials using their browser of choice (Internet Explorer 11, Chrome v75+, Firefox v62+, Edge v44+) to allow more flexibility according to their preferences. 

Additionally, users may now optionally ‘lock’ annotation comments such that only the individual that submitted the comment will be permitted to delete it, regardless of when created in the review process. 

The enhanced annotation tool allows reviewers to easily provide specific feedback on review items by adding comments, highlighting and leveraging various markup tools. Subsequently, the tool allows the submitter to respond and make any corrections as necessary, all within the solution – thus eliminating the need to rely on historical emails or other external means of collaboration.

RegEd’s PDF Annotation Tool

Advertising Review now enables you to submit and track audio and video annotations to both simplify the review process and improve turnaround times. Leverage multiple methods of reviewing material that can be utilized based on the review content and your preferred annotation method for your optimized submission and review experience using Advertising Review!

RegEd’s Audio/Video Annotation Tool

If you have questions about updating your instance of Advertising Review to include these exciting new features, please reach out to your Relationship Manager.

If you’re not currently utilizing RegEd’s Advertising Review solution, please contact sales@reged.com to learn more!

Want to see more? Watch this short 2-Minute video to see how Advertising Review can help your firm.

CE Council Fall 2019 Firm Element Advisory Topics

Every year, RegEd reviews the latest guidance on CE Council Firm Element topics.  Several times a year, the CE Council, established by FINRA to oversee the continuing education rules, writes the regulatory element exams and issues guidance on what they consider appropriate FE training topics.  

Following are some highlights of new or updated topics as they appear in the recent Fall Advisory.

Alternative Investments

  • Digital Assets: Updated for Reg. Notice 19-24: Encourages firms to keep FINRA abreast of their activities related to digital assets.
  • Cryptocurrencies: An alert to warn investors to be cautious when considering shares of companies that tout the high returns associated with cryptocurrency-related activities without the business fundamentals and transparent financials to back up such claims. (RegEd Course 912)
  • Supervision: Complex Products: FINRA Notice 12-03. Identifies characteristics that may render a product “complex” for purposes of determining if a product is subject to heightened supervisory and compliance procedures and gives examples of heightened procedures. (RegEd Course 916)

Anti-Money Laundering

  • Suspicious Activity Reporting: Updated for Reg. Notice 19-18 on red flags. (2020 AML Update course, 35AU20)

Communications   

  • FINRA Regulatory Notice 19-31 (September 19, 2019): Disclosure Innovations In Advertising And Other Communications With The Public.
  • Communications Related To Departing Registered Representatives: Updated for Reg. Notice 19-10. FINRA Provides Guidance on Customer Communications Related to Departing Registered Representatives.

Cybersecurity

  • Imposter Websites: Updated for Info Notice April 29, 2019. FINRA Provides Guidance to Firms Regarding Suspicious Activity Monitoring and Reporting Obligations. (We will add this info to our existing Cybersecurity courses 876_2 and 897)
  • FINRA Information Notice: October 2, 2019: Cybersecurity Alert: Cloud Based Email Account Takeovers.
  • Fraudulent Phishing Emails: Updated for Info Notice February 13, 2019.  FINRA Warns of Fraudulent Phishing Emails Targeting Member Firms.

Financial Responsibility Rules for Broker-Dealers

  • Capital, Margin and Segregation Requirements: New. Discusses SEC Rel. No. 34-86175. The SEC adopted capital and margin requirements for security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs), segregation requirements for SBSDs, and notification requirements with respect to segregation for SBSDs and MSBSPs. (We will update course 922, which addresses the current status of Dodd-Frank.)

Fixed Income

  • Supervision: Municipal Advisors: Updated for FINRA Reg. Notice 19-28 on Guidance Regarding Member Firms’ Supervisory Obligations When Participating in Investment-Related Activities with Municipal Clients. (Covered in the 2020 Supervision Update.)

Margin

  • Exchange Traded Notes: New. Discusses FINRA Reg. Notice 19-21 on new higher strategy-based margin requirements for ETNs and options on ETNs.

Municipal Securities

  • General: New. Discusses MSRB Reg Notice 2019-15. SEC Approves Amendments to MSRB Rules and Data Collection Related to Primary Offering Practices. (2020 Municipal Securities Update)
  • General: Advertising Rule Changes: New. Discusses amended Rule G-21 on advertising by brokers, dealers, or municipal securities dealers. (2020 Municipal Securities Update.)
  • General: Best Execution Rule: Updated to discuss MSRB Reg Notice 2019-5 amending implementation guidance on MSRB Rule G-18. (2020 Municipal Securities Update)

Obligations to Customers (New)

  • Regulation Best Interest: New. The SEC is adopting a new rule, Reg BI, establishing a standard of conduct for broker dealers and natural persons who are associated persons of a broker-dealer when they make a securities recommendation to a retail customer. Enhances the standard of conduct beyond existing suitability obligations, and aligns it with retail customers’ reasonable expectations. (Course 923, Regulation Best Interest & Form CRS)
  • Suitability: Know-Your-Customer and Suitability Obligations.  Same discussion of Rules 2090 and 2111 as contained in the last FE Advisory.

Observations From FINRA’s January 2020 Disciplinary Actions Report

Outside business activities and private securities transactions were a focus of FINRA’s January 2020 Disciplinary Actions Report with at least nine (9) cases being cited within the report.  Several registered persons were sanctioned for failure to notify and obtain prior written approval from their member firm before engaging in an outside business activity or private securities transactions.  

Those who failed to cooperate with FINRA’s investigation by refusing to provide on-the-record testimony have been barred from the industry. 

For those who did cooperate in the FINRA investigation, all but one received fines.  Fines ranged from $10,000 to $30,000.  (A fine was not issued in one case due to the registered representative’s financial status.)  All received suspensions ranging from three (3) months to eighteen (18) months.  The most egregious case resulted in a $30,000 fine and an eighteen (18) month suspension.  This case involved outside business activities that took place at the member firm branch office and involved customers of the member firm, private securities transactions as well as false statements on annual compliance and branch office questionnaires.   Several other cases also involved false statements on compliance questionnaires.

Sanctions around outside activities vary based on facts and circumstances.  FINRA’s 2019 Sanctions Guidelines provides information on principal considerations and sanctions:

Outside Business Activities

  • Principal considerations in determining sanctions include:
    • Whether the outside activity involved customers of the firm.
    • Whether the outside activity resulted directly or indirectly in injury to other parties, including the investing public, and, if so, the nature and extent of the injury.
    • The duration of the outside activity, the number of customers and the dollar volume of sales.
    • Whether the respondent’s marketing and sale of the product or service could have created the impression that the employer (member firm) had approved the product or service.
    • Whether the respondent misled his or her employer member firm about the existence of the outside activity or otherwise concealed the activity from the firm.
    • The importance of the role played by the respondent in the outside business activity.
  • Monetary fines range from $2,500 to $77,000 (disgorgement could also be considered).
  • Suspensions range from ten (10) days up to two (2) years (or could include a complete bar in lieu of suspension). 

Private Securities Transactions

  • Principal considerations in determining sanctions include:
    • The dollar volume of sales.
    • The number of customers.
    • The length of time over which the selling away activity occurred.
    • Whether the product sold away has been found to involve a violation of federal or state securities laws or federal, state or SRO rules.
    • Whether the respondent had a proprietary or beneficial interest in, or was otherwise affiliated with, the selling enterprise or issuer and, if so, whether respondent disclosed this information to his/her customers.
    • Whether respondent attempted to create the impression that his or her member firm sanctioned the activity, for example, by using the employer’s premises, facilities, name and/or goodwill for the selling away activity or by selling a product similar to the products that the member firm sells.
  • Monetary fines range from $5,000 to $77,000 (disgorgement could also be considered).
  • Suspensions range from ten (10) days to twelve (12) months based on extent of selling away (dollar amount of sales, number of customers, length of time over which selling away occurred).

Although FINRA’s 2020 Risk Monitoring & Examinations Priorities Letter did not flag outside activities specifically as an examination priority (other than a digital asset footnote), their January 2020 Disciplinary Actions Report certainly evidences an ongoing regulatory focus on outside activities.

How confident are you in your compliance program around outside business activities and private securities transactions?  When was the last time you trained your registered persons on how to report such activities to your firm for approval?  Are you adequately supervising the activities you do approve or condition? How are you documenting your supervision of these activities?  If you’ve denied activities, do you monitor to ensure activities aren’t taking place?  Do you have best practices in place to validate the information you receive in response to your annual compliance questionnaires and branch office questionnaires?  Do you require your non-registered persons to report such outside activities as a best practice?

RegEd is ready to assist with your compliance challenges.  Our solutions deliver proven, robust, compliance-optimized capabilities that enable extraordinary efficiency and strong compliance oversight, dramatically reducing the risk of non-compliance.  If you’d like to learn more, schedule a personalized consultation with our solution and subject matter experts. We’ll provide an overview of how RegEd’s enterprise platform enables our clients to improve efficiency, effectiveness and transparency across the enterprise.

BREAKING: NAIC Adopts a Best-Interest Standard for Annuity Sales

February 13, 2020—This afternoon, the National Association of Insurance Commissioners (NAIC) voted to recommend that the states amend their annuity sales regulations to require insurance agents to “act in the best interest of the consumer when making a recommendation of an annuity.”

The action came in the form of an amendment to the NAIC’s 2010 Suitability in Annuity Transactions Model Regulation, which was adopted by 45 states and the District of Colombia in the wake of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

The new best-interest standard requires insurance agents to exercise a greater degree of care in selecting annuities for their clients, to avoid conflicts of interest, to make certain disclosures to clients, and maintain adequate documentation to show that they have acted in the best interest of the client. Insurance companies are required to supervise agent compliance with this rule and to maintain compensation systems that will not undermine the best interest of clients.

Like the 2010 model regulation, the new model regulation requires that agents be trained in its requirements. For agents new to selling annuities, the new model calls for a 4-hour training course. For veteran agents who were trained under the old model regulation, the new model regulation allows for a 1-hour update course, but the regulation makes this option available only for the first 6 months after their state adopts the new rule.

RegEd has two courses completed that meet these requirements (which will be submitted for approval and continuing education (CE) credit in each state as their version of this regulation comes on line):

Recommending Annuities Under the NAIC Best Interest Standard (490)
This is the standard 4-hour training course required of insurance agents before they may sell annuities. It details the standard of care agents must adhere to when recommending annuities to clients. It discusses the fact finding and analysis required to make a recommendation that is in the best interest of the client. It discusses conflicts of interests, disclosures to clients, and documentation. In addition, the course review the operations of different types of annuities and how they are used to meet different client need.

Recommending Annuities Under the New NAIC Best Interest Standard—1 Hour Update Course
Veteran insurance agents who previously qualified to sell annuities under their state’s version of the NAIC annuity suitability regulation may take this 1-hour update course to qualify to sell annuities under the new NAIC best-interest standard. This course details the standard of care agents must adhere to when recommending annuities to clients. It discusses the fact finding and analysis required to make a recommendation that is in the best interest of the client. It discusses conflicts of interests, disclosures to clients, and documentation.

These courses will be available in each state upon approval.

The state of Arizona has already announced that it is going ahead with its process for adopting its version of the NAIC model regulation.

Form CRS: An Overview of the SEC-Mandated Customer Relationship Summary Due June 30, 2020

About Form CRS

In June 2019, the SEC adopted requirements (SEC Release 34-86032) for registered investment advisers, broker-dealers, and dual-registrants that do business with retail investors to file Form CRS (customer relationship summary). Form CRS is intended to inform retail investors about:

  • The types of client/customer relationships and services the firm offers;
  • Fees, costs, conflicts of interest, and required standard of conduct associated with those relationships and services;
  • Whether the firm and its financial professionals currently have reportable legal or disciplinary history;
  • How to obtain additional information about the firm.

Form CRS applies to registered investment advisers, broker-dealers, and dual registrants that do business with retail investors. See page 189 of SEC Release 34-86032 for the definition specific to Form CRS and more information.

  • For investment advisers, Form CRS is known as Part 3 of Form ADV.
  • For broker-dealers, Form CRS is known as such and has no association with Form BD.
  • Form CRS does not apply to those who do business only with institutional investors.
  • Form CRS is an additional disclosure requirement. It does not eliminate any existing disclosures.
  • Form CRS may be delivered as part of a disclosure packet, but it must be the first document. For example, some investment advisers are considering a disclosure packet approach to include Form ADV Part 2B disclosure supplements.
  • Dual registrants may have particular challenges. For example, if the firm is a dual registrant, but the financial professional engaging with the retail investor is qualified only as a registered representative, it must be made clear in the relationship summary.

The deadline for firms to be compliant with Form CRS is June 30, 2020.

Form CRS is designed to help retail investors better understand the nature of the relationship and what services they can expect from a financial firm and its individual professionals, primarily in terms of a fee-based account with an investment adviser, a transaction-based account with a broker-dealer, and the significance, roles, and duties of an investment advisory representative versus those of a registered representative.

Formatting and presentation instructions are specific (See general instructions for Form CRS).

  • Firms must respond to each item and must provide responses in the same order as the items appear in the instructions.
  • The relationship summary must not exceed the equivalent of two pages, for standalone investment advisers or broker-dealers, or four pages, for dual registrants, using reasonable paper size, font size, and margins. If delivered electronically, the relationship summary must be the equivalent of the paper formatting.
  • The relationship summary should be concise and direct, using short sentences and paragraphs. It  must be written in plain English (see the SEC’s A Plain English Handbook: How to Create Clear SEC Disclosure Documents), taking into consideration retail investors’ level of financial experience. Responses to each item must be written as if speaking to the retail investor, using “you,” “us,” “our firm,” etc. Responses must be factual and provide balanced descriptions to help retail investors evaluate services.
  • White space, charts, graphs, tables, and other graphics design features should be included to make the relationship summary easy to read. For a relationship summary posted on a website or otherwise provided electronically, online tools are encouraged, including links to video or audio messages, mouse-over windows, chat functionality, and hyperlinks to information that enhances a retail investor’s understanding of the material in the relationship summary.
  • Conversation starter questions must be formatted to make them more noticeable and prominent than the standard surrounding text.

Conversation starter questions must be included in Form CRS. They are intended to engage retail investors in a discussion about the differences between an investment adviser and a broker-dealer and their relationship with a financial professional, including legal obligations, conflicts of interest, and reportable disciplinary history. For example:

  • “As a financial professional, do you have any disciplinary history? For what type of conduct?”
  • Firms must answer “yes” or “no” accordingly and, regardless of the answer, refer retail investors to Investor.gov/CRS, for additional information.
  • Firms with disciplinary history should be prepared to answer follow up questions and direct clients to additional information.

Other conversation starter questions pertain to conflicts of interest. (Item 3. Fees, Costs, Conflicts, and Standard of Conduct; see page 550 of SEC Release 34-86032 for more information.) For example:

  • “What are your legal obligations to me when providing recommendations as my broker-dealer or when acting as my investment adviser? How else does your firm make money and what conflicts of interest do you have?”
  • Firms will be required to distinguish firm-level from financial professional–level conflicts.

Initial Filing Requirements

Investment advisers must file Form ADV, Part 3 (Form CRS) electronically through IARD. Broker-dealers must file Form CRS electronically through CRD. Dual registrants are to file both. See page 544 of SEC Release 34-86032 for more information.

IARD and CRD systems should be available to accept filings on May 1, 2020; initial filings must be made no later than June 30, 2020.

Delivery Requirements to Clients

Initially, Form CRS must be delivered to current and prospective retail investor clients within 30 days of the regulatory filing deadline of June 30, 2020.

Investment advisers must send Form CRS to clients and prospective clients before or at the time they enter an investment advisory contract with the retail investor. This includes oral agreements. Broker-dealers must send Form CRS to clients and prospective clients before a recommendation of account type, securities transaction, or a recommendation of investment strategy involving securities is made or before placing an order for a retail investor, whichever is earliest. Dual registrants must send Form CRS in accordance with the earliest triggering event of an investment adviser or a broker-dealer.

Form CRS must be amended or revised and filed with IARD or CRD within 30 days of any information becoming materially inaccurate. Amended or revised versions of Form CRS must be delivered within 60 days of change to each retail investor who is a client or considered a prospect of the firm.

Compliance and Recordkeeping

The SEC may use the information provided in Form CRS to manage its regulatory and examination programs, and firms will need to integrate the relationship summary into their compliance controls, including policies and procedures, supervisory controls, testing, tracking, training, and recordkeeping.

  • Investment advisers must retain copies of each relationship summary and each amendment or revision, and they must retain a record of the dates that each relationship summary and any amendments or revisions were given to any client or prospective client who subsequently becomes a client. Records must be retained for a minimum of five years. (Amends Rule 204-2 of the Investment Advisers Act of 1940.)
  • Broker-dealers must retain a record of the date each relationship summary was provided to each retail investor, including any summary provided before the retail investor opens an account. Records must be maintained for a minimum of six years after the relationship summary is created. (Amends Rule 17a-3 of the Securities Exchange Act of 1934.)
  • Dual registrants must retain records in accordance with which role they adopt as a financial professional.
  • See page 499 of SEC Release 34-86032 for more information.

RegEd is ready to assist investment advisory firms, broker-dealers, and dual registered firms with various compliance issues related to Form CRS, including managing various disclosures, training, versioning, managing client delivery, and more. For further information, schedule a consultation with RegEd representative.

SEC and FINRA Exam Priorities to Include Firms’ AML Compliance Programs, Including Policies and Procedures

SEC’s Office of Compliance Inspections and Examinations (OCIE) has issued its examination priorities for 2020. According to the document, OCIE will assess the adequacy of firms’ AML compliance programs, including relevant policies and procedures. AML Compliance was also cited by FINRA as an area of focus in its recent 2020 Risk Monitoring and Examination Priorities Letter.

The Bank Secrecy Act requires financial institutions, including broker-dealers and investment companies, to establish anti-money laundering (AML) programs. These programs must, among other things, include policies and procedures reasonably designed to identify and verify the identity of customers and beneficial owners of legal entity customers…Given the importance of these requirements, OCIE will continue to prioritize examining broker-dealers and investment companies for compliance with their AML obligations...”
– 2020 SEC Examination Priorities

Do you have the right tools in place to manage AML compliance?

Training
A robust training program is a core element of compliance with anti‐money laundering regulations. RegEd’s Anti-Money Laundering Training solutions deliver a streamlined user experience that enables insurance and securities professionals to satisfy AML training requirements with minimal disruption, while enterprise reporting capabilities enable administrators to monitor requirements and completion status.

Policies and Procedures
RegEd’s Policies and Procedures Management provides an enterprise workflow and task management solution that enables comprehensive, end-to-end administration and oversight of all elements of the firm’s policies and procedures.

Read more about RegEd’s Policies and Procedures Management solution.

Read more about RegEd’s AML training solution.

RegEd Leaders Elected to Positions at the SILA Foundation and SILA Education and Training Subgroup (SETS)

RegEd, the leading provider of compliance technology solutions to the financial services industry, today announced that members of its Regulatory Affairs Group have been elected to serve in positions at the SILA Foundation and SILA Education and Training Subgroup (SETS).

Susan Boles, RegEd Senior Regulatory Compliance Analyst, has been elected to the SILA Foundation Board of Trustees as the new Scholarships & Grants Trustee Member. As the new Scholarships & Grants Trustee Member, Susan will oversee all of the scholarship programs and grants that SILA issues.

Brandi Brown, RegEd Senior Vice President of Regulatory Affairs, is now Co-Chair of the SILA Education and Training Subgroup (SETS). The SILA Education and Training Subgroup (SETS) provides a forum for SILA Members to address issues related to Education and Training Requirements for Producers, Adjusters, and Registered Representatives.

Newly appointed Scholarships & Grants Trustee Member, Susan Boles, commented “I’m honored to have been elected as the new Scholarships & Grants Trustee Member on the SILA Foundation Board of Trustees. I have been an avid supporter of the SILA mission for years with RegEd and to be able to serve on the foundation board is one of the best ways I can think of to assist and give back to my profession.”

The purpose of the SILA Foundation is to provide an educational forum for the public. The SILA Foundation Board of Trustees determine what programs, whether in person and online, should be offered. The educational content offered covers Financial Services, specifically Securities and/or Insurance, and its purpose is to develop and/or improve individuals’ capabilities regarding Financial Services. Activities may include educational materials, courses, public discussion groups, forums, panels, lectures, personal career development, mentoring, job training, job fairs, or other programs.

To learn more about the SILA Foundation, please visit http://www.silafoundation.org/.

About RegEd

RegEd is the market-leading provider of RegTech enterprise solutions with relationships with more than 200 enterprise clients, including 80% of the top 25 financial services firms.

Established in 2000 by former regulators, the company is recognized for continuous regulatory technology innovation with solutions hallmarked by workflow-directed processes, data integration, regulatory intelligence, automated validations, business process automation and compliance dashboards. The aggregate drives the highest levels of operational efficiency and enables our clients to cost-effectively comply with regulations and continuously mitigate risk.

Trusted by the nation’s top financial services firms, RegEd’s proven, holistic approach to RegTech meets firms where they are on the compliance and risk management continuum, scaling as their needs evolve and amplifying the value proposition delivered to clients. For more information, please visit www.reged.com.

Market Conduct Exams: Best Practices to Ensure a Smooth Process and Stay Under the Radar for Future Examinations

By Merlinda Johnson FLMI, ACS and Rebecca Vasquez, Esq.

For an insurance company, the key objective of a market conduct examination (MCE) is to avoid it. As regulators pay more attention to problem areas, behaving well in the marketplace in the first place mitigates the chances of being examined. The No. 1 defense against an unscheduled market conduct examination is a documented and well managed compliance program, and companies that follow a few best practices find they can stay under the regulatory radar, and when they are selected for examination, they can be fully prepared to make it go smoothly.

1. Know the handbook.

The NAIC’s Market Regulation Handbook Examination Standards Summary (available free of charge as a downloadable PDF) is a high-level compilation of the market conduct standards found in the more complete Market Regulation Handbook, available from the NAIC, details each function within an organization that a market conduct examiner would review during the exam process.

  • Make sure your policies and procedures align with each standard in the summary. If they do, you probably have a robust compliance framework already, and you’d be prepared for a regulatory examination.
  • Monitor and measure these standards. For example, one standard is complaint handling. During an MCE, an examiner will review a company’s complaint records to ensure it follows these standards. This includes complaints being recorded properly and the company taking adequate steps to resolve them appropriately.

2. Understand common exam triggers.

Regulators pay close attention to these areas. Manage them successfully to lessen the frequency of being examined.

  • Complaints: The most frequent trigger for a market conduct exam.
  • Claim denials and slow payments
  • Policy cancellations and non-renewals
  • Drastic changes in premiums
  • Regulatory action or activity in other states: State departments of insurance (DOI) compile data in their jurisdictions and share it with other DOIs. A red flag in one state can trigger investigations in others.
  • Market Conduct Annual Statement (MCAS) outliers: MCAS results can be a strong indicator of a possible market conduct examination. Regulators look for outliers in the results, like the number of complaints, claim denials, and other metrics.
  • New laws and regulations: New laws and regulations are being adopted around evolving functions, such as cybersecurity and health care, and regulators focus on how insurers keep on top of the changes.
  • Market share and premium growth: Larger organizations may tend to be examined more often than smaller market participants.

3. When it comes time for an exam, be prepared and establish a defined process.

If you are chosen for an exam, show that you have your house in order and conduct yourself positively for the best possible result.

  • Appoint an exam coordinator who has thorough knowledge of the company, its organization, and its processes. A well-appointed coordinator can expedite the process and encourage a positive result.
  • Prepare for the examiner’s arrival in advance, having read the coordinator handbook, if relevant. Provide a comfortable, welcoming workplace and fully functioning technology to avoid unnecessary delays. Being friendly, accommodating, respectful, and collaborative can only help—especially when negotiating points in the final report.
  • Respond to exam criticisms quickly. Acknowledge any deficiencies, own them, and work with the examiner to develop a remediation plan in a timely manner to keep the project on track.
  • Build a process to manage workflow and data. Ideally, an organization would use technology to facilitate the exchange of information between examiners and different parts of the company.

4. Utilize technology that is designed for the job.

Many organizations still use ’90s-vintage technology—email, spreadsheets or a secure file share—for market conduct exams, making the process ad hoc, reactive, cumbersome, and unreliable. A system that orchestrates all the moving parts can ensure a vastly better outcome.

  • A purpose-built solution that manages tagged and searchable market conduct content specifically, rather than fishing for information in email and shared files manually. This allows for more timely and accurate responses to examiners’ criticisms during the market conduct exam process.
  • Created by people experienced in the market conduct exam process and uses structured project templates to replace manual task tracking.
  • Accommodation of staff involved by identifying and notifying each one in advance, allowing for preparation of any obligations and tasks well ahead of deadlines, and enabling collaboration among them during the process.

5. More Best Practices

  • Create, test, and verify the implementation of policies and procedures for each exam-triggering area. For example, analyze complaint data to identify trends and implement appropriate corrective action. Implement a solid complaint tracking system that allows for effective management of complaints, and any uptick in complaints should be investigated immediately.
  • Go to the regulators before they go after you by self-reporting compliance issues before they rise to a regulator’s attention. Most DOIs look favorably on companies that do this.
  • Review recent examination results of other companies, which are published on some state department of insurance websites. These can provide insight into different states’ market conduct priorities. For example, one state may be more focused on privacy issues while another looks closely at property & casualty claims.

RegEd is ready to assist insurance companies manage the process of a market conduct exam, including task management, document management, communication with the examiners, documentation, audit trails, reporting, and more, supported by efficient and enabling technology and people with deep experience in the process.

Learn more about our Market Conduct Exam Management solution.

About the Authors

Merlinda Johnson

Merlinda Johnson is the Director of Insurance Regulatory Compliance at RegEd, Inc.

Rebecca Vasquez

Rebecca Vasquez is a Senior Regulatory Analyst/Publisher at RegEd, Inc.

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