NRS Insights Blog

Year after year, the Financial Industry Regulatory Authority (FINRA) releases its annual exam report, highlighting critical areas of risk to investors and the markets, providing insight into findings from recent examinations of FINRA registered firms. On Jan. 10, 2023, this year’s FINRA Exam Report was released and included a total of 24 topic areas, four of which, were new this year.

At a brokerage firm, details falling through the cracks can be detrimental to clients, investors and the firm’s reputation. Therefore, your brokerage firm cannot afford to let that happen. An outside compliance consultant can enhance your firm’s compliance program in several ways, like mitigating risk of noncompliance. Here are some indicators that it’s time for your firm to bring in an outside compliance consultant and a few ways that an outside compliance consultant can enhance your firm’s compliance program.

For investment advisers, it could be argued the regulatory compliance policies and procedures manual is the backbone of compliance, explaining, in detail, how the adviser plans to mitigate risk and protect client best interest. However, out-of-the-box, copy-and-pasted policies and procedures are not sufficient to meet this requirement. In fact, the SEC requires firms to customize their policies and procedures in accordance with the firm’s business practices, risks and challenges.

Investing in webinars, trainings and events can help ensure you and your team stays up to date on the latest regulations and the best practices keeping firms like yours in compliance and away from risk points. In this blog, we’ll break down some of the key regulatory compliance education events being held by National Regulatory Services (NRS) this year. Mark your calendars because trust us, you won’t want to miss this.

The regulatory compliance landscape is constantly evolving. As the compliance professional leading the regulatory program at your registered investment advisory firm, broker-dealer firm or hedge fund, educating your employees and continuing to provide training is one of the most critical steps to mitigating risk points and avoiding noncompliance. Why? Your employees are the best defense mechanism against potential risks and challenges, but only if they are educated on core compliance issues facing your firm…and how their role can help alleviate potential future challenges.

While the SEC recognizes broker-dealers and RIAs have had to quickly adjust to new regulations, such as the new marketing rule for investment advisers and the agency’s heightened focus on books and record-keeping regulations, it expects financial firms to learn from their peers and adjust compliance programs accordingly. To help you avoid significant fines and penalties, we’ve reviewed recent risk alerts and communication from the SEC and other regulators to create this list of top five compliance program deficiencies.

The function of an investment adviser is, at its core, to provide clients with thoughtful, expert advice on financial and investment functionalities. Within this role, you are required to continually act in your client’s best interest, which includes disclosing any and all conflicts of interest. The Securities and Exchange Commission (SEC) formalized this requirement with the amendment of Form ADV Part 2 on Oct. 12, 2010. As stated by the SEC, this amendment, “require[s] investment advisers registered with us to provide new and prospective clients with a brochure and brochure supplements written in plain English. These amendments are designed to provide new and prospective advisory clients with clearly written, meaningful, current disclosure of the business practices, conflicts of interest and background of the investment adviser and its advisory personnel.”

On Oct. 26, 2022, the Securities and Exchange Commission (SEC) proposed a new rule which would impose specific requirements on registered investment advisers which outsource functionality to third-party providers. In the press release announcing the proposed rule and associated amendments, SEC Chair Gary Gensler stated, “Though investment advisers have used third-party service providers for decades, their increasing use has led staff to make several recommendations to ensure advisers that use them continue to meet their obligations to the investing public. When an investment adviser outsources work to third parties, it may lower the adviser’s costs, but it does not change an adviser’s core obligations to its clients. Thus, today’s proposal specifies requirements for investment advisers designed to ensure that advisers’ outsourcing is consistent with their obligations to clients.” The comment period for the proposal remained open for 60 days, closing on Dec. 27, 2022. As a portfolio, COMPLY submitted comments on the proposal.

2022 was quite the year for the Securities and Exchange Commission (SEC), with a record-breaking $6.4 billion in fines and $37 million paid out through their whistleblower program. Not to mention the many proposed and finalized rules we saw throughout the past 12 months. In this blog, we’ll review some of the most major rules and regulations put out by this regulatory body in pursuit of protecting consumers and the marketplace. For investment advisers, broker-dealers and similarly SEC-regulated financial firms, an understanding of these rules is essential to conducting an effective compliance program in 2022 and beyond.

Broker-dealers must ensure that they have developed and implemented policies and procedures reasonably designed to meet their regulatory obligations in developing an efficient AML/CFT program to cope with the dangers of money laundering and to avoid sanctions, penalties and reputational harm. AML legislation for broker-dealers in the United States is based on two primary legislations: the Bank Secrecy Act (BSA) and the USA Patriot Act.