Regulatory Compliance E-newsletter – January 2018

Feature of the Month

FINRA outlines priorities for 2018

On January 8th FINRA released its annual examination priorities for 2018. In the cover letter, FINRA CEO, Robert Cook took the opportunity to describe how the self-regulatory organization (SRO) is working to become more efficient and effective in carrying out its primary regulatory objectives.

FINRA’s unwavering commitment to protecting investors and facilitating vibrant capital markets will continue to be a driving force of the SRO’s agenda during 2018, according to Mr. Cook. FINRA will continue to focus on areas such as high-risk brokers in terms of rulemaking and examinations as well as improving upon the FINRA360 initiative that was launched last year. During 2018, FINRA will continue to review other operational considerations to improve the SRO’s efficiency. Mr. Cook also announced in the cover letter that FINRA will be releasing new tools to assist firms in meeting their compliance obligations in the coming months.

This year, FINRA’s Examination Priorities Letter reiterates many of the usual risk areas addressed in past letters, but notably a couple of new focus areas are highlighted along with a listing of new and revised rules set to go into effect throughout 2018.

Among the new risk areas FINRA announced that it will focus on will be to gain a deeper understanding of the role and involvement of broker-dealers with initial coin offerings, digital currencies and block chain related technologies. The letter states that FINRA is closely monitoring initial coin offerings and cryptocurrencies. Their focus not only includes actions by member firms and their representatives, but also on supervisory responsibilities, compliance and operational infrastructure in the structure of federal securities laws, regulations and SRO rules.

FINRA also announced their intention to review broker information and technology change management policies and procedures. They highlighted examination observations of significant operational breakdowns in previous years caused by the implementation of new systems as well as enhancements and modifications to existing proprietary or vendor implemented systems.

Finally, FINRA lists six new rules scheduled to become effective in 2018. Among these new rules, two will go become effective on February 5th. FINRA Rule 2165 will require members to place a temporary hold on disbursements of funds or securities from accounts of customers where the member has a reasonable belief that the client is subject to financial exploitation. Additionally, new Rule 4512 will require members to obtain the name of and contact information for a trusted contact person for a non-institutional customer account.

The complete FINRA cover letter and examination priorities for 2018 can be found here:


Bring on a trusted advisor to help you understand how these new developments impact your firm. Learn more about NRS and its consulting services by going here.

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How can agility benefit investment adviser and broker-dealer compliance?

As regulatory requirements evolve and business risks change, compliance programs can benefit by focusing on agility. Agile compliance means being able to analyze, understand and respond quickly to:

  • Regulatory changes
  • Economic and market events
  • Changes associated with the purchase or sale of firms
  • Management “surprises”
  • Security threats
  • Internal misbehavior
  • Cultural changes.

In 2018, the role of the compliance professional will be even more demanding, with rapid advancements of technology and the ever-present threat of cybersecurity attacks. Now, more than ever, already-strained compliance resources must be deployed effectively.

This is why agility can benefit investment adviser and broker dealer firms. To do this, compliance professionals need a solid understanding of the rules and regulations; both on a basic and advanced level. This will provide the foundation for helping to ensure that a compliance program passes scrutiny.

But it does not end there. A top notch compliance program deserves more. It requires the ability to apply the rules correctly, quickly and effectively in fast moving situations, especially with the pace of industry and technology in today’s dynamic financial markets. The issues that a compliance professional might face, from cybersecurity threats to a surprise audit, require agility.

Agility has a lot of definitions in many different industries. But above all else, the key to being agile when it comes to financial compliance, is education.


Achieve Compliance Agility by attending the NRS Spring 2018 Conference

NRS has developed a conference theme and agenda sessions for the NRS Spring 2018 Compliance Conference with a focus on ideas and methods to help investment adviser and broker-dealer compliance professionals and their firms effectively respond to inevitable, fast-moving change with agility. Find out more about the NRS Spring 2018 Conference by going here.

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What to expect from the SEC in 2018

SEC 2018 Regulatory Agenda

The SEC, under the direction of Commissioner Jay Clayton, has provide a roadmap for the direction of regulation for the foreseeable future. Jay Clayton has taken a more short term approach by limiting the SEC’s priorities for 2018 to items that can more realistically be accomplished.

The SEC’s approach is investor-focused in its rule making efforts, establishing an agenda of short-term and long-term priorities. The regulatory items the SEC is expected to address include items mentioned in previous speeches such as: fiduciary duty best interest standard, amendments to SEC’s Whistleblower Program Rules, advertising and cash solicitation rule, expanded definition of accredited investor, stress testing large advisers, proxy voting on executive compensation.

In a similar move, the SEC has removed from its agenda advisers’ business continuity and transition plans, third-party examinations and amendments to Regulation D, all previously under consideration.

Items of Significance

  • Fiduciary Duty

    Jay Clayton announced that the SEC has moved forward with a standard of business conduct rule proposal of its own for advisers who provide personalized investment advice. The challenge in addressing this effort is to preserve the existing adviser fiduciary standard when crafting a new standard for a broker-dealer best interest conduct rule with requirements that are not overly accretive to the DOL impartial conduct standards and yet to be implemented fiduciary advice rule (the “DOL Rule”). The SEC plans to coordinate efforts with the DOL in a joint undertaking that should ensure similarity in rule making. We can expect the SEC’s rule to be closely aligned with the DOL’s impartial conduct standards and potentially the fiduciary advice rule itself.

    The SEC is moving forward quickly on a proposal for 2018, after having sought comments last year.

  • Advertising/Cash Solicitation and Accredited Investors

    In an attempt to enhance marketing and advertising efforts of registered advisers, the SEC may be reevaluating previous no-action letters and interpretive guidance for the testimonial rule under Rule 206(4)-1, possibly seeking to adopt a less stringent posture.

    In a similar effort, the definition of an accredited investor will be reviewed to potentially widen the scope of investor participation in traditionally more risky types of private investment vehicles.

  • Business Continuity/Succession Plan

    The SEC has removed from its agenda the third-party examination program, business continuity plan (“BCP”) and transition plan (proposed as Rule 206(4)-4, on June 28, 2016), and amendments to Regulation D. BCP rule removal should not be misconstrued as a signal from the SEC that BCP planning is no longer expected by Commission. Many industry observers have expressed views that this should be and is captured under the SEC’s investment adviser Compliance Program Rule 206(4)-7. Compliance Program adopting release makes it quite clear that adopting a tested BCP is a fiduciary requirement that must be implemented for the best interest of advisory clients. Furthermore, investment advisers that provide investment management supervisory services are typically contractually bound by investment advisory agreements which incorporate applicable breach of contract provisions for failure to deliver the investment management supervisory services or continuous supervisory portfolio management obligations described in the contract.


Need help with the latest SEC regulations in 2018? Learn how NRS can help you. Go here to learn more about NRS’s Consulting Services.

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Continuing Education for an RIA?

Why should an RIA offer continuing education?

Ongoing training is recommended to establish a “culture of compliance” throughout your firm. We have all heard the phrase “culture of compliance” many times before, but education continues to be a very important and overlooked component. All advisers and employees of an RIA need to have a baseline of general RIA and compliance knowledge.

NRS FIRE makes it easy for you deliver RIA focused courses online cost effectively for groups and individual students, with CFP CE credit available.

Recommended courses from the NRS FIRE catalog include:

  • Investment Adviser Basics
  • Investment Adviser: Ethical Trading Practices
  • Investment Adviser: “Pay-to-Play” Practices
  • Investment Adviser: Conflicts of Interest
  • Fiduciary Responsibility
  • Ethics
  • Asset Allocation
  • Privacy Protection Rules
  • Risk-Based Investment Adviser Supervision
  • Regulatory Actions Against Investment Advisers and Hedge Funds
  • Books and Records
  • Cybersecurity for Representatives and Clients
  • Fraud Prevention and Detection

We are also excited to announce the following new RIA focused courses are in the works for 2018:

  • Investment Adviser — Valuation of Customer Holdings
  • Investment Adviser — New Accounts and Disclosure Requirements
  • Investment Adviser — Marketing and Advertising Communications

Please connect with your NRS account manager or to learn more!

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