Investment advisers that manage assets on a non-discretionary basis i.e., executing a transaction only after a client accepts an investment recommendation) face regulatory and legal risks if communications with clients are not properly documented. Because such authority is contingent on client consent, the failure to obtain consent in writing could lead to claims by clients, down the road, that they never authorized an adviser to proceed with a transaction, particularly if the client is unhappy with the results of the investment. Regulators could also charge an adviser with exceeding the authority granted by a client to an adviser if consent is not properly documented.
Category Archives: Compliance
SEC Scrutinizing Advisers transitioning from BD model to IA model
Advisers transitioning from wirehouses and independent broker-dealers must heed a warning from the SEC contained in its 2022 Examination Priorities that is pertinent to their transition. The SEC noted that it will be scrutinizing whether advisors migrating from the broker-dealer model to the investment adviser model have evaluated their existing client accounts to determine whether it is in the client’s best interest to move from a brokerage account to an advisory account. As such, it will be important for transitioning advisors to evaluate the type and frequency of services and investments currently offered and to be offered for each client and to document why, if applicable, it is advisable for the client to move from a brokerage account to an advisory account. Of course, client preferences should be solicited and documented in such analysis. The failure to demonstrate that an adviser conducted such an evaluation could lead to allegations that the adviser breached its fiduciary duty of care to its clients.
A Tale of Two Enforcement Actions Against Compliance Officers: An analysis applying the NSCP Firm and CCO Liability Framework
From Brian Rubin and Amy Albanese in this month’s column for NSCP Currents:
Many compliance officers believe they have targets on their backs. Indeed, according to industry-wide surveys conducted by the National Society of Compliance Professional (NSCP), 72% of compliance professionals are concerned that regulators have expanded the role of compliance officers and the scope of their responsibilities in imposing personal liability and 63% believed that personal liability will be imposed even where compliance did not participate in the violations caused by the company or other executives. Is it any surprise that compliance officers seem to believe that regulators look at them the same way that Mrs. Gamp viewed the living young man: “He’d make a lovely corpse.”
SEC Examination Priorities for 2022 – Key Takeaways
On March 30, 2022, the SEC’s Division of Inspections and Examinations (“staff”) published its examination priorities for 2022 (“Examination Priorities”). The central theme of the priorities for investment advisers seems to focus on the increasingly complex nature of the investment advisory industry, and the priorities focus principally on private funds, environmental, social and governance (ESG) investing, retail investor protections, information security and operational resiliency, emerging technologies, and crypto-assets.
For a summary of the priorities and guidance for mitigating regulatory risk in the coming year, read more here.
Analysis of FINRA Disciplinary Actions Shows Huge Surge in Financial Sanctions
By reviewing FINRA’s monthly disciplinary reports, press releases and online database, Eversheds Sutherland (US) Partners Brian L. Rubin and Adam C. Pollet identified the following key takeaways:
- In 2021, fines and restitution spiked despite a decrease in the number of cases compared with 2020
- FINRA continues to target specific areas, such as anti-money laundering violations, which for the sixth year in a row resulted in the largest amount of fines.
- Regulators appear to be gearing up for actions involving RegBI/Form CRS