RegEd Reaches 3 Million Submissions Reviewed on its Enterprise Advertising Review Solution

Adoption by scores of financial services firms, including 7 of the top 10, fueled exponential growth in volume over the last two years.

RegEd, the leading provider of RegTech solutions to the financial services industry, today announced that Enterprise Advertising Review, an advanced technology solution that automates the advertising compliance review process, has processed more than 3 million submissions to date.

Regulators such as the SEC and FINRA are highly focused on marketing, advertising, and customer communications to ensure that they are fair, balanced, and not misleading, as well as compliant with regulatory rules. A major challenge for financial services firms is efficient compliance review of every marketing and advertising campaign and artifact, and the multitude of channels and stakeholders that must review and approve communications exacerbates the challenge.

Ethan Floyd, Chief Product Officer at RegEd, stated, “There has never been a better time to improve advertising compliance thanks to intelligent capabilities including AI. RegEd’s Enterprise Advertising Review is the most widely adopted solution in the financial services industry due to its advanced and intelligent capabilities that drive unparalleled efficiencies, along with its ability to manage complex approval workflows.” 

The solution accelerates the advertising review process with technology-assisted smart review capabilities so that reviewers spend less time reading and annotating content, providing the ability for certain submissions to be automatically reviewed and approved. RegEd’s Enterprise Advertising Review reduces compliance review time by 50% or more and reduces human intervention in 70% of submission reviews, while increasing first-touch approvals by 80%.

John Schobel, CEO & Founder of RegEd, stated, “Large broker-dealers have two challenges related to advertising review. The first is volume. They have to manage multiple thousands of submissions and approvals each year expeditiously because any delay directly impacts the advisor’s ability to grow their business. Second, from a compliance standpoint, they have to ensure that all of the required approvals are obtained for each submission.” 

Schobel continued, “RegEd’s Enterprise Advertising Review solution has helped scores of broker-dealers and other financial services firms to transform the advertising compliance review process to one that’s highly efficient, handles complex approval workflows easily, and enables scale as the firm grows.”

Enterprise Advertising Review offers unparalleled efficiency-driving capabilities and the solution can readily integrate with a firm’s marketing automation system to deliver a seamless process end-to-end. The aggregate streamlines and automates the management of advertising compliance through all phases, thereby accelerating campaign launches.

Schedule a free consultation to learn more about how RegEd’s Enterprise Advertising Review solution facilitates a seamless review process that increases the quality and effectiveness of a firm’s marketing communications while also speeding time to market.


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 schedule a consultation.

4 Takeaways from the 2021 FINRA Annual Conference

Perhaps SEC Chairman Gary Gensler summed up the predominant theme of the recently concluded 2021 FINRA Annual Conference best in the comments he made in the event’s final session.

 “We need to do whatever we can to ensure that bad actors aren’t playing with working families’ savings and that the rules are enforced aggressively and consistently,” Gensler said in his remarks at this year’s conference, which ran virtually from May 18-20.

Traditionally one of the financial services industry’s largest events, the FINRA annual conference, gathers practitioners, peers, and regulators to exchange ideas on timely compliance and regulatory topics. This year’s event was no different. Several key themes emerged as speakers such as Gensler discussed major industry trends and compliance issues.

1. Protecting retail investors is paramount.

Whether it was guarding seniors against scams, educating a new generation of online investors, or ensuring that registered representatives were squarely on a client’s side when recommending a transaction, regulators repeatedly stressed the importance of protecting retail investors.

“Best interest means best interest. Best execution means best execution,” Gensler said.

“So, if you’re asking a lawyer, accountant, or adviser if something is over the line, maybe it is time to step back from the line. Remember that going right up to the edge of a rule or searching for some ambiguity in the text or a footnote may not be consistent with the law and its purpose.”

Gensler may have been the most prominent advocate for retail investors, in stating, “Every day, I am animated by working families and what the SEC means to them.” But other regulators made similar pledges in sessions covering topics like “Fraud Detection and Prevention,” “Gamification, Social Media, and Digital Communications Perspectives,” and “Enforcement Developments.”

“We have a substantial amount of fraudulent activity that originates from organized criminal rings,” said Lisa DeVos, managing director of the Financial Crimes Training & Awareness program for the Financial Crimes Risk Management unit of Charles Schwab & Co., Inc., during the panel discussion about fraud.

Fraudsters often dupe individuals into paying for services that they don’t receive or into cashing falsified checks. Scams around employment and romance have been particularly common, DeVos said.

Victims are also being asked to send money via virtual currency through platforms like Coinbase. “It comes back to educating clients to be on the lookout for scams and how to avoid them,” DeVos said.

2. Enforcing Reg BI and Form CRS tops examiners’ agendas.

In keeping with the emphasis on protecting retail investors, regulators said that they expect more from firms in this year’s exams when it comes to assessing compliance with Regulation Best Interest and Form CRS. Whereas examiners took a “good faith approach” in which they largely assessed a firm’s implementation progress a year ago because the provisions took effect amidst the COVID-19 pandemic in July, the focus will be on compliance this time around.

“Form CRS is the first stop for examiners at the beginning of an exam, both to look for compliance with Form CRS instructions and also for getting a high-altitude understanding of the firm for the exam,” said Bill St. Louis, senior vice president and firm group leader for FINRA member firms assigned to the Retail and Capital Markets firm grouping, in a panel discussion about Reg BI and Form CRS observations and expectations.

St. Louis noted that the disciplinary history section of Form CRS was an area in which examiners observed shortcomings last year. For example, firms sometimes “massaged” the title of the section, gave ambiguous answers, or omitted it entirely.

He also noted that firms sometimes failed to address major business lines or product areas in their Form CRS. Exceeding page limits for the form, filing it late, or not tracking its delivery to investors properly were other areas of potential improvement, St. Louis said.

In regards to Reg BI, examiners will focus on a firm’s product offerings as well as its policies and procedures and their effectiveness, said Pete Driscoll, director of the SEC’s Division of Examinations (EXAMS), who was on the same panel as St. Louis. “It’s in the early stages for our Phase Two but these are much more in-depth exams looking at a lot of the trading and a lot of the recommendations.”

Examiners want to know how firms make the recommendations that they do and why. In doing so, they will look at areas like product costs, registered representative compensation, and disclosure obligations.

Panelists referred conference attendees to an SEC Roundtable on Reg BI and Form CRS from October 2020 for additional information about observations from last year’s exams. For additional information on this year’s exams, panelists noted that regulators address Reg BI and Form CRS in the SEC’s Examination Priorities for 2021 and in the 2021 Report on FINRA’s Examination and Risk Monitoring Program.

3. Remote exams will continue, at least for now.

Regulators also noted that they will probably try to retain some of the efficiencies that they have realized through remote exams, like eliminating the need to travel to firm offices if an examiner can be just as effective without visiting. But the nature of future exams is still evolving, like that of the workplace itself as firms transition from remote environments to back to the office or to a hybrid arrangement that blends off-site and on-premises work.

FINRA and the SEC are considering extending remote inspections under 3110(c) through 2022 to let firms and examiners adjust to the post-pandemic environment, said Bob Colby, FINRA’s Chief Legal Officer, during a question-and-answer session with members of FINRA’s senior staff.

“That has not been resolved yet, but I feel like the conversations are going well,” Colby, said of discussions with SEC staff. “That is intended to buy a little time in order to figure out how to do this in the longer term.”

Branch definitions are being thought through and FINRA, SEC and states are coordinating signaling that firms could expect some branch-related rulemaking at some point down the road. “Locations aren’t what we used to think they are,” said Colby, noting that definitions like “OSJ” [Office of Supervisory Jurisdiction],” “branch office” and “non-branch office” need to be reviewed.

State regulators will likely insist that no compliance loopholes exist before agreeing to remote inspections as rule rather than an exception. “The states have warned that before they would be willing to agree to any sort of changes, we’re going to need to show that the concerns that have historically been there have been addressed, that we’re not leaving any gaps by which misconduct or inattention or errors could take place,” Colby said.

Firms would need to track work remotely as if it were being done within a traditional office. “We’ll need to get information from the firms to make sure that if we go away from a location-based approach to a functional approach, that we’re going to get the same level of protection and supervision that we’ve had in the past,” Colby said.

4. Leveraging technology and data is important to examiners.

Meanwhile, data is playing a larger role in exams and within FINRA as a whole.

Within exams, data specialists help examiners leverage historic data. They also reduce duplicative data requests and solicit industry feedback that helps FINRA enhance its data analytics and tools, said Yolanda Trottman-Adewumi, senior director, Specialist Programs in FINRA’s Member Supervision Office of Examinations and Risk Monitoring Program during a discussion about FINRA’s Examination and Risk Monitoring program.

FINRA’s Enforcement department is also focused on how it can continue to leverage advanced analytics to better identify risk in transactions. “To be smarter and more efficient in our investigations is key,” said Lara Thyagarajan, FINRA’s senior vice president, head of Market Regulation Enforcement and Litigation, during a panel discussion about enforcement developments.

FINRA is also looking to standardize how it requests and analyzes data so that there is a more consistent experience for firms, said fellow panelist Terry Bohan, vice president of investigations for the FINRA Enforcement department. It is seeking similar consistency internally as well.

“We’re working to standardize data analytics in a way that we may be able to upskill our staff and also bring in new people so that we can gain more insights into the large amounts of data that were seeing,” Bohan said. It is becoming a more data-focused organization.

Looking beyond exams and enforcement, FINRA is marrying data analytics with business processes and people across the organization, said Eileen Murray, chairperson and FINRA public governor, in a fireside chat with FINRA CEO Robert Cook. Within talent management, for example, FINRA uses data analytics to understand its employees’ current skills as well as its future needs. Data helps the organization with succession planning and retraining workers so that they have the skills they will need in the future.

“Reskilling and upskilling are important when you look at what is going on with technology,” Murray said. Though they are exciting and create tremendous opportunities, advances like artificial intelligence, machine learning, and mobile-business models also require workers to have different skills, she said.

“There will be jobs created but if we don’t re-train and re-skill people, we’ll end up leaving them behind,” Murray said, noting that many jobs could be lost at the current pace of innovation. She also noted that hiring a new employee costs less than re-training an existing worker.

Other speakers during the 2021 FINRA Annual Conference joined Murray in stressing that data and technology will be increasingly important as FINRA moves into the future.  So too will protecting retail investors, as Gensler and others stated. Though many themes emerged, that was the most common of all.


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 schedule a consultation.

RegEd’s Margaret Bragg Elected to SILA Foundation Board of Trustees

RegEd Senior Vice President Sales Margaret Bragg has been elected to the SILA Foundation Board as the new Compliance Trustee. As Compliance Trustee, Bragg will help ensure that the Foundation complies with its rules and bylaws.

As the charitable arm of the Securities & Insurance Licensing Association (SILA), one of the SILA Foundation’s missions is to identify students who are aspiring to work in the financial services industry with financial assistance with their education by distributing 10 scholarships of $1,000 each to college students annually. It also supports the onboarding and continued education of financial services industry professionals through the SILA Foundation Certification Program.

Prior to becoming a trustee, Bragg began assisting the Foundation more than a year ago as a volunteer on the Scholarship & Grants Committee, which considers applications for students focused on careers in the insurance and securities industry.

Bragg’s experience with her and her husband’s scholarship program that awards scholarships for high school students from her hometown drew her to the opportunity to support the SILA Foundation in its efforts. Having seen how her local students benefited from the Bragg scholarship program throughout her 11-year involvement, Bragg appreciated the chance to help make a similar impact through the SILA Foundation.

“This group is doing yeoman’s work in trying to positively affect the lives of individuals,” she said of the Foundation’s work. “That resonated with what was already an important piece of my life.”

In addition to its scholarship program, the Foundation runs the Footprint Project, in which it gives $1,000 a year to an organization whose mission is to enhance the personal careers and/or general wellbeing of people located in the city that hosts the annual SILA National Education Conference. And, as an educational forum that helps the public learn about financial services, particularly insurance and securities, the SILA Foundation’s efforts include educational content, online course, virtual classes, free public webinars and career development assistance as well.

Bragg will remain on the SILA Foundation’s scholarship review committee while she also serves on the board of trustees and addresses compliance for the organization. She is now one of two RegEd executives on the Foundation’s board of trustees.

Susan Boles, senior regulatory compliance analyst at RegEd, was elected to the SILA Foundation Board in early 2020 as the new Scholarships & Grants Trustee. As the Scholarships & Grants Trustee, Boles oversees all of the scholarships and grants given by the SILA Foundation.

Also, Brandi Brown, senior vice president of regulatory affairs at RegEd, is co-chair of the SILA Education and Training Subgroup (SETS). SETS provides a forum for SILA Members to address issues related to education and training requirements for producers, adjusters, and registered representatives.

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 schedule a consultation.

NY Reg 187 Could Reach State’s Highest Court After Being Struck Down

A controversial best interest standard for sales of life insurance and annuities in New York may be headed to the state’s highest court now that it has been deemed unconstitutional by an appellate court.

The New York Court of Appeals would be the last stop within the state’s court system should regulators appeal the Supreme Court Appellate Division’s April 29 unanimous decision that the amended New York Regulation 187 is unconstitutional.

“It appears likely that the decision will be appealed to the state’s highest court and, if the appeal is filed, a stay of the appellate court decision will be requested. This would be granted as a routine matter so that Reg 187 would continue to be the law until a final decision,” said Brandi Brown, senior vice president of regulatory affairs for RegEd.

Though the best interest standards established under the amended version of New York’s Reg 187 came into effect for annuity sales on August 1, 2019, and for life insurance sale on February 1, 2020, insurance industry associations, an insurance agency, and a registered representative sought to overturn them by suing the state’s Department of Financial Services (DFS). A state Supreme Court judge ruled in regulators’ favor in August but the Supreme Court Appellate Division’s sided with the remaining plaintiffs, Independent Insurance Agents of New York (Big I NY) an industry trade association, and Testa Brothers, one of its members, in their appeal.

Appellate court rules NY Reg 187 unconstitutional

The appellate court agreed with Big I NY and Testa Brothers and their contentions that the amendment violates their due process rights as it is unconstitutionally vague.

 “It provided little if any protection beyond the already robust laws of conduct and accountability for insurance agents, and actually harmed consumers by reducing access to affordable life insurance products and the trusted advice of an agent,” Lisa Lounsbury, CAE, president and CEO of Big I New York said after the ruling, according to an association blog post about winning its lawsuit appeal against NYSDFS.

In siding with the plaintiffs, the appellate court wrote that NY Reg 187 failed to meet either both prong of the two-part test that is used to evaluate “a vagueness challenge.” That is, NY 187 was not sufficiently defined and standards for enforcement were not specific enough.

“While the consumer protection goals underlying promulgation of the amendment are laudable, as written, the amendment fails to provide sufficient concrete, practical guidance for producers to know whether their conduct, on a day-to-day basis, comports with the amendment’s corresponding requirements for making recommendations and compiling and evaluating the relevant suitability information of the consumer,” justices wrote.

Furthermore, “given the resulting ambiguities in the language employed, coupled with its lack of clear standards for how these provisions will ultimately be enforced, respondents have ‘virtually unfettered discretion’ in determining whether a violation has occurred,” justices continued.

Industry favors NAIC best interest standard

“The amendment to Regulation 187 created unintended consequences that placed unnecessary barriers between Main Street New Yorkers and the insurance and financial services professionals who serve them,” said Gary Cappon, president of the National Association of Insurance and Financial Advisors New York Chapter (NAIFA-NY), according to an association blog post regarding the appellate courting ruling NY Reg 187 unconstitutional. The NAIFA-NY was among the plaintiffs that initially challenged NY Reg 187 but it was not part of the appeal.

“The court’s ruling on Regulation 187 gives New York a fantastic opportunity to make a fresh start and create a regulation to protect consumers based on the NAIC model,” Cappon said, referencing the National Association of Insurance Commissioners (NAIC) model regulation on annuity transactions.

The NAIC model regulation requires financial professionals to act in the best interests of consumers during annuity transactions and aligns with the Securities and Exchange Commission’s federal Regulation Best Interest, the NAIFA-NY noted in expressing its support.

The NAIC explains that its annuity suitability and best interest standard requires agents and carriers to act with “reasonable diligence, care, and skill” in making recommendations. Three states have adopted revisions to the model and the NAIC continues to work with regulators nationwide.

Meanwhile, in New York, insurance companies may have to wait to see if DFS will appeal the recent ruling that the best interest standards put forth in NY 187 are unconstitutional.

“Until the appeal of the Supreme Court’s recent decision, some companies may opt to delay training of new agents under Reg 187, but we believe that most insurers will continue to follow Reg 187 until its fate is finally decided,” said Brown, RegEd’s senior vice president of regulatory affairs.

“This means they will continue to need training. And RegEd’s courses will continue to be available for as long as needed.”

RegEd offers three courses that insurers may use for this purpose.

  • NY Reg 187: Suitability and Best Interest of Clients in Life Insurance and Annuity Transactions (484_NY)
  • Best Interest of Clients in Life Insurance Transactions: NY Reg 187 Course(484_NY_L)
  • Best Interest of Clients in Life Insurance or Annuity Transactions: NY Reg 187-1 Hour Course (485_NY)

Visit our website to learn more about RegEd’s Insurance CE solution, or RegEd’s CE Authority website to learn more about continuing education (CE) courses for insurance professionals.

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 schedule a consultation.

NASAA Investment Adviser Report Highlights New Model Rules for CE and Policies and Procedures

The North American Securities Administrators Association (NASAA) recently released its annual report on the state-registered investment adviser industry and the related regulatory activities of state securities regulators.

NASAA’s 2021 Investment Adviser Section Annual Report includes an updated snapshot of the investment adviser population in the United States, an updated profile of the average state-registered investment adviser, and a recap of the work of the Investment Adviser Section over the past year. It also includes suggestions for compliance areas that state-registered investment advisers should consider in handling the remote working environments that have become common due to the COVID-19 pandemic.

“State securities regulators devote significant resources toward helping state-registered investment advisers, many of which are small- and mid-size businesses, better serve their clients by remaining in compliance with state securities law,” said Lisa A. Hopkins, NASAA President and West Virginia Senior Deputy Securities Commissioner, in announcing the release of NASAA’s annual investment adviser report.

Model rules to help advisers and their clients

In this year’s report, NASAA highlighted new model rules that states could implement to strengthen protections for investors and compliance by advisers.

IAR continuing education model rule

The Investment Adviser Representative Continuing Education Model Rule that NASAA members approved in November set parameters by which states can implement continuing education programs for investment adviser representatives (IARs) in their jurisdictions. Unlike other financial service professionals, IARs have not been subject to a continuing education requirement to maintain their licenses with state regulators but the model rule helps states close that gap, NASAA explained in its investment adviser report.

NASAA’s IAR continuing education model rule requires IARs to take 12 hours of continuing education annually and includes a products and practices component as well as an ethics component. The model rule is intended to be compatible with other continuing education programs.

“The model rule represents the culmination of years of work by state securities regulators and industry to develop a relevant and responsive continuing education program,” NASAA wrote in its report. “The collaboration between the public and private sectors is intended to promote heightened regulatory compliance while also helping IARs better serve their clients by remaining knowledgeable of current regulatory requirements and best practices.”

NASAA expects the CE program criteria, requirements, and application material to be complete and available by the end of the second quarter, according to an IAR continuing education update released in January. NASAA and Prometric planned to spend the first four months of 2021 standardizing the criteria under which potential IAR CE content providers, instructors, and courses will be approved.  

NASAA answers frequently asked questions about the model rule for continuing education for IARS on its website in the meantime.

IA written policies and procedures model rule

Like the continuing education model rule, NASAA members approved the Investment Adviser Policies and Procedures Model Rule and accompanying Compliance Grid in November. NASAA’s IA Policies and Procedures model rule requires investment advisers to establish, maintain, and enforce written policies and procedures tailored to their business model, accounting for the size of the firm, type(s) of services provided, and the number of locations.

The model rule is meant to facilitate compliance with state securities laws, rules, and regulations. “Enhanced investment adviser compliance inures to the benefit of investors, regulators, and advisers themselves,” NASAA wrote in its investment adviser report.

The Compliance Grid that accompanies the model rule addresses common compliance and supervision issues that should be considered in the creation of policies and procedures, NASAA explained. “Ultimately, an enhanced culture of investment adviser regulatory compliance minimizes the effects of conflicts and other risks unique to investment advisers; minimizing the effects of these conflicts and risks serves to protect the investing public,” it wrote.

NASAA intended for the model rule to align with the Securities and Exchange Commission (SEC) Rule 17 CFR 275.206(4)-7 (SEC Rule 206(4)-7), thereby “enhancing uniformity with federal investment adviser regulatory standards on the topic.” Like SEC Rule 206(4)-7, the model rule stops short of identifying specific topics that firms must address in their compliance and supervision policies and procedures. Instead, it requires advisers “to identify their own unique conflicts and risk exposures” and to design their policies and procedures accordingly.

“The Model Rule coupled with the Compliance Grid establish regulatory expectations for registrants, create a blueprint for examiners to follow in reviewing policies and procedures, encourage uniformity with SEC standards on the topic, and further the goal of identifying and minimizing conflicts and risks to the investors that we all serve,” NASAA summarized.

Guidance for maintaining compliance during the COVID-19 pandemic

NASAA also suggested that firms implement and update their written procedures and practices to address changes brought by the COVID-19 pandemic. “These new realities include the possibility of serious health and safety risks for firm personnel and clients, remote work environments, the increased use of electronic communication and devices, and recent market volatility,” according to its report.

A firm should have a business continuity and succession plan (BCS plan), for example. Though requirements for such plans may vary by state, NASAA’s model rule on business continuity and succession planning requires firms to provide for at least the following measures in their policies and procedures.

  1. Protection, backup, and recovery of books and records
  2. Alternate means of communications with customers, key personnel, employees, vendors, and service providers
  3. Office relocation in the event of temporary or permanent loss of a principal place of business
  4. Re-assignment of duties in the event of the death or unavailability of key personnel
  5. Minimizing service disruptions and client harm that could result from a sudden significant business interruption

In addition to revisiting their BCS plans, NASAA suggests that firms assess their cybersecurity plans and consider the potential risks and vulnerabilities associated with remote work. It recommends reviewing NASAA’s Cybersecurity Checklist for Investment Advisers as well as contacting state securities regulators about any state-specific resources or training they may offer on cybersecurity topics.

Regulations for investment advisers and protections for investors

State securities regulators have regulatory oversight responsibility for almost 17,500 investment advisers with assets under management of $100 million or less. States also have sole regulatory oversight of all investment adviser representatives, the financial professionals who work directly with retail investors, whether the adviser is registered with a state or with the SEC. 

According to NASAA’s report on state-registered investment advisers and the related regulatory activities of state securities regulators, the organization’s regulatory policy and review priorities for 2021 include:

  • Engaging investor advocacy and industry groups to discuss the evolving nature of investment adviser fee models;
  • Creating a guidance document related to investment adviser alternative fee models;
  • Monitoring and assisting in commentary to SEC rule proposals to amend or add to investment adviser rules and forms;
  • Reviewing the adequacy of current model rules related to investment adviser marketing;
  • Collaborating with the broker-dealer section to propose a model rule on unpaid arbitration awards;
  • Finalizing written guidance on standing letters of authorization as they relate to custody; and
  • Other topics of interest to the investment adviser and regulatory communities.

“NASAA and its members remain very involved in helping investment advisers and protecting investors. From their new model rules for IAR training and IA policies and procedures to their ongoing guidance for maintaining compliance during the pandemic, they prioritize investor protection through state regulations for investment advisers,” said Margie Webber, director of regulatory compliance for RegEd.

As fit-to-purpose tools tailored to the needs of broker-dealers and investment advisers, RegEd’s compliance solutions for securities firms are highly effective as well as cost-efficient. Firms can seamlessly manage all aspects of their compliance programs, reducing risks and costs by automating and streamlining processes. And each solution is configured for optimal performance by RegEd’s implementation experts, who have worked with many of the nation’s largest securities firms.

RegEd’s compliance management platform includes the following solutions (among others).

  • Policies and Procedures Management Solution – An enterprise workflow, work-process, and task management solution, it enables comprehensive, end-to-end administration and oversight of all elements of a firm’s policies and procedures.
  • Education and Training Suite – Robust technology and content power firms’ compliance programs. Solutions like CE Program Management and Firm Element Training streamline training and education and improve compliance.

Schedule a consultation to learn more about how RegEd’s compliance solutions enable investment advisers to improve efficiency, effectiveness, and transparency across the enterprise.

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 schedule a consultation.

SEC Addresses Compliance Concerns in ESG Risk Alert

The SEC wants investment advisers to strengthen compliance practices related to environmental, social, and governance (ESG) investing, which is increasingly popular.

“This rapid growth in demand, increasing number of ESG products and services, and lack of standardized and precise ESG definitions present certain risks,” the SEC’s Division of Examinations wrote in a risk alert for ESG investing that examiners released on April 9.

“For instance, the variability and imprecision of industry ESG definitions and terms can create confusion among investors if investment advisers and funds have not clearly and consistently articulated how they define ESG and how they use ESG-related terms, especially when offering products or services to retail investors. Actual portfolio management practices of investment advisers and funds should be consistent with their disclosed ESG investing processes or investment goals,” examiners continued.

Regulators emphasized that their concern lies in the consistency with which advisers disclose ESG investing processes and goals, or rather the lack thereof—and not in the merits of a firm’s ESG investments themselves.

“Firms claiming to be conducting ESG investing need to explain to investors what they mean by ESG and they need to do what they say they are doing. This same rule applies no matter what label an adviser puts on its products and services,” SEC Commissioner Hester Peirce said in a follow-up statement on the staff ESG risk alert.

The SEC’s intensifying interest in ESG investing reflects its emphasis on protecting retail investors, said Margie Webber, director of regulatory compliance for RegEd. “Examiners want firms to apply the same rigorous compliance efforts to ESG investing as they do to other investments.”

ESG Compliance Concerns

Examiners cited the following examples of deficiencies and internal control weaknesses in firms’ current compliance efforts for ESG investing in their risk alert.

  • Portfolio management practices that differ from disclosures about ESG approaches
  • Weaknesses in policies and procedures governing implementation and monitoring of the advisers’ clients’ or funds’ ESG-related directives
  • Unsubstantiated or otherwise potentially misleading claims regarding ESG approaches
  • Inadequate controls to ensure that ESG-related disclosures and marketing reflect the firm’s practices
  • Lack of policies and procedures addressing ESG investing analyses, decision-making processes, or compliance review and oversight
  • Limited knowledge of relevant ESG-investment analyses or oversight of ESG-related disclosures and marketing decisions among compliance personnel

Though firms do not need a special set of policies and procedures for ESG investing, they should design their policies and procedures around whatever investment strategies they employ and comply accordingly, Peirce stated.

“As with any other investment strategy, advisers and funds should not make claims that do not accord with their practices, and our examiners will be looking for that consistency between claims and practice,” she said.

Effective Practices for ESG Compliance

Examiners also included the following examples of effective practices in their risk alert so that firms can develop and enhance their compliance practices.

  • Disclosures that were clear, precise, and tailored to firms’ specific approaches to ESG investing, and which aligned with the firms’ actual practices
  • Policies and procedures that addressed ESG investing and covered key aspects of the firms’ relevant practices
  • Compliance personnel that were integrated into firms’ ESG-related processes and knowledgeable about firms’ ESG approaches and practices

“The compliance personnel in these firms appeared to: provide more meaningful reviews of firms’ public disclosures and marketing materials; test the adequacy and specificity of existing ESG-related policies and procedures, if any (or assess whether enhanced or separate ESG-related policies and procedures were necessary); evaluate whether firms’ portfolio management processes aligned with their stated ESG investing approaches; and test the adequacy of documentation of ESG-related investment decisions and adherence to clients’ investment preferences,” examiners wrote in their risk alert.

Like with any area of importance, examiners expect firms to support ESG investing with effective policies and procedures and adequate disclosures, RegEd’s Webber said. “As usual, examiners want firms to comply with their practices internally and to be forthcoming in their communications externally.”

Strengthening Compliance for ESG Investing

The SEC will watch firms closely as ESG investing grows, Peirce stated. “This alert comes as many financial firms are finding gold in the green—they are offering ESG products because it is lucrative to do so. Therefore, as I have noted previously, asset manager accountability in the ESG space is important.”

In concluding their risk alert, examiners wrote, “The Division encourages market participants promoting ESG investing to clients, prospective clients, investors, and prospective investors to evaluate whether their disclosures, marketing claims, and other public statements related to ESG investing are accurate and consistent with internal firm practices.

“Additionally, firms should ensure that their approaches to ESG investing are implemented consistently throughout the firm where relevant and are adequately addressed in the firm’s policies and procedures and subject to appropriate oversight by compliance personnel.”

As fit-to-purpose tools tailored to the needs of broker-dealers and investment advisers, RegEd’s compliance solutions for securities firms are highly effective as well as cost-efficient. Firms can seamlessly manage all aspects of their compliance programs, reducing risks and costs by automating and streamlining processes. And each solution is configured for optimal performance by RegEd’s implementation experts, who have worked with many of the nation’s largest securities firms.

RegEd’s compliance management platform includes the following solutions (among others).

  • Policies and Procedures Management Solution – An enterprise workflow, work-process, and task management solution, it enables comprehensive, end-to-end administration and oversight of all elements of a firm’s policies and procedures.
  • Advertising Review – A single, integrated solution that streamlines the end-to-end processes for advertising and customer communication submission, review, collaboration, and approval, Advertising Review speeds time to market for review items so that sales campaigns are launched in the expected timeframes and with the highest level of quality.

Schedule a consultation to learn more about how RegEd’s compliance solutions enable securities firms to improve efficiency, effectiveness, and transparency across the enterprise.

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 schedule a consultation.

CFPB Becomes More Vigilant about Abusive Practices as it Strengthens Consumer Protections

The Consumer Financial Protection Bureau has signaled that it will be more aggressive in policing abusive acts or practices as part of a broader shift in priorities under the direction of the Biden administration.

Under the leadership of acting director Dave Uejio, who assumed the position after Biden took office in January, the CFPB recently rescinded a year-old policy that it had implemented during the Trump administration. In rescinding the policy, in which the CFPB had focused on achieving compliance with regulations prohibiting abusive acts or practices through supervisory measures rather than enforcement actions, the CFPB aligned itself with Biden’s intention of strengthening consumer protections during his presidency.

“The CFPB has made these changes to better protect consumers and the marketplace from abusive acts or practices, and to enforce the law as Congress wrote it,” the CFPB stated in a press release announcing the rescission of the 2020 Statement of Policy Regarding Prohibition on Abusive Acts or Practices on March 11. “The 2020 Policy Statement was inconsistent with the Bureau’s duty to enforce Congress’s standard and rescinding it will better serve the CFPB’s objective to protect consumers from abusive practices.”

The CFPB will likely shine a brighter spotlight on bank sales practice as it seeks to protect consumers. “Regulators want to ensure that marketing and advertising complies with the Dodd-Frank Act,” said Margie Webber, director of regulatory compliance for RegEd. 

Section 1031(a) of the Dodd-Frank Act authorizes the CFPB to identify unfair, deceptive, or abusive acts or practices (UDAAPs) by banks with more than $10 billion in assets and to pursue relief for affected consumers through enforcement. Given that marketing and advertising are among the primary places that the CFPB looks for UDAAPs, the bureau’s recently stated preference for enforcement could lead to more actions against banks and larger penalties.

Defining UDAAPs

Congress both created the CFPB and banned UDAAPs through the Dodd-Frank Act in 2010, in which it sought to protect consumers from problems like those they endured during the Great Recession, which was caused in part by easy credit that led to borrowers accumulating more debt than they could afford.

The Dodd-Frank Act prohibits financial services providers like banks from coercing, deceiving, or misleading consumers into purchasing products, including through specific statements or lack of clear and full disclosure. Legislators charged the CFPB with creating the rules around UDAAPs.

In releasing its since-rescinded 2020 Policy Statement, the CFPB noted that uncertainty remained as to the scope and meaning of abusiveness a decade after the Dodd-Frank Act’s passage. “This uncertainty creates challenges for covered persons in complying with the law. The Bureau wants to make sure that such uncertainty does not impede or deter the provision of otherwise lawful financial products or services that could be beneficial to consumers,” the CFPB stated in releasing its then policy last January.

Stating that it intended “to convey and foster greater certainty about the meaning of abusiveness” through the policy, the CFPB noted that it would approach the abusiveness standard as follows.

  • Focusing on citing conduct as abusive in supervision or challenging conduct as abusive in enforcement if the harms to consumers outweighed the benefits
  • Avoiding challenging conduct as abusive as well as unfair or deceptive.
  • Refraining from seeking monetary relief for violations if the financial services provider had made a good-faith effort to comply with the abusiveness standard

“The Bureau substantiated the 2020 Policy Statement as being necessary in order to provide certainty to market participants, and to advance the goal of promoting innovation in financial products and services that would benefit consumers,” Seyfarth Shaw attorneys wrote in noting that the CFPB wasted no time shifting focus to consumer protection by rescinding the Trump-era policy statement on abusive acts and practices.

Refocusing on enforcement

However, in rescinding the policy statement last month, the CFPB noted that its three principles “do not actually deliver clarity to regulated entities” and in fact “add uncertainty to market participants,” Alston & Bird attorneys wrote in parsing the CFPB’s recent rescission of its abusiveness policy statement.

Furthermore, no additional explanation of the abusiveness standard is needed because the Dodd-Frank Act gives the CFPB sufficient authority to declare an “abusive act or practice,” the CFPB wrote. “Had Congress intended to limit the Bureau’s authority to apply the full scope of the abusiveness standard, it could have prescribed a narrower abusiveness prohibition, but it did not,” the CFPB wrote in its rescission statement. “Thus, rescinding the Policy Statement is consistent with the Bureau’s statutory authority.”

The CFPB also asserted that stricter enforcement of the provisions of the Dodd-Frank Act would be more effective in deterring abusive acts than supervisory oversight. “Declining to apply the full scope of the statutory standard pursuant to the policy has a negative effect on the Bureau’s ability to achieve its statutory objective of protecting consumers from abusive practices.

“In particular, the policy of declining to seek certain types of monetary relief for abusive acts or practices—specifically civil money penalties and disgorgement—is contrary to the Bureau’s current priority of achieving general deterrence through penalties and other monetary remedies and of compensating victims for harm caused by violations of the Federal consumer financial laws through the Bureau’s Civil Penalty Fund,” the CFPB wrote in its rescission statement.

Maintaining advertising compliance

Avoiding UDAAPs in marketing and advertising will be key for banks and other financial services providers that do not wish to be subject to enforcement actions or penalties from the CFPB, particularly for abusive acts or practices. Ensuring that their marketing and advertising are free from misleading statements or omissions is vital.

“When banks offer investments or other products through their marketing and advertising, they must confirm that all of the proper statements and disclosures are in place so that they comply with all applicable regulations,” RegEd’s Webber said.

RegEd’s market-leading Advertising Review enterprise software solution makes it easier for banks to comply with federal and state consumer protection laws like those that the CFPB intends to enforce more vigorously.

Advertising Review helps banks overcome regulatory scrutiny by enabling them to have consistent and methodical processes for complying with regulations like those for UDAAPs. The solution streamlines the end-to-end processes for advertising and customer communication submission, review, collaboration, and approval, thereby speeding time to market for review items so that sales campaigns are launched as scheduled, with the highest level of quality, and in compliance with state and federal regulations.

Schedule a consultation to learn more about how RegEd’s fit-for-purpose solutions like Advertising Review enable banks to gain the effective oversight that they need to ensure that compliance obligations are fulfilled, compliance gaps are readily identified and remediated, and strong audit trails that demonstrate compliance are captured and memorialized.

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 schedule a consultation.

SEC Issues AML Risk Alert for Compliance Issues Related to Suspicious Activity Monitoring and Reporting at Broker-Dealers

The SEC has warned broker-dealers to watch for compliance issues related to suspicious activity monitoring and reporting.

Seeking to improve compliance with federal anti-money laundering (AML) rules and regulations, the Division of Examinations encouraged firms “to review and strengthen their applicable policies, procedures, and internal controls” in an AML risk alert for broker-dealers.

“The SEC encourages broker-dealers to strengthen their policies and procedures for identifying and reporting suspicious activity as examiners have seen that many firms are not fulfilling their obligations under the law,” said Margie Webber, director of regulatory compliance for RegEd. 

The Examination Division has noticed several deficiencies related to broker-dealers’ obligations under the Bank Secrecy Act (BSA), specifically regarding the Financial Crimes Enforcement Network’s (FinCEN’s) AML Program Rule and SAR Rule. Examiners’ findings include the following observations, according to the risk alert issued on March 29.

AML Policies and Procedures

FinCEN’s AML Program Rule requires broker-dealers to establish and implement policies, procedures, and internal controls for identifying and reporting suspicious transactions. “A broker-dealer should look for indicators of illicit activities (generally referred to as “red flags”) and incorporate those red flags into its policies and procedures. Awareness by firm personnel of red flags and how to respond to those red flags, including escalating awareness of the red flags to appropriate firm personnel, will help ensure that a firm is in a position to identify the circumstances that warrant further due diligence and possible reporting,” the SEC explained in its risk alert.

Inadequate policies and procedures for AML

SEC examiners have found that some firms have not established “reasonably designed policies and procedures and internal controls” for identifying and reporting suspicious activity as required. Examiners noted the following examples.

  • No policies or procedures for raising “red flags” for suspicious activities
  • Setting SAR reporting thresholds at amounts “significantly higher” than the $5,000 regulations require
  • Relying on clearing firms to identify and report suspicious transactions in customer accounts

Failure to implement procedures

“Some firms that had reasonably designed written policies and procedures did not implement their procedures adequately and did not conduct adequate due diligence on or report suspicious activity that, per their own procedures, appeared to trigger a SAR filing requirement,” examiners wrote in their risk alert for broker-dealers.

Examples included:

  • Not filing SARs for transactions similar to ones that they previously reported
  • Not monitoring transaction reports and systems for suspicious activity
  • Failing to follow up on red flags that were raised

Suspicious Activity Reporting

The SAR Rule requires a broker-dealer to file a report of any suspicious transaction with FinCEN. The requirement applies to any transaction of $5,000 or more that meets any of the various criteria established by FinCEN, like it seems to be a transaction that the particular customer would not normally be expected to do.

Failure to respond to suspicious activity

“Weak policies, procedures, and internal controls, or the failure to implement existing policies and procedures, ultimately resulted in firms not conducting or documenting adequate due diligence in response to known indicators of suspicious activity especially with respect to activity in low-priced securities, which are particularly susceptible to market manipulation,” examiners wrote.

Examiners also noted that firms failed to act on information within customer accounts like records of liquidations of large volumes of high-risk, low-priced securities or trades of low-priced stock by customers affiliated with the issuer.

Filing inaccurate or incomplete SARs

Some broker-dealers make it difficult for regulators and law enforcement to follow up on suspicious activity by not including transaction-specific details in the SARs that the firm files. Rather, some firms have “filed hundreds of SARs or more containing the same generic boilerplate language, which failed to make clear the true nature of the suspicious activity and the securities involved,” examiners wrote.

Examiners noted the following examples of SARs that contained inaccurate information or lacked sufficient detail on key aspects of the suspicious activity.

  • Failing to include customer-identification information like Social Security numbers
  • Not reporting the liquidation of low-priced securities shortly after they were deposited
  • Not including details of a cyber-intrusion, like time, manner, and method of the incident

Improving AML compliance

“In fulfilling their important AML obligations, broker-dealers play a vital front-line role in assisting regulators and law enforcement in identifying and addressing suspicious activities to prevent our financial systems from being used for criminal purposes,” examiners wrote, in urging broker-dealers to strengthen policies, procedures, and internal controls for identifying and reporting suspicious activities.

“Strong policies, procedures, and internal controls protect broker-dealers and their customers by ensuring that any suspicious activity is quickly identified and properly reported,” RegEd’s Webber said. “Removing improper and illegal trading is key to maintaining the integrity of firms and financial markets.”

RegEd’s Policies and Procedures Management Solution helps broker-dealers comply with their AML obligations and other regulations. It enables comprehensive, end-to-end administration and oversight of all elements of a firm’s policies and procedures through an enterprise workflow, work-process, and task management platform. Broker-dealers can also incorporate AML into their Firm Element Continuing Education Program through RegEd’s learning management technology.

Schedule a consultation to learn more about how RegEd’s compliance solutions enable securities firms to improve efficiency, effectiveness, and transparency across the enterprise.

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 schedule a consultation.

SEC’s Examination Priorities for 2021 Reflect Continued Concern for Retail Investors

The SEC’s Division of Examinations will continue to emphasize protection for retail investors in the coming year, particularly for seniors and individuals saving for retirement.

The Examination Division will evaluate whether registered investment advisers (RIAs) meet standards of conduct and will examine whether firms appropriately mitigate and disclose conflicts, regulators recently announced in releasing the SEC’s Examination Priorities for 2021. Examiners will also probe sales of retail investment products.

The priorities are a continuation of the SEC’s efforts to protect retail investors. In the fiscal year 2020, the Division of Examinations:

  • Issued more than 2,000 deficiency letters, which prompted many firms to take corrective actions, like by amending compliance policies and procedures or enhancing their disclosures.
  • Ordered firms to return more than $32 million to investors for fees that were improperly calculated and charged.
  • Referred more than 130 cases to the SEC’s Enforcement division, including referrals related to registered investment advisers selecting higher-cost mutual fund share classes for clients when lower-cost options were available; advisers failing to disclose conflicts of interest, and broker-dealers failing to supervise registered representatives who made unsuitable recommendations to retail customers.

“The SEC’s focus on retail investors speaks to the need for education and training for registered representatives, broker-dealers, and investment advisers,” said Margie Webber, director of regulatory compliance for RegEd. 

Firms can protect themselves by addressing the following SEC 2021 examination priorities through compliance action items.

Standards of Conduct

Examiners will focus on compliance with Regulation Best Interest (Reg BI), Form CRS, and whether RIAs have fulfilled their fiduciary duties of care and loyalty. With a compliance date of June 30, 2020, the standards have a “direct impact on the retail investor experience with broker-dealers and RIAs,” the SEC stated in its report on its 2021 examination priorities.

“Your policies and procedures should clearly define what standard applies to any given situation,” Webber said.

Firms and examiners have been adapting to the Reg BI and Form CRS standards since they were adopted in June 2019. In the past year, the SEC has developed new examination approaches for Reg BI and Form CRS “to both promote compliance and inspect firms in both our broker-dealer and investment adviser/investment company programs,” the SEC stated in its priorities report.

The SEC has also communicated with firms about Reg BI and Form CRS, beginning by publishing two risk alerts in April 2020: Examinations that Focus on Compliance with Regulation Best Interest and Examinations that Focus on Compliance with Form CRS. Regulators then shared preliminary observations from their initial examinations at a Roundtable on Regulation Best Interest and Form CRS in October 2020.

Regulation Best Interest

Reg BI requires a broker-dealer to put a retail customer’s interests first when recommending a securities transaction or an investment strategy involving securities. A broker-dealer must meet a four-part standard of conduct that includes obligations for Disclosure, Care, Conflict of Interest, and Compliance.

The SEC says that its initial examinations for compliance with Reg BI showed “that firms generally responded” by updating their written supervisory procedures (WSPs) and conducting training. However, though some firms incorporated specific compliance processes into their WSPs, others “simply restated the standards, but did not provide any meaningful guidance as to how these should be implemented.”

In December, the SEC issued a Statement on Recent and Upcoming Regulation Best Interest Examinations that identified Reg BI components that could be included in future examinations, including how firms consider costs in making a recommendation and the processes firms use to recommend complex products.

And now, per its recently released priorities report, the SEC has advised firms that in 2021 it will also conduct enhanced transaction testing and “will evaluate firm policies and procedures designed to meet additional elements of Regulation Best Interest, the recommendation of rollovers and alternatives considered, complex product recommendations, assessment of costs and reasonably available alternatives, how sales-based fees paid to broker-dealers and representatives impact recommendations, and policies and procedures regarding how broker-dealers identify and address conflicts of interest.”

SEC Commissioner Caroline Crenshaw believes that examination and enforcement data “will illuminate whether the rule is working as promised, or whether changes may be required,” WealthManagement.com reported in an article about the SEC’s plans to assess Reg BI performance, which was based on an interview with Crenshaw.

Form CRS

Form CRS requires broker-dealers and RIAs to give retail investors a brief customer or client relationship summary. “The relationship summary is intended to inform retail investors about: the types of client and customer relationships and services the firm offers; the 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; and how to obtain additional information about the firm.” Firms must also file their relationship summaries with the SEC and post them on their websites.

Firms filed more than 13,000 Form CRSs in the past year, the SEC noted in its report on 2021 examination priorities. The SEC stated, “We saw a wide variety of approaches that firms used to comply with the requirements of Form CRS, and generally observed firms complying with the Form’s requirements. Many firms appeared to make effective use of hyperlinks in their digital Form CRSs. We also observed that many firms are generally avoiding legalese and generic boilerplate language, but we also noted the readability of some Form CRSs could still be improved.

“Some firms did not adequately respond to the Form CRS disciplinary disclosure requirements, an area all firms should ensure they address. In addition, we identified and notified hundreds of firms that they had failed to timely file a Form CRS.”

The SEC will examine broker-dealers and RIAs to assess compliance with Form CRS in 2021.

RIA Fiduciary Duty

The Interpretation Regarding Standard of Conduct for RIAs that the SEC released in 2019 with Reg BI and Form CRS affirmed and clarified aspects of an RIA’s fiduciary duty that comprises duties of care and loyalty to its clients.

In evaluating RIAs for compliance in 2021, SEC examiners will assess, “among other things, whether RIAs provide advice, including whether account or program types continue to be, in the best interests of their clients, based on their clients’ objectives, and eliminate or make full and fair disclosure of all conflicts of interest which might incline RIAs—consciously or unconsciously—to render advice which is not disinterested such that their clients can provide informed consent to the conflict.”

Examiners will also focus on risks associated with fees and expenses, complex products, best execution, and undisclosed or inadequately disclosed, compensation arrangements.

Retail Investments and Sales Practices

In addition to evaluating broker-dealers and RIAs for meeting standards of conduct, the SEC has also prioritized determining whether transactions involving retail investors and advice provided to them are appropriate. Examiners will assess whether firms meet their legal and compliance obligations when providing retail customers access to complex strategies, such as options trading, and complex products in particular. They will also focus “on how firms are complying with the recent changes to the definition of accredited investor when recommending and selling certain private offerings,” according to the 2021 examination priorities report.

RegEd’s Webber suggested that firms address legal and compliance obligations related to retail investors in their education and training programs. She also recommended ensuring that standards, procedures, and solutions for conflicts of interest disclosure are in place.

Examiners are particularly concerned about conflicts of interest that could compromise a broker-dealer’s, RIA’s, or firm’s obligation to act in the best interest of retail investors. So, examiners have prioritized reviewing firms’ disclosures regarding their conflicts of interest, including those related to fees and expenses.

“Fee and compensation-based conflicts of interest may take many forms, including revenue-sharing arrangements between a registered firm and issuers, service providers, and others, and direct or indirect compensation to personnel for executing client transactions,” according to this year’s examination priorities report.

Strengthening Compliance for 2021 and Beyond

Securities firms that address the SEC’s 2021 examination priorities in their education and training programs will strengthen their compliance programs by doing so. Many companies will use technology to comply efficiently.

“The use of technology to facilitate compliance with regulatory requirements (RegTech) has experienced immense growth in recent years,” the SEC wrote, noting that examiners will focus on the implementation and integration of RegTech in firms’ compliance programs to ensure that the technology is configured correctly and used properly. “RegTech, when implemented appropriately, may increase the efficiency of compliance staff, reduce manual processes, and exponentially increase transaction review capabilities.”

As fit-to-purpose tools tailored to the needs of broker-dealers and investment advisers, RegEd’s compliance solutions for securities firms are highly effective as well as cost-efficient. Firms can seamlessly manage all aspects of their compliance programs, reducing risks and costs by automating and streamlining processes. And each solution is configured for optimal performance by RegEd’s implementation experts, who have worked with many of the nation’s largest securities firms.

RegEd’s compliance management platform includes the following solutions (among others).

  • Education and Training Solution Suite – Advanced learning management technology streamlines the creation of a firm’s annual compliance program, simplifies course enrollment, provides access to timely course materials, and efficiently tracks course completion.
  • Policies and Procedures Management Solution – An enterprise workflow, work-process, and task management solution enables comprehensive, end-to-end administration and oversight of all elements of a firm’s policies and procedures.
  • Conflicts of Interest Solution Suite – Automated end-to-end management of request processes, compliance monitoring and exception management associated with conflict of interest policies embeds best practices in a firm’s compliance program. 
  • Outside Business Activities Solution – Centralized, systematized management of OBA disclosures, attestations and amendments reduces review time and facilitates communication on specific requests to speed the decision process.
  • Gifts, Gratuities and Contributions Management Solution – Advanced software ensures that all transactions comply with regulations and firm policy, providing insight into violations, trends, conflicts of interest, reducing the risk of non-compliance.
  • Personal Securities Account Management Solution – Automating the management of personal trading activities delivers extraordinary efficiency and enhances the quality of supervision while dramatically reducing the risk of non-compliance and related consequences.

Schedule a consultation to learn more about how RegEd’s compliance solutions enable securities firms to improve efficiency, effectiveness, and transparency across the enterprise.

For additional ways to strengthen your firm’s compliance program, view our recent webinar on FINRA’s 2021 Examination and Risk Monitoring Program Report.

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.

Modernized Marketing Rule for Investment Advisers Takes Effect on May 4

The countdown to the implementation of the modernized marketing rule for investment advisers has begun.

After years in the making, the sweeping changes that the SEC made in modernizing marketing rules for investment advisers will finally take effect on May 4, 2021, 60 days after being published in the Federal Register on March 5.

Firms will have 18 months, until Nov. 4, 2022, to comply with the rules, Karen Barr, president and CEO of the Investment Adviser Association, told ThinkAdvisor for a story about the effective date for the changes.

A New Era in Compliance for Investment Advisers

“The marketing rule reflects important updates to the traditional advertising and solicitation regimes, which have not been amended for decades, despite our evolving financial markets and technology,” then-SEC Chairman Jay Clayton said in announcing the finalized reforms in December.

“This comprehensive framework for regulating advisers’ marketing communications recognizes the increasing use of electronic media and mobile communications and will serve to improve the quality of information available to investors.”

The SEC created a single marketing rule that modernizes the rules that governed investment adviser advertisements and compensation to solicitors under the Investment Advisers Act of 1940. Neither rule had been amended significantly since its adoption.

The SEC first proposed amendments to modernize the advertising and cash solicitation rules in November 2019. Regulators revised their proposed changes based on public comments before announcing the final rule a year later.  When the SEC announced the new rule, it said it would take effect 60 days after being published in the Federal Register.

Compliance Management for the Present and the Future

The SEC has achieved a “Herculean task” by collecting hundreds of pages of piecemeal guidance that have accumulated over decades as well as “accounting for all of the information technology, social media, and marketing practice advancements over more than half a century, and fusing them into a modern, principles-based, evergreen, workable framework,” IAA President Barr wrote in a note to members in January, according to a ThinkAdvisor article on how advisor advertising rules are entering the 21st century.

The “principle-based provisions” include:

  • A two-prong definition of “advertisement”;
  • Prohibitions of certain general practices;
  • Requirements for using testimonials and endorsements in advertisements;
  • Criteria for the use of third-party ratings; and
  • Restrictions on promoting performance information in advertisements.

The SEC adopted amendments to the books and records rule and amended Form ADV to require advisers to provide additional information regarding their marketing practices to help facilitate the Commission’s inspection and enforcement capabilities as well.

Also, the staff of the Division of Investment Management will withdraw no-action letters and other guidance addressing the application of the advertising and cash solicitation rules as those positions are either incorporated into the final rule or will no longer apply, the SEC announced, noting that a list of the letters will be available on the commission’s website.

Addressing the New Investment Adviser Marketing Rule

“Anyone can read the rule but putting it into play and understanding what’s in and out, that’s really the work to be done,” said attorney Genna Garver, a partner at Troutman Pepper, during a RegEd webinar about understanding and preparing for the modernized marketing rule.

Webinar panelist Suzan Rose expects the SEC to provide additional guidance on some of the rule’s provisions during the transition period. “We have plenty of time to work out the kinks but there’s lots to cover,” said Rose, a senior advisor to the Alternative Investment Management Association (AIMA).

For example, the new “principles-based” approach includes undefined concepts like “fair and balanced.” “It will be a while before anyone can get a grasp on what the SEC truly feels ‘fair and balanced’ means,” Rose said. “And you want to be sure that ‘fair and balanced’ in your judgment does not equate to ‘misrepresentation’ in their judgment.”

Still, there are welcome changes, Garver said. One of the biggest is that the new rule permits testimonials.

“This will be welcome relief for many, especially on the social media front,” Garver said. “This is massive.”

Additional highlights of the rule include flexibility for the continual evolution and interplay of technology and advice, and easing restrictions on references to past investments, Garver and Rose noted.

“Part of this transition period needs to be used to look at everything that’s interfacing with clients and making a decision if this is an advertisement or is it not and having the training and policies and procedures in place to identify things that might be outliers in the types of communication that you have,” Garver said.

Adopting the Modernized Marketing Rule

Some investment advisers may adopt the new marketing rule before the 18-month transition period ends, said Margie Webber, director of regulatory compliance for RegEd. “They may consider rolling it out sooner so that they could use testimonials in their marketing materials as soon as possible after the May 4 effective date.”

Though advisers can voluntarily adopt the new rules before the compliance date, they would be subject to them in full if they do. “If you’re going to do it, make sure that you have policies in place and that you’ve trained your teams,” Garver suggested.

Rose recommended waiting for the SEC to clarify any provisions that could use additional guidance, like those related to the usage of hypothetical performances. “Ask your questions before deciding to adopt the rule as it is and before the compliance date because once it’s in effect that’s what you’ve got,” she said.

Rose expects the SEC to respond to industry comments during the transition period.

But the countdown to Nov. 4, 2022, has begun. Advisers have until then to comply.

RegEd has reduced non-compliance risk for hundreds of financial services firms by providing them with proven, scalable compliance management solutions, including our market-leading Advertising Review software.

View our most recent Advertising Regulation Webinar to learn more about the new modernized marketing rule for investment advisers, its impact on the industry, and what firms can do now to prepare.

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.

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