Regulatory Compliance E-newsletter – September / October 2018

The SEC’s Office of Compliance Inspections and Examinations issue alerts to help securities industry firms address certain risks associated with regulatory compliance.

Feature of the Month

NRS Compliance Forum – New York – December 6

Beginning in the Fall of 2011, the SEC’s Office of Compliance Inspections and Examinations began issuing alerts to help securities industry firms address certain risks associated with regulatory compliance. In many instances the basis of these alerts stemmed from National Exam Program observations of recurring compliance issues. The ongoing Risk Alert series has provided timely reminders and tools for compliance professionals in assessing and reviewing various firm practices.

This year, NRS is devoting a day to the exploration of the recent Risk Alerts issued this year. The exploration is designed to provide compliance professionals with a comprehensive understanding of the risk alert issues, associated industry best practices, and practical mitigation responses.

In addition to the Risk Alerts, the SEC proposed a new rule, Regulation Best Interest in April of this year. The comment period has ended and the industry is awaiting the finalized rule. The NRS Compliance Forum will analyze key themes that emerged from comment letters and address the practical considerations for compliance with the proposal’s key concepts and disclosure obligations.

Below is a preview of what to expect during the forum:

Risk Alert: Best Execution Compliance Issues – Alert Review

How does an adviser determine if it is obtaining best execution? Each firm must determine the answer for itself based on a variety of objective and subjective criteria. During this session our panel will review the July 11, 2018 risk alert and take a deep dive into the Best Execution Risk Alert to help firms confidently identify the factors that constitute best execution.

Risk Alert: Best Execution Compliance Issues – Best Practices and Practical Application

No one understands the challenges of defining, documenting, and reviewing execution quality better than industry peers. Through a frank and forthright conversation about the practical aspects of determining best execution, peers will cover methods for comparing brokers, discretionary versus directed brokerage and soft dollars. Samples and scenarios will be used to explore practical application of best execution activities.

Risk Alert: Fee and Expense Compliance Issues

The SEC has put all advisers on notice that common billing errors and oversights cannot be tolerated. Panelists will review what is involved in the April 12, 2018 risk alert and obligations of investment advisers related to fees and expenses. The session will address specific problems described in the risk alert and review industry best practices as well as issue based mitigation. Attendees will explore the practical application of fee and expense oversight activities using fact-based exercises to strengthen the analytical skills and remediation steps for responding to errors when they arise.

Regulation Proposal: Status of SEC Regulation Best Interest

In April, the SEC released proposals for requiring broker-dealers to adopt a “best interest” standard and for investment advisers and broker-dealers to provide new disclosure statements to their clients. Now that the industry, law firms, and trade associations have had the time to review, analyze, and comment on the proposals, this session will focus on what is on the horizon and how the proposals may impact your compliance program in 2019. Panelists will not only discuss the very latest developments, but will share their insight on the comments received by the SEC and how they may shape a final rule.

Find out more about our 2018 Compliance Forum by visiting below.

NRS New York Compliance Forum

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Evolution Revolution Reveals Good News for the Industry

In case you missed it, according to the 2018 Evolution Revolution Report released by NRS and the IAA, there has been continued growth in assets under management for SEC-registered investment advisers (“IAs”) over the past year due to an increasing influence of a growing client segment.

This year’s Report reveals some interesting insights. For example, over the past year, total assets grew 16.7% to $82.5 trillion, likely due to market performance. Another fact shows 80% of advisers report that their clients are non-high net worth individuals.

It can be inferred that the vast majority of Millennial investors, investors born between 1981 and 1996, are included in the 80% of clients comprised in the non-high net worth group as most are approaching their peak earning and investing years. Advisers will find that new forms of advertisement will become increasingly important to ensure success with this growing demographic as it focuses on investing and saving for retirement.

Since technology and social media are the primary forms of advertisement and communication for Millennials, advisers are now expanding their practices to include social media and technology to market their businesses to younger generations. As a result, the SEC has adjusted their communication and advertising regulations and policies. Currently, the SEC requires that all websites used, including social media, to be disclosed by advisers on ADV Part 1. LinkedIn is the most popular social media platform used by advisers, according to the 2018 Evolution Revolution Report, with one third of IAs having an account. Facebook and Twitter are the next most popular platforms. With the increase in social media advertising and communication, there is more opportunity for IAs to continuously increase their assets. This demand has significantly increased revenue for the IA business and will continue to make a positive impact for the future. The 2018 Evolution Revolution report, released on September 6, 2018, revealed many of these exciting trends to watch regarding this influential and growing group.

Download the report

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NRS Fall 2018 Compliance Conference Preview

From November 5-8, compliance professionals from investment adviser and broker-dealer firms will be gathering at the Park Hyatt Aviara Resort in Carlsbad CA to gain practical knowledge on how they can successfully navigate the disruptive currents of regulatory change, and adapt the right policies and procedures to ensure that their firm remains in compliance.

Proposed regulation best interest, perspective from the regulators, SEC and FINRA examinations, recovering from large-scale natural disasters, GDPR, oversight of high risk representatives, cybersecurity and more focus points in compliance today will be presented by industry experts, regulators, former regulators, attorneys and practitioners, at the conference. There’s still time to register for the fall conference. Visit here to view the full conference agenda.

Below is a preview of three of the conference sessions:

Perspective from the Regulators
9:30 am to 10:30 am – November 6, 2018

Representatives of the SEC, FINRA and NASAA will share their perspectives on issues that will address the latest developments and help you plan for 2019. In addition to questions from the moderator, the regulators will answer audience questions.

Learning Objectives:

  • Update your understanding of current regulatory concerns
  • Identify the issues that will have the greatest effect on you and your firm in the year ahead
  • Reconcile what you have heard and read in the media with what the regulators say directly

Cybersecurity from a CISO Viewpoint
12:00 pm to 1:00 pm – November 6, 2018

Since cybersecurity was added as an area of compliance program consideration, compliance professionals have been challenged with finding the right balance between regulatory and technical approaches to securing information. The role of Chief Information Security Officer (CISO) is often designated as responsible and accountable for information systems and security within an organization. Understanding the technical perspective related to information security is critical in developing and implementing compliance policies and procedures that meet regulatory expectations.

Learning Objectives:

  • Learn how CISOs identify their priorities and assess risks related to information systems and data
  • Discover the steps and frameworks CISOs use in addressing information security
  • Identify how best to communicate regulatory expectations on information security to your CISO

Best Execution and Trading for Investment Advisers
11:00 am to 12:00pm – November 8, 2018

How does your firm determine best execution? Are the criteria you are currently using relevant to your own portfolio management and trading processes? Do your trading policies and procedures accurately reflect your trading practices? How do you gauge the trading-related risks inherent in your investment strategies, types of securities traded, firm structure and affiliations? This session will help you apply regulatory requirements and expectations, along with best industry practices, to help develop or refine a trading compliance program that is truly tailored to your firm’s business.

Learning Objectives:

  • Review the fiduciary components and regulatory requirements of seeking best execution
  • Analyze the requirements for discretionary and directed brokerage, and determine the trade execution obligations for each
  • Understand the SEC’s current focus on best execution in wrap fee programs

There’s still time to attend the fall conference. Visit here to learn more.

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SIE and SKE Exams in Effect

In case you missed it, the new Securities Industry Essentials (SIE) and Specialized Knowledge Exam (SKE) exams went into effect on October 1, 2018. The change represents a shift in the financial services industry, where test takers no longer necessarily need the sponsorship of a parent firm to enter into a career in the financial services industry.

The FINRA SIE exam is an introductory-level exam covering a range of basic securities industry concepts that are fundamental to working in the industry. The two biggest changes to the process are that individuals are not required to be sponsored to take the SIE exam, and that anyone aged 18 or older may sit for the exam. This opens the door to anyone looking to enter the securities industry, as passing the exam will demonstrate sincerity and basic industry knowledge.

However, while passing the exams is one step of the process, each candidate needs to pass an additional rep-level qualification exam specific to the candidate’s career path. The SKE or top-off exams focus on specific job functions required by a career path and require the individual to be sponsored by a FINRA member firm. Passing the Essentials exam and one of the top-off exams will be the equivalent of passing one of the current series exams (i.e. Series 6, Series 7, and so forth).

In advance of the new industry exams, the NRS Exam Prep team has released new, targeted SIE and SKE (i.e. completely new versions of the Series 6 and Series 7) courses to prepare candidates for the next generation of FINRA registration exams. NRS’ industry-leading education experts have successfully prepared tens of thousands of candidates to pass their Series 6 and Series 7 exams.

Find out more about the SIE / SKE Exam here

Read our blog here.

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