Show

Headlines

• The U.S. Department of Labor (“DOL”) restored its prior five-part test for determining “fiduciary” status under the Employee Retirement Income Security Act (“ERISA”)
• Senate Banking Committee Member Elizabeth Warren pressed SEC Chair Paul Atkins to address allegations of political interference in enforcement matters before the agency

Interview with Ed Wegener

• What is FINRA Forward?
• What does FINRA hope to achieve with the FINRA Forward Initiatives?
• What have we seen to-date?
• What are the potential benefits?
• What are some potential challenges?
• What are the key changes in proposed Rule 3290?
• What are the key changes for Rule 3220 related to Gifts and Gratuities?
• What are the key changes Proposed for Advertising (Performance)?

Outtakes

• SEC-registered investment advisor allegedly assured a client that a $10 million bond investment was “guaranteed” before the underlying project collapsed entirely

Quotes

10:55 – “It’s clear that things don’t stay the same. Things change. The way we do business, technology, all of that changes, and it’s important for the rules to keep up with that. As well as show regulators enforce those rules. And so, from time to time, it’s really important to take a look and say, ‘What’s changed?’ and ‘Do we need to realign the rules with those changes?” – Ed Wegener

22:00 – “What you’re going to see is not just much more efficient regulators, which is always good, but more effective regulators. And so it’s important for firms to keep up because what you don’t want is regulators coming in with all this information and data and things that you don’t know about.” – Ed Wegener

22:37 – “There’s an opportunity for a great partnership there, between compliance departments and regulators, and this could be a really good way to do that. And the other thing, too, is all of these things are great. It only takes one big scandal to happen for things to just snap back into a much more reactive mode. So that’s one of the things the industry’s got to keep their eye on the ball, just make sure we’re keeping things in check, because we want to continue the momentum of all these changes and don’t want to have to take a step back.” – Ed Wegener

26:44 – “Probably the most important change in the proposal is that it would only apply to investment-related outside activities. So non-investment-related outside activities (such as being employed at a ride share company or working in a retail store), those would no longer need to be reported. But on the flipside, investment-related activities (like certain real estate investments, crypto, and digital asset-related activities, things that are investment related) would still fall under the requirements of 3290.” – Ed Wegener

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Headlines

• SEC and CFTC jointly issued an interpretive release regarding the application of federal securities laws and federal commodities laws to certain crypto assets and transactions

Interview with Brian Rubin and Ellen Connell

• What is the SEC Enforcement Manual and what is its purpose?
• The SEC recently announced a broad set of revisions to its Enforcement Manual. At a high level, what was the rationale for the update and what does it tell us about the current state of the Division of Enforcement?
• What is the new process for obtaining cooperation credit?
• What are some of other factors the SEC weighs when determining whether to apply cooperation credit?
• Were there any other noteworthy changes to the manual that firms and individuals should be aware of as they are going through an investigation?
• The staff indicated greater access to the investigative file, evaluating whether providing access would help the recipient respond meaningfully and help both sides assess the strength of the evidence. Does this really mean greater access to the file?  Are we talking full open jacket?
• Overall, what is your reaction to the SEC Enforcement Manual updates? 
• What is the longest lasting impact?
• Regardless of the increase or decrease in numbers, where do you expect most of the enforcement cases to come from—exams or elsewhere?
• Keeping in mind the new changes to the SEC Enforcement Manual, do you think firms should take a harder look at self-reporting?

Outtakes

• Active phishing campaign targeting FINRA and SEC-registered financial services firms and advisers

Quotes

11:20 – “So the enforcement manual is basically an internal playbook guiding the staff on how to conduct investigations and recommend enforcement actions. When I was there, and I don’t know if this is still the case, it was in a red plastic binder, and we referred to it as the Red Book. It’s to help ensure fairness and consistency, and transparency for the process. And it covers everything from opening investigation to collecting evidence, engaging with companies and individuals, the Wells process, negotiations, cooperation, as we’ll talk about.” – Brian Rubin

13:11 – “This is the first set of updates since 2017, so it’s been quite a while. And the then SEC enforcement director (who just as we’re recording, announced her resignation just yesterday)she was quoted, Judge Margaret Ryan, in the press release explaining the relevance, saying that these updates to the enforcement manual are intended to ensure greater uniformity, to reflect the division’s best practices, to improve the staff’s ability to carry out the SEC’s mission of work on behalf of investors.” – Ellen Connell

16:45 – “Cooperation credit is something that we’ve been talking about in the securities industry for years. It’s kind of like the weather in Chicago, or too many emails in your email box; everybody talks about it and complains about it, but nobody really does anything about it. So I think this is an attempt to try to do more on it, so they’re laying out more clearly what the SEC expects. And cooperation isn’t going to be automatic. Simply complying with subpoenas won’t work. You have to go above and beyond.” – Brian Rubin

43:20 – “It shows that the SEC overall is being thoughtful about how it handles investigations. A lot of these issues, as I said before, have been discussed for years or decades, so it’s great that they are rethinking the process, looking for consistency, transparency, and fairness. Ultimately, at the end of the day, neither the SEC staff nor the defense side wants to fight about process-type issues. The things they want to focus on are: were there violations, were there intentional violations, were people harmed?” – Brian Rubin

44:13 – “To some degree, the impact of these revisions remains to be seen. In any event, they should really help companies shape their pre-SEC enforcement engagement behavior—as it relates to how they conduct their internal investigations, how they supervise, how they enforce their policies and procedures. And these changes could really increase companies’ opportunities to be heard in the enforcement process. But it’ll be interesting to see in the coming months, whether as we see settlements being announced, whether companies are getting self-reporting and or cooperation credit in those forthcoming orders.” – Ellen Connell

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Headlines

• SEC Working on Off-Channel Communications, E-Delivery Rules
• SEC Enforcement Director Ryan Details Back-to-Basics Approach

Interview with Fizza Khan and Louis Froelich

• What is tokenization?
• How is it different from crypto?
• What are some examples of things people are tokenizing?
• What is the hope with tokenization and also importantly what does tokenization not do?
• Who can actually invest in tokens?
• How does tokenization impact compliance?
• Is this a threat to compliance?
• How does AI impact tokenization?
• How does the SEC view this type of innovation?
• What is one of the biggest things that folks listening to this podcast should keep in mind regarding tokenization?

History Has Your Back

• Using the wisdom of Stoic philosopher Seneca to help compliance officers survive the regulatory filing season

Quotes

09:26 – “I think a good way to start to think about tokenization is to focus on what it does, not what it is, right? Tokenization is itself a very technical process. Just like sending an email to someone else is actually very technical, how that all works, right? But everyone knows what it’s like to send and receive an email. Tokenization is not unlike sending and receiving email for digital assets, and digital assets here are legally, and that’s the goal tied to something in the real world. So you can create a tokenized version of something, which is really a digital version of something. It could be a cup, it could be a tape roller…And it could be, or it could be something like a stock, right? You create something that could be transacted digitally. And, as long as we’re going to talk about this today, as long as you take the proper steps, when you create the digital version of it, then what you get is a legally enforceable, standardized version of the thing that can be more easily transferred.” – Louis Froelich

11:55 – “I think the biggest differentiator between crypto and tokenization is crypto is this catch-all term. It’s a catch-all term to define digitalized or digitized assets. And it’s also a catch-all term that these assets, these digital assets, are then transacted on a blockchain. So that in and of itself is something that we can use kind of synonymously when referring to digital assets. I think that’s kind of like the nomenclature people are just reverting back to is saying crypto. And more importantly, I think crypto is, interestingly, the systems on which you transact. So I mentioned the blockchain, but they, you know, everything’s governed by a code as, as what Louis had alluded to with the tokenization process, and it’s all on this blockchain network. Tokenization is actually looking to take advantage of that. So as Louis mentioned, when you tokenize something, it can be that cup in, you know, it can be that piece of furniture as it may be more relevant to your audience members. It can be a security, it can be real estate. But when you take that—when you would normally transact in real estate or in a security, you may not have the efficiencies that are afforded on a blockchain network, that digitalized assets do have the opportunity to be more efficient and faster. And so when you take the process of digitizing a real-world asset, as Louis described, now you’re going that step further and saying, not only am I digitizing this asset, but I’m also allowing for the end users to take advantage of these blockchain systems.” – Fizza Khan

17:18 – “I mean, you can create a digital version of anything, you know? An interesting question is if you have the right to do so? Like, I can create a version of Taj Mahal and send it to you. It doesn’t, you know, do much for anyone. But I think the things that are being tokenized that are getting a lot of momentum in industry fall into two big categories. One is financial assets that are heavily intermediated and have settlement risk, and the other is just straight-up dollars. So the, the first one is you have stocks, futures trading, etc. You have layers upon layers of intermediaries and decades of legal and regulatory guidance and careers and systems, you know, for a futures contract. You have introducing brokers and FCMs and DCMs and DCOs, all to ensure compliance with the law and reducing counterparty and settlement risk.” – Louis Froelich

Show

Headlines

• SEC Statement on Departure of Commissioner Caroline Crenshaw
• FINRA Proposes Increased Protections for Senior Investors and Other Vulnerable Customers

Interview with Chris Mulligan and Jeff Blumberg

• Overview of the new Marketing Rule FAQs
• What is the impact on Footnote 590?
• Discussion of the purpose and process behind SEC Risk Alerts
• What does the new Risk Alert tell us about the Marketing Rule?
• What is the impact on testimonials and endorsements?
• Reviewing the sufficiency of disclosure requirements, including links to websites and the “clear and prominent” standard
• What does the Risk Alert say about third-party ratings?  What satisfies the “reasonable belief” standard regarding preparation of third-party ratings?
• What does the Risk Alert disclose regarding the SEC’s stance regarding compensation structures?
• When does a statement from a third-party trigger the Marketing Rule?
• Reviewing the “adoption and entanglement” doctrine and related issues

Outtakes

• SEC Charges Six in $41M Insider Trading Scheme

Quotes

08:03 – “I think this FAQ is going to be very welcome by the industry. And it really stems from the fact that the rule itself does not seem to require a model fee. Net returns are defined as gross returns minus the fees and expenses you pay the advisor. There’s a pretty clear definition. And it provides guidance around how you can use a model fee. But it doesn’t really require it in the rule itself. However, Footnote 590–and this is why it was so controversial—said that if the fee to be charged to the intended audience is anticipated to be higher than the actual fees charged, the advisor must use the model fee that reflects the anticipated fee to be charged in order not to violate the rule’s general prohibitions.” – Chris Mulligan

15:24 – “So risk alerts are a really important part of the Division of Examinations. And, you know, they really express what the Staff is seeing on examinations, right? So the priorities come out every year and receive a lot of attention. You know, the reality is the priorities are often very similar year to year. They sort of focused on the issues that, you know, everyone generally knows they’re going to focus on. And it doesn’t talk about the results. Like, what did you actually find on these exams. And that’s where the risk alerts really come in and I think are really terrific documents that help tell industry, you know, in an anonymous way, hey, here’s the issues that you’re seeing and this can really help CCOs.” – Chris Mulligan

18:26 – “Well, the one thing I think we need to make sure we add, and we talked about this briefly when we were prepping, Chris made a point of this, I think, is that once it’s been published in a risk alert, it’s far more likely to end up as a referral to enforcement if you get it wrong. It’s very clear across the industry that this is the SEC’s position now, so you need to pay attention to it. Because if you don’t pay attention to it, you’re far more likely to end up with enforcement breathing down your neck than just a deficiency in your exam.” – Jeff Blumberg

Show

Headlines

• Reviewing the 2026 SEC Examination Priorities

Interview with Kristin Snyder and Charu Chandrasekhar

• Overview of the Reg S-P Amendments
• What are some of the key considerations firm should consider when implementing the new requirements of Reg S-P into their policies and procedures?
• What are some best practices if firms decide to build in the relevant provisions of Reg S-P into other sections of the firm’s compliance manual?
• What about recordkeeping provisions? How does disposal impact other policies and procedures?
• How can firms properly establish vendor risk management in the wake of the new Reg S-P requirements?
• How are firms successfully navigating the 72-hour notification requirements?
• If you were starting a firm from scratch, what are some additional best practices firms should consider when developing their broader information security and cybersecurity framework?
• What can we expect from the exam staff coming out of the shutdown?
• What would we expect the SEC to do now that the rule is live?

History Has Your Back

• Quote from Giannis Antetokounmpo regarding success versus failure at work.

Quotes

09:00 – “So the amendments, which went into effect in May of 2024. And then as we've all noted, the compliance dates are coming up for large institutions on December 3rd and then for smaller institutions later in the year into 2026 in June. The amendment is actually required, and have brought to bear, a number of significant changes. At a very high level, they now require under the amended reg SP covered institutions and the covered institutions are defined to include broker-dealers, registered investment companies, registered investment advisors, funding portals, and transfer agents must now adopt a formal incident response program and have written policies and procedures that are reasonably designed to detect and respond to and recover from any unauthorized access to or use of customer information. There's a notification requirement that now exists if sensitive customer information was or was reasonably likely to have been accessed or used with that authorization. And I think that the notification provisions are really what's significant for firms, because that notification has to be made as soon as practicable, but no later than 30 days after the advisor becomes aware of a breach.” – Kristen

15:00 – “We've seen it actually done in a combination in which you see a lot of compliance manuals have a section on privacy, on cybersecurity. There's usually a reference to Reg S-P and its obligations. But then actually to implement the reg, the policies and procedures need to live in several different areas, like incident response. That's pure cybersecurity. And so you're likely going to have cybersecurity specific procedures in terms of just drafting the notice, getting it out to customers, making sure it's out the door within 30 days.” – Charu

18:09 –  “Some of the information that I think is meant to be safeguarded (so customer information that is covered by S-P) may not necessarily be a required record, you know, book and record under the Advisers Act. And so you're very, you know, you're correct that I think with disposal, you want to have secure methods in place. – Kristen

Show

Interview with Andrew Dean and Kurt Wolfe

• Review of SEC Enforcement metrics over the last twelve months
• What are we hearing from the SEC and Chair Atkins?
• Reviewing the takeaways from Atkins’ recent statements on the Wells process
• What are we hearing from the other Commissioners?
• How have the cuts and departures impacted SEC Enforcement? What typically happens during a transition? Are their programmatic impacts?
• Understanding key differences between the Division of Exams and the Division of Enforcement
• How are SEC exams being resolved in the current environment?
• How are firms interacting with the Staff right now?
• What can we expect next in the area of SEC Enforcement?

Quotes

05:11 –  “So, you know, the SEC's fiscal year runs October 1 through September 30, and we don't have the final numbers yet from that period. Our friends at Cornerstone always put out a nice report at the end of the year that kind of, you know, tell the story. It will be a little complicated by the fact that this fiscal year was over the course of two commissions that have relatively different approaches to enforcement. And so the first three and a half months of the fiscal year were under Chair Gensler, and the remaining were under interim chair Uyeda, and then Chair Atkins. You know, it’s clear that the enforcement actions are dramatically lower under the Atkins Commission. If we just look at the period, this is our friends at King and Spaulding putout this, and we’re giving a lot of credit to others who have, kind of, done the math for us. Between February and July of 2025 there were 67 enforcement actions. Compare that to 198enforcement actions during the same time period in 2021 when there was another Commission transition.” – Andrew Dean

20:25 – “They should focus on cases where there's a lot of harm to investors or potential harm to investors and not just technical violations, not foot faults. I think many would say that's a different tone or strategy than what we saw in the last administration. He even went out of his out of his way to say, SEC enforcement should never feel like a gotcha game. My third point would be transparency and predictability. I think, again, this is sort of consistent with what we've heard from Chairman Atkins, you know, back when he was a commissioner even, he thinks enforcement action should be consistent. The results should be fairly predictable and tied to SEC policies and coordinated across the divisions.” – Kurt Wolfe

Show

Headlines

• SEC enforcement actions drop sharply, with focus shifting to investor fraud.
• US SEC unveils agenda to revamp crypto policies, ease Wall Street rules

Interview with Richard Szuch

• How has mentorship shaped your career as a legal and securities compliance professional?
• Reviewing the importance of mentoring and mentorship in compliance
• Understanding the benefits received from mentorship for both the mentee and the mentor
• What were some of the lessons that you received early on as either a mentee or mentor that inspired you in this area?
• What are three questions every compliance professional should ask themselves?
• How does mentorship impact the overall productivity of a compliance team?
• How to find professional fulfillment in your legal/compliance role
• For those that are considering taking on a role as mentor or mentee, what additional advice or words of encouragement would you give them?

Outtakes

• SEC Charges RIA with Marketing, Books and Records, and Compliance Rule Violations

Quotes

16:00 – “Like at the prosecutor’s office. I remember John O’ Reilly saying to me once, ‘Richard, you do not need to be smart enough to know the answer to every question, but you do need tobe smart enough to know when to ask a question.’ And I think the same goes true with navigating with the people you work with.” - Richard Szuch

28:06 – “There is the law, there are the facts, and then there’s the application of judgement to what those facts mean in the legal construct. Same exact thing in compliance. There are the regs. There is the activity, you know, going on, there’s maybe not a bright line answer, and that’s when, you know, having help from older folks or people more experienced than you is really what you’re looking for, or at least as experienced as you.” - Richard Szuch

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Headlines

• Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced that the compliance date for the anti-money-laundering rule for investment advisers is being delayed by two years.

Interview with SEC Commissioner Hester Peirce

• Background on the SEC’s Crypto Task Force
• What areas has the Task Force been focused on of late?
• Has there been additional collaboration with the industry?
• How will the area of issuance evolving over the next few years and how can the SEC establish itself as a leader in this space both domestically and internationally?
• Why is the issue of custody so challenging in the crypto space?
• How might self-custody be a safer option for some crypto assets?
• How will the issue of taking self-custody of crypto assets evolve over the next several years?
• Is there an expectation that broker-dealers will go to market with a “super app” that offers trading in securities and non-securities and other financial services all under a single roof?
• Do you think further guidance or rulemaking may be helpful for enabling the listing and trading of crypto assets on national securities exchanges?

History Has Your Back

• Famous stockbroker Nicholas Winton demonstrates the significance and impact of unsung heroes

Quotes

11:35 - “Well, I’m glad that you highlighted Chairman Atkins’ speech because he has taken a position which has just been really refreshing for me to see, which is that this is work that we can do. It’s work that we should be doing and we’re going to do this work. And really setting the tone for wanting to create a welcoming atmosphere for innovation, but also recognizing that there are areas where our existing regulatory framework touches upon crypto and we have to apply it. Now, we do also have a lot of authority from Congress already to use exemptions as necessary to provide relief from regulatory obligations when that makes sense to do that. And so I think with respect to issuance specifically, we do think that a rulemaking would be helpful.” – Hester Peirce 

19:13 - “I should say that self-custody, that term can mean different things, right? I think someone with crypto assets—does that advisor need to go to a third party custodian or can that advisor hold those crypto assets itself? One reason may be that there isn’t a third party that’s out there that’s able to provide custody. Another reason is that you may feel that you can do it better or you can do it in a way that enables you to manage that that in a way that’s beneficial to your client. And so, again, the goal is that you are taking care of that asset, making sure that nothing happens to it, right? So I don’t think anyone should take on the job of custody lightly. And so I think we do have to be careful as we think about that and not just assume that everything is going to be okay.” – Hester Peirce 

21:52 - “We always need to remember that we can’t—we always need to not forget the lessons of the past, even as we’re thinking about whether this new technology maybe should give people more latitude to do different things. We have to keep in mind the risks that we’re trying to protect people from.” – Hester Peirce

Headlines

• SEC Withdraws 14 Rulemaking Proposals
• SEC Chair Atkins Fills Key Leadership Roles

Interview with Louis Dempsey and Bart McDonald

• Background on maximizing your compliance resources
• Discussing best practices to operate on a limited budget
• Evaluating the impact of new regulations, including the FinCEN AML Rule and Regulation S-P
• Analyzing compliance efficiencies in Code of Ethics, electronic communications, conflicts of interest, registration and licensing, compliance testing, and documentation of completed tasks
• Reviewing the significance of a strong training program.
• How does your firm’s registration type impact how you can best maximize compliance resources?

Outtakes

• Recent enforcement action reminds us of the importance of having proper disclosures for fees and conflicts of interest.

Quotes

08:48 – “Really, the risk assessments are incredibly important to help you focus where you want to put your energy and put your time and we'll get into some of that later. From a bigger picture standpoint, you want to leverage your custodians, your custodial relationship. They all have tools that they provide and can help from a compliance perspective, whether those are exception reports, trade reports—and don't forget you also most of them have discounts for other vendors—so whether it's proxy services or really a whole host of items, you want to become familiar with that, you want to stay on top of the reporting capabilities, and...you also have the NSCP. So you really want to look at joining compliance roundtables or other peer networks—that really helps from a practical standpoint.” – Bart McDonald

13:06 – “Think of compliance as a journey, as a road trip. You've got a certain amount of things that you need to get done and you've got 365 days to get them done in. Create a map, create a checklist, create a calendar on what you're going to do and when you're going to do it. Don't wait till the end of the year to do all your testing. Do things throughout the course of the year. If you're a big picture person, no matter how much you know the rules, no matter how much you know the laws, no matter how long you've been in the industry, you still have to have that. And if you're not a detailed organized person and you have the resources, hire somebody that is, that can be that navigator for your compliance program.” – Louis Dempsey

34:24 – “Your weakest link is probably your reps. So, you really, especially from a customer information standpoint, so you really want to put some good training together. And, you know, I know that can be “here, do this, you know, this webinar” or “do this little read this,” but you really want to, you know, get in front of them. And, you know, like with anything—like with my kids—you got to say it three times before they hear it. So you really want to push that training.” – Bart McDonald

Show

Headlines

• SEC denied an attempt by 16 firms to revise settlements they made with the commission regarding their supervision of employees’ off-channel communications

Interview with Issa Hanna and Ted McKutcheon

• Background regarding SEC Marketing Rule FAQs
• Practical challenges related to performance marketing and demonstrating gross versus net
• What problems did firms face with implementation?
• What solutions do the new Marketing Rule FAQs provide?
• Recap of the new Marketing Rule FAQs
• What specific guidance can firms takeaway from the footnotes to the Marketing Rule FAQs?
• What is the broader impact of the new FAQs related to performance marketing?
• What strategic decisions will firms need to make before utilizing the benefits of the new FAQs?

What’s On My Mind

• Reviewing a quote from Anthony Bourdain and the satisfaction of completing another regulatory filing season.

Quotes

13:21 – “Folks will recall that the Marketing Rule was officially adopted at the very tail end of the Clayton-era SEC…There were lots of issues that were debated from an interpretive perspective under the rule that fit there. And you had this new category of performance that the SEC seemed to have just made up out of thin air called (so-called) extracted performance. And folks were, kind of, struggling to, kind of, figure out how existing practices in the industry, particularly the private fund industry, would fit into that category of performance.” – Issa Hanna 

40:53 – “Remember that, sure, we're getting some relief with respect to the net of fees requirement here, and certain circumstances. It doesn't necessarily get you an out from the Marketing Rule altogether. That's a really important thing to remember is that if the extracted performance that you're dealing with is still an offer of your advisory services or an offer of a private fund that you're advising, you know, that's still an advertisement subject to other applicable requirements of the rule, including the general prohibitions of the rule. So, you know, you do have to keep that in mind.” – Issa Hanna 

44:45 – “The part of the approach that's deemed okay with respect to the principle of making fair and balanced presentations is this layered disclosure or layered approach to disclosure which is consistent with, you know, something like putting a note referring the consumer of the advertisement, and in this case, the net gross presentation of the gross presentation to disclosure and net presentation located in another part of the document.” – Ted McCutcheon 

Show

Headlines

• First Advisers Act enforcement case under the new administration

Interview with Christine Schleppegrell and Chris Mulligan

• What are some of the regulatory and compliance issues you’re seeing in AI right now? 
• How are AI recordkeeping and marketing issues addressed during SEC exams?
• How are firms implementing AI inside their firms?
• What other SEC Marketing Rule items are in focus during SEC exams?
• What areas of the SEC Marketing Rule are you hoping the industry receives more guidance?
• What are some of the current areas of focus from the SEC as it relates to private funds?
• What are some of the challenges between outsourcing versus duplication of services?
• What other areas of focus have you seen recently from the SEC and how do you think they will be impacted by a new administration?

What’s On My Mind

• Reviewing “The Journey Begins” by Commissioner Hester M. Peirce and her commentary on the SEC Crypto Task Force

Quotes

15:17 - “There’s a temptation. So there are temptations on both sides, on the exam side and on the registrant side here, right? So investment advisors, obviously AI is a huge force in the economy and investing, and people what to talk about it. And that’s fine in terms of talking about, you know, how this is going to impact markets, how this is going to impact due diligence processes generally, right? You, sort of, can’t live today and not talk about AI. That’s fine. The problem is it’s easy to, sort of, fall into, it’s easy to fall into the representation of how you either use it, how you look for portfolio companies that use it, how it’s part of your management process, right? So it goes to, sort of, a high-level discussion of AI in our, sort of, you know, in, sort of, our culture and our society. And it goes into specific representations about how you are using it.” - Chris  

17:25 - “I think also the other side of the coin is the use of AI for non-investment purposes, so think compliance, operational purposes, to the point that you made earlier, just assessing staffing needs and how those can be addressed, and AI can be a huge time saver. So we’re looking at firms that are, we’re seeing firms that are considering whether they should disclose, for example, in their form ADV, the use of artificial intelligence, even if it is for that internal use case only that we talked about at the top of the podcast.” - Christine 

26:32 - “As they move forward in their journey of creating new communications using AI, maybe to create those communications, it makes it easier if they have that framework in place and they said, ‘Okay, well this looks like the other communications, it’s not an advertisement because X, Y, and Z.’ So it’s a very easy filtering mechanism to use. So just wanted to amplify that point because I think it’s really good. And then one thing to add, I know as we’re talking about back to basics, one thing that I keep going back to and keep getting the question is, ‘What is hypothetical performance?’ So I think that, in addition to what is an advertisement, are two of the really big picture questions that keep coming up, even though we’ve been living with this rule for some time now. But those two concepts because they are broadly defined, especially hypothetical performance, I think really trips people up.” - Christine 

36:57 - “I have a great answer to your question of, ‘Do disclosures have to be on the same page?’ And the answer, the universal answer to that question is, it depends on how many pages you have. If you have a 50-page pitch deck, then I do not think that the hypothetical performance, the mention of that can make its first appearance on slide 49..” - Christine 

Show 

 Interview with Brian Rubin and Jim Lundy 

• What were the 2024 SEC Enforcement numbers and what do they tell us? 

• What trends were present in areas like off-channel business communications and marketing and advertising? 

• Did firms get any credit for cooperating with the SEC and how did that manifest?  

• What can we expect from Enforcement under a Paul Atkins-led SEC? 

• What do you expect from Enforcement pre- and past-Wells letter and with regard to other parts of the process including virtual meetings and open jacket discovery?  

• Where do you see Enforcement making substantive changes to its approach under Atkins?  

• Can we glean anything from Atkins’ prior dissents that can give us insight into his own priorities as the new Chair? 

• What does the future leadership of the SEC look like and what’s next for the Division of Enforcement? 

Quotes 

11:22 - “Speaking of past data not being indicative of future results. In fiscal year ‘24, the commission brought cases against more than 70 firms, resulting in $600 million more in additional penalties, for those of us who’ve been living through this for the past several years. There’s no surprise that prior to January 2025, that leads to some pretty big numbers. And in the release, enforcement touted that since December of 2021, the initiatives in this space have resulted in changes against more than 100 firms and civil penalties in excess of $2 billion. As Brian mentioned, enforcement continued to be busy after the election through its first fiscal quarter for this fiscal year. And recently announced on January 13th, 12 more actions brought against nine investment advisors and three broker-dealers for off-platform books and records, record-keeping violations, and an additional $63.1 million in total penalties brought against those 12 firms” - Jim  

23:17 - “We have a list of a few things that may happen. So, one of them is that there’s probably going to be a push to reduce the time that it takes to investigate cases. Everybody on the defense side and on the enforcement side thinks it takes too long and there’s a variety of reasons that it does take a while. One idea is a simple idea to just simply shorten the time period that investigations have. And although President Trump said he did not read Project 2025, which was a huge sort of white paper on things the new administration could do, one of the recommendations it contained called for statutorily limiting the time for investigations to two years.” - Brian  

32:25 - “My personal view, I’m sure Brian would agree, but testimony sessions are one of the most important aspects of the investigated process for all involved: for the staff, for defense counsel, and (while it can be uncomfortable) for most importantly, the witness. When I went into private practice in 2016, I represented a CEO of a firm. They wanted him for three days. We ended up doing two and a half. It was the other end of the extreme. It was too much. But really, that testimony and most transcripts became incredibly important (in the Wells process that Brian was just talking about) and allowed us to get a really positive result for the client. And I don’t know if we would be afforded that level of interaction in an in-person testimony session today because it’s really the pendulum, I think, flowing too far in the other direction. And what you started to see is brief virtual sessions, with all due respect to the staff, becoming a little too cavalier. A little sloppy. Exhibits are cumbersome to use. Less exhibits were being used. And some of it’s not surprising. It’s just, it’s human nature.” - Jim  

Resources:

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LinkedIn: Compliance in Context, NSCP

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Websites: Compliance in Context, NSCP

Show

Headlines

• The SEC Investor Advisory Committee considered draft recommendations on mandatory arbitration clauses and the expansion of retail investor access to alternative assets
• Dual registrant settled SEC charges for failing to timely investigate and report suspicious transactions to FinCEN

Interview with Norm Ashkenas

• What is a culture of compliance?  What does it mean?  How do you know it’s present?
• How can you build a culture of compliance?
• Best practices when building out your compliance team
• Key things to look for when sourcing and building out your compliance team
• The importance of diversity of thought and perspective on your compliance team
• How should firms think about compliance collaboration with other business units as part of the hiring process?
• How should firms view unique skillsets and experiences when building out their compliance team?
• Best practices when using pre-formed hiring questions or question banks

What’s On My Mind

• Using a quote inspired by Winnie the Pooh, part of building our compliance team includes letting them know we’re there for them when they need us most

Quotes

12:20 – “Somebody I didn’t know reached out to me via Slack and said, ‘Hey, so-and-so senior executive thought I should reach out to you because we’re thinking about doing A and he said ‘You should talk to Norm and compliance first to see what they think and how to get it done.’’ That’s what I want to have happen. It’s not about me, it’s about somebody else thinking of compliance when we weren’t there.” – Norm Ashkenas

22:15 – “If you’re asking questions, certainly you’re starting with the technical expertise. If you’re looking for somebody who does surveillance on municipal securities, they have to know a great deal about that space to start, if that’s what you want them to do. So certainly you’re testing for that. Obviously, you are certainly looking for culture fits, again, another overused phrase. But if your firm is the type of firm that seeks to get alignment from everybody and its a firm where they don’t want somebody to present a solution, they want to have conversations with everybody who might be a stakeholder, get them all on the same page, and then have a final discussion, you need to find people who can do that kind of thing. If it’s a firm that’s more entrepreneurial, where it’s, ‘We want you to go solve the problems and see how many people react,’ you have to try to ask questions to glean what that is. So it does start with ‘What is your firm looking for after you hit the technical expertise?’ And then you also certainly want to ask how they fit into your overall compliance program and team. Complimentary skillsets are helpful. Like, you need, yes you want technical expertise, but in some cases, it’s ‘Am I hiring somebody to do this job in front of them for the next two or three years? Or am I hiring somebody who I think can do much more than this or different things? Am I hiring–I’ll use the phrase–a pocket knife? Somebody who’s got a multiplicity of things they can do. And I see them doing a number of different things. Those are things you’ve got to think about as you’re doing the hiring.” – Norm Ashkenas

38:06 – “Yeah, so interviewing is clearly important. Once you’ve got folks that you’ve determined might be qualified for the role, you wanna speak with them. And one of the things that we do here at Robin Hood, at least, is have... You use word banks; we often have question banks. I have some in my head, but I’ve been asked to put them down on paper, which is actually helpful exercise. And then when you build out for the interviews, you build out your diverse slate of interviewers to make sure you’ve got business partners; you’ve got oversight partners. You don’t have everybody sitting in front of them. Look just like you when you’re doing the interviews, reflect the firm and, yes, give them topics. Give them subject areas. Give them what to test on. And yes, you’re gonna have some sample questions. Sometimes it’s gonna be hypotheticals. I love giving candidates hypotheticals and, I’m not looking to get a right answer per se. It’s not about that. It’s about understanding how they think about whatever that is.” – Norm Ashkenas

Show

Headlines

• President-elect nominates former SEC Commissioner Paul Atkins to lead SEC

Interview with Ranah Esmaili and Louis Froelich

• What is the current state of crypto?
• What is the impact of a new administration on the SEC broadly?
• What is the impact on crypto, specifically?
• What baseline SEC rules should registrants still keep in mind?
• In the digital asset/crypto space, what is the current state of enforcement?
• What will the SEC continue to investigate (no matter the change in administration)?
• Do you think cases against platforms for being unregistered BDs will go away?
• What about custody? What is the current state of the Custody Rule proposal?
• What are SEC examination teams focused on when conducting examinations in the crypto/digital asset space?
• Are there any specific cases currently in litigation that you’re paying attention to and why?
• Using your crystal ball, what do you see changing in the crypto/digital asset space in 2025?

Outtakes

• The SEC recently sued a former CIO for allegedly orchestrating a “cherry picking scheme” allocating better performing trades to certain favored portfolios, and worse performing trades to other portfolios

Quotes

10:24 – “You know, I think [crypto] is here to stay. I also think that even in a decade from now, people maybe asking the same question. Let’s dive into where we’re at right now. Crypto is everything that you’ve said. It’s a wildly volatile asset class considered its own asset class right now. Most people still don’t really understand what the stuff does. As you know, if their businesses start to invest with it or trade with it, you know, kind of where to begin.” ~ Louis Froelich

11:50 – “The crypto lobby is a very real thing. It was one of the largest spenders in the last campaign. And so when sometimes people look at the headlines of the results or why is crypto such a thing, I don’t think it’s a coincidence, right? I think there’s a lot of people that made a lot of money in the space, had vested interests, have worked very hard and deliberately to kind of have the election results that we have and have crypto, kind of, part of the national conversation.” ~ Louis Froelich

17:42 – “So I expect we’re going to continue to see crypto asset offering fraud cases, cases involved in this appropriation, Ponzi schemes, maybe even insider trading cases. But that will, of course, depend on whether crypto assets are considered to be securities going forward. But those are really a significant portion of the cases that the SEC is bringing right now. So I think much is going to change, but some will stay the same.” ~ Ranah Esmaili

28:43 – “Until and unless there is, you know, clearer guidance or new guidance rules, new legislation, that kind of provide clarity related to digital assets, and whether there’s securities along the lines of what Louis was just talking about. You know, I think this audience and the compliance officers listening should really just assume that all the same rules and regs apply today. And that may very well change, but I just want to start with that note that there’s no change coming today. We’ve got a few months before, you know, the new, kind of, CFTC leadership will, you know, take the reins. And so for now the current state of play is the current state of play. So just don’t let your guard down.” ~ Ranah Esmaili

Show

Interview with Jason Berkowitz, David Kaleda, and Jason Roberts

• Reviewing the current state of the DOL Fiduciary Rule
• Is there a path where the DOL gets the decision reversed or where PTE 2020-02 gets separated out?
• With the recent DOL Fiduciary Rule getting stayed, where does that leave ERISA investment fiduciaries? What is the status quo?
• Understanding the 1975 regulation and PTE 2020-02
• What is the impact of the Florida district court ruling?
• Best practices around providing investment recommendations to retirement investors
• What are the types of things compliance officers can build into their programs now to ensure compliance to PTE 2020-02?
• What about disclosures for IRAs to IRAs?
• What about the annual review?
• Reviewing Reg BI, NAIC, and the full regulatory framework and the related obligations for market participants
• What is the current state of enforcement in this area?

Quotes

05:57 – “Let me just start with a quick overview of what the regulatory package is, that was adopted earlier this year. It included four components. The first component is a change in the definition of who is a fiduciary under ERISA. And then the other three changes, or the other three components, rather, were changes to what are called prohibited transaction exemptions, which are essentially the rules that ERISA fiduciaries have to follow in order to receive compensation for their services. And, in effect, essentially the way that, at least for my organization and our members, we look at this final regulatory package as significantly expanding the reach of fiduciary status to reach almost any financial professional who interacts in any way with a retirement saver and create significant new burdens and hassles for those individuals in order to get paid.” – Jason Berkowitz

09:18 – “So at this point we're still waiting to see how this will be resolved. There are really two tracks here. One is just this effective date stay, and the other the next track is the merits of the case, whether the DOL even has the authority to do this in the first place. So the DOL did file a notice of interlocutory appeal, which basically means they're appealing the stay at this point and also all the parties had been working on a decision on the underlying regulation and exemptions that's being put on hold so that the DOL can at least consider what they're going to appeal. At this point, they've just noticed the court that they could appeal. Whether they do or not, I guess, remains to be seen.” – David Kaleda

Show

Interview with Alpa Patel and Igor Rozenblit

• Reviewing recent judicial developments
• What happened in Loper Bright Enters. v. Raimondo
• What does the end of Chevron mean and what are the key takeaways?
• How does the decision in Corner Post, Inc. v. Bd. of Governors of the Fed. Resrv. Sys. extend the impact of Loper Bright/end of Chevron and potential future agency rule challenges?
• Reviewing the Private Fund Adviser Rules being vacated
• What happened in Nat’l Ass’n of Private Fund Managers v. SEC?
• How do you see this impacting SEC Examinations and Enforcement?
• Where are the key areas that you expect to see a continued focus from the Staff?
• Discussion of recent SEC Enforcement, including the focus on recordkeeping
• Analyzing the current regulatory environment, the industry’s appetite to challenge the SEC on certain issues, and the impact of the upcoming presidential election

Quotes

12:10 – “The rules expanded over the years, and it was always in reaction to litigation, right? Sothis will just be more. PFAR being dropped, and that was obviously more on a statutory authority side. But when you have a rule that’s struck down for being arbitrary and capricious, which is normally how these rules go, the answer to that is, well, let me give you more reasons. And that is why, you know, our releases ended up just writing more. The more you can draft, the better because you’re trying to counteract the idea that you did not address some random issue that a commenter raised, you know, in their 600-page comment letter. So that’s, that is the give and take and sort of the beauty of the Administrative Procedures Act of, well, okay, you’re telling me I didn’t do enough. I will do more. And that’s exactly where you’re going to end up more here.” – Alpa Patel

23:55 – “I think the vacation of PFAR didn’t really change the examination approach of the commission at the moment. I think, had PFAR stood, there was a pretty good probability that exams would have changed pretty significantly and would have transformed into a group that tests a lot of the PFAR disclosures that were required, but that did not happen. In terms of the areas that PFAR covered, those areas are traditional exam risk areas, and that is why they were in PFAR. It really didn’t work the other way around. So in terms of what exam does now, it’s really a version of what they’ve always been doing, which is identifying potential conflicts of interest, identifying potential technical violations of certain rules, including the books and records rule, which is kind of a hot topic right now, and pursuing those in both an exam and enforcement context.” – Igor Rozenblit

27:01 – “So I think you’re going to see more regulation by enforcement to get their message out about particular practices that they find problematic. And there are lots of different themes you’re going to see—that you’re continuing to see from the exams. And if anything, it’s more to building the case that they are—that this is an area of law that needs regulation and needs sort of very specific principle-based rules. Let me show you by bringing a bunch of cases and showing a bunch of exam issues that get referred, and the more you’re able to cite to it, the more sort of groundswell you have to prove, from a prophylactic perspective, these principled-based rules are required, or these actually more prescriptive-based rules are required because there is fraud going on.” – Alpa Patel

40:16 – “And to be frank, like the technological solutions aren’t great. And I think advisors have really struggled with how are we supposed to monitor, you know, some forms of communication, but have really put the time and the resources into try to get on the right side of this issue. And as Igor will say, like, it’s still hard. The surveillance piece is still hard, no matter if you as the advisor, do everything correctly, trying to get it right with your employees is not easy. And if they are going to sort of really pick apart procedures and actual surveillance practices, we’re in trouble. And I think they know, there’s sort of not a great answer to that other than hoping that they show some judicious application of the rules here.” – Alpa Patel

Show

Headlines

• New DOL Fiduciary Rule and the amendments to PTE 2020-02 and PTE 84-24 stayed by two district courts in Texas

Interview with Ed Wegener and Laura Goldzung

• Reviewing the FinCEN Rule Proposal to apply AML/CFT (Countering the Financing of Terrorism) requirements pursuant to the Bank Secrecy Act
• What does the rule proposal say? What will investment advisers need to do?
• What kind of training should be performed in this area? What other preparations will advisers need to make?
• What about dual registrants? Can the AML programs of broker-dealer affiliates be leveraged?
• What are some key factors that RIAs will need to keep in mind if the proposal is adopted?
• What kind of expectations should be in place from a compliance perspective?
• Is there required testing that needs to be performed?
• What requirements are placed on AML Officers?
• What kind of ongoing due diligence will be necessary or expected?
• What is the cost of compliance in this area?  Do you anticipate the regulatory focus and related costs going up or down in the future?

What’s On My Mind

• What can Olympic athletes teach us about developing the best compliance program possible and not letting immediate perfection becoming an impediment to growth

Quotes

10:26 – “Earlier this year, FinCEN proposed adding investment advisors as designated financial institution for AML and CFT purposes. And then additionally following on that, FinCEN and the SEC issued a joint proposal that would require investment advisors to comply with the customer identification and verification requirements, as well as the requirements to identify and verify identities of certain beneficial owners of legal entity customers. So in a nutshell, the impact will be that once this rule becomes effective and we meet the implementation date, investment advisors are going to have virtually the same requirements that certain other financial institutions have with respect to AML programs, including broker dealers. So many investment advisors who have affiliated broker dealers are well aware of those requirements, but we’re working with all of our investment advisor clients to understand what those expectations and requirements may be and how they can prepare for that.” ~ Ed Wegener

20:54 – “In the proposal, Vincent talked about the training needing to be designed based on the roles of the individuals that are being trained. So you have to distinguish different roles. And those roles will likely determine the nature, the scope, and the frequency of the training for each of those roles. So people who are very involved in the AML program likely are going to need more regular training. Those individuals that might not be as involved in the AML program, but touch certain aspects of it, like client-facing people that are dealing with account opening and things like that, will at a minimum need to be trained at least annually” ~ Ed Wegener

24:20 – “One of the aspects of the AML requirements that impacts training are the requirements to monitor for, identify, and report suspicious activities. So you want to make sure that as you develop your programs, that you’re looking at, what are the particular risks for money laundering, CFT, other illicit activities that my firm is at risk for, how are we going to monitor for those items? So what sort of monitoring systems are we going to put in place? And making sure that the alerting systems that you have are geared towards those particular red flags that you need to identify based on the risks associated with your firm. But there are a lot of activities that aren’t the types of things that will be picked up through a monitoring system or exception reporting system, things like account opening and issues red flags that might pop up during account opening. So it’s also important in addition to having a system for monitoring for suspicious activities that you’re training your staff—especially those client-facing staff on what are the particular red flags that they might come across that you need to escalate for further review because one of the areas that the regulators really hone in on looking at AML programs—is how are you monitoring for suspicious activities when those are identified how are you following up on those items and importantly are you documenting both the identification and follow up to those items.” ~ Ed Wegener

25:53 – “I think too that it’s very important to have qualified people in the firm who have some AML experience. You can’t just assign the baseball hat to somebody and say, okay, you’re in charge of monitoring. When they have no idea with everything, even red flags. It’s a red flag. Most people are not doing with red flags. So that’s not to take anything away from the talented salespeople, you know, all those very important functions in the advisory firm. But AML is a living, daily living thing. People who are managing all the parts of it really need to be skilled and understand not only what they should do, but why they should too.” ~ Laura Goldzung

Show

Headlines

• Reviewing the Loper Bright case and the long-term impact federal agencies’ rulemaking interpretations

Interview with Lisa Crossley and Melissa Loner

• Background and history on the founding of the NSCP
• How did compliance evolve within the NSCP and what disciplines were added?
• How is the NSCP building for the future of compliance? 
• Reviewing recent resource and staff additions
• Discussing expanded member offerings and volunteer opportunities
• How is the NSCP Planning for the future of compliance?
• New and exciting developments for the 2024 NSCP National Conference

Outtakes

• SEC charges global provider of business communications and marketing services for internal control and accounting failures charges relating to cybersecurity incidents and alerts in late 2021.

Quotes

22:58 – “I think the community is what runs deep through NSCP and what makes it so special. I mean, I have wonderful friends that I’ve met through NSCP. I’ve had job opportunities that with the help of members of NSCP, it is a very strong community. There’s so many ways to be involved, whether, you know, whether it’s very micro to being on NSCP’s board. So that’s something that Melissa will talk about in terms of volunteer development. But I can speak from my own experience that I felt that, you know, immediately there was a group of members who just were there to help me along the I introduced me to other people got me involved, like whether it was speaking or being on a committee, just being able to have those connections is so important, similar to having your social connections. So that’s something that I’ve always tried very hard to make sure that we maintain and we would maintain those opportunities in various work for our members ~ Lisa Crossley

30:50 – “You look at how the NSCP has evolved over the last couple of years with adding podcasts, adding more virtual sessions, right? We still hear about COVID and how people had to switch up from that and get more creative. We’re sort of in that realm again. We’ve also talked about that with the compliance officer of the future, right? How many of us back in the day thought that we would need to know so much about cybersecurity or any of that type of technology? We have AI, right? That’s a huge initiative all over. So just looking at how we continue to evolve in the subject matter, because the compliance professional of the past is not going to be the compliance professional of the future, right? And so looking at AI, I know that is also a big initiative of Lisa’s is to see not just how we can offer continued resources and AI to our members, but how do we encompass and integrate AI into the National Society of Compliance Professionals?” ~ Melissa Loner

Show

Headlines

• SEC adopts rule amendments to Regulation S-P to enhance protection of customer information

Interview with Kevin Gleason

• Reviewing the importance of third-party due diligence in the investment management space
• What are the basic building blocks of a successful third-party due diligence program?
• What key elements of service provider agreements should be reviewed?
• What risk factors should be considered when building your due diligence program?
• What are some of the common situations requiring third-party due diligence and what regulatory considerations should be examined?
• How can firms make sure to avoid regulatory enforcement in this area?
• When designing your firm’s due diligence program, what key considerations can help support proper supervision and ongoing monitoring?
• Are there other business units outside of compliance that should be involved in the process?
• Establishing a frequency of review that works with your firm’s compliance program
• Understanding the value of third-party due diligence and how to navigate challenges in the process
• Reviewing practical takeaways and lessons learned

History Has Your Back

• Examining a famous quote from the Stoic philosopher Epictetus and what it can teach us about dealing with the pressures of compliance

Quotes

17:20 – “Does the level of scrutiny need to be the same for, you know, someone that, you know, provides you maybe some training and content for your employees as it does for someone who, you know, maybe executes trades or who, you know, performs sort of risk analytics, maybe a fact set or someone or, you know, right? You know, I'm not here to say it does or doesn't, but to be able to do all of those people and provide the same sort of level of rigor, I think, is rather would be rather difficult for firms.” – Kevin Gleason

25:43 – “I mean, that is sort of the next step, I think, in the process, which is working on developing a questionnaire. With regards to sub-advisors, at least in my mind, right, they provide a similar service. It may be in regard to different asset types or asset classes. It may be taking different risks but really, they manage assets on behalf of your clients or on behalf of a fund or account. Where, I think, it’s more challenging is, now you have lots of other service providers outside of that same sort of function, in terms of a sub-advisor. You have pricing services and custodians and you have administrators and others. And so those types of questionnaires look differently. You do want to cover, I think, some of the same ground in terms of business continuity, disaster recovery, information security and how information will be transferred to them and what type of information will be—really you want to develop a questionnaire. In some cases it can look very similar for multiple parties. In others, I think it’s very sort of bespoke and specific to that type of service and that type of service provider.” – Kevin Gleason

35:17 – “We obviously have dedicated professionals inside of firms that are charged with running compliance, with designing and implementing the firm's compliance program, but just in the same way that we would say, everybody at the firm practices compliance, right? And we need everybody to buy into that. I think the same thing is kind of true with regard to third-party service providers and how they fit into the overall operations and again, the kind of monitoring and supervision that goes on so that there needs to be collaboration among the people on your team anytime you're utilizing the services of a service provider to be able to provide real-time feedback and if there are issues that are occurring that those get fixed on a more frequent basis than say once every three years that you send over a questionnaire.–Yeah, I think that is important that the audience as a takeaway, right? It's sort of an evergreen process. I refer to it as, you know, to your point, lots of other departments we talked about, is sort of it takes a village. And I realize, depending on the size of your firm, you may not have access to people in audit or risk or separate legal people, but you do need to, I think, draw upon the expertise of the people you have.” – Patrick Hayes and Kevin Gleason

Headlines

• Supreme Court decision impacting 10b-5 disclosures
• FinCEN Issues Analysis on Elder Financial Exploitation

Show

Interview with Ben Marzouk and Andrew Mount

• Reviewing the history of remote work and related compliance monitoring and supervision
• What does FINRA consider an office? What are the implications of how that’s defined?
• How FINRA is managing remote work in general?
• What is Regulatory Notice 24-02?
• Discussing the impact of FINRA Rule 3110.19 (Residential Supervisory Location) and FINRA Rule 3110.18 (Remote Inspections Pilot Program)
• What are the practical applications of these new rules?
• How do you see the issue or remote work evolving throughout the course 2024?

Outtakes

• SEC Risk Alert: Initial Observations Regarding Advisers Act Marketing Rule Compliance

Quotes

14:50 – “People soon realized that no one was really going back to the way things used to be five days a week in a set physical office location. To some extent, people were going to continue to work from home for some period of time, even at the pandemic subsided. So with that in mind, FINRA reminded firms that, ‘hey, if you’re going to continue to allow people to operate their home and do brokerage business from their homes, you’re going to need to supervise that location.’ And that supervision would mean inspection on some regular set schedule. It would also mean, and we can get into it later, thinking about your membership agreement.” – Ben Marzouk

20:13 – “If an associated person works two days a week from home and three days from the office, FINRA’s staff has said that that would mean towards being a regularly working at home arrangement, and you’d have to count that residential location and as a person. office. I would say that that’s not to say that just because someone’s one day at home and four days in the office during the week you don’t need to count the one day at home, you need to look at the locations where your associated persons work on a routine and predictable schedule with a firm’s knowledge and some sort of formalized arrangement and, you know, make that determination. by case basis. It’s a really a facts and circumstances analysis. You know, that FINRA, as staff has said recently, at least, that of locations that you use on an ad hoc basis, so I’m thinking locations where you work from the office five days a week, but you stay at home on Friday because you have a contractor coming or your kids are coming.” – Ben Marzouk

28:10 – “The one area where FINRA’s management of remote work has evolved has been, I think, with the inspection requirements, and we can get into the specifics of the rule later. But, you know, traditionally, FINRA had always taken the view that under 3110, the obligation to inspect an office needed to be done in person, that you had to show up to, you would typically have a principal of the firm that would show up to the actual branch office location and inspect it and go through the actual physical location, look at files, look at the way business was being done and FINRA’s view is that you couldn’t phone it in. You had to physically be there to inspect the office.” – Andrew Mount

37:11 – “It’s something that FINRA staff, at least, has tried to get out in front of by saying, everything’s going to be reported on an aggregated basis. We won’t be able to tie the findings to any specific office or location or person. So they’re trying to get out in front of it and say that this is purely for data collection. It’s purely to support the eventual permanence of remote inspections. I would say that some firms do remain skeptical there. The last thing I’ll say on the remote inspections [pilot program] is a key takeaway. Like I said at the top, firms aren’t required to participate, but if you don’t participate in the pilot program, you’re going to have to go back to doing on-site inspections.” – Andrew Mount

Show

Interview with Fred Reish

• Reviewing the evolving standards of care (Reg BI, RIA, DOL, NAIC)
• How have disclosures evolved to comply with the differentiated standards of care?
• What does the new DOL Fiduciary Rule say and what’s changing?
• Who is going to be impacted by the changes to this new rule?
• What are the impartial conduct standards?
• Are there disclosures and other exemptions out there to help mitigate the conflicts noted in the new rule and how can firms comply with them?
• What triggers an investment recommendation under the new rule?
• Is there a wholesaler exception?
• What is the compliance date for the new rule?
• What kinds of information does an individual need to review in order to effectively perform a comparative analysis between for an IRA recommendation?

Quotes

7:54 – “If you look at both of those, I think Reg BI for broker dealers is actually a tougher standard. I know that’s going to surprise some investment advisers to hear, that but, and part of that’s because the interpretation for investment advisors is really principles, truly principles-based. And, you know, the SEC said the duty of care and the duty of loyalty for investment advisors together is a best-interest standard of care, but very principles-based. If you get into Reg BI, the standard of care is principles-based, but then there are a bunch of rules-based parts to Reg BI, so for no other reason other than just the volume of rules alone under Reg BI make it a more complicated and more demanding set of requirements.” – Fred Reish

21:32 – “Number one, the advisor has to satisfy the impartial conduct standards. Well, what are impartial conduct standards? That's a label from the Department of Labor. It has meaning, though. You have to act with a duty of care, sort of thing of a fiduciary duty, and a duty of loyalty. Similarly, a fiduciary duty. You can't put your interest ahead of the investors. No more than reasonable compensation relative to the services provided, no materially misleading statements. There is a group of things like that that are called the impartial conduct standards.” – Fred Reish

Show

Headlines

• SEC Division of Enforcement Director Gurbir S. Grewal responded to criticisms by the crypto industry challenging the agency’s authority and motivations regarding the treatment of cryptoassets.

Interview with Rob Tull

• What’s the complete CCO toolkit needed to build an effective compliance program?
• What skills help make a great CCO?
• Simple steps CCOs can take to improve detection of issues
• How can you enhance your ability to communicate and process information?
• What can I do to help ensure my firm empowers me in my role as CCO?
• What are some best practices to maximize the resources I have available?
• How understanding the firm’s strategic plan can significantly help your compliance program and your role as CCO.

Final Segment – Outtakes

• SEC settled charges against two investment advisers for making false and misleading statements about their use of artificial intelligence in a first-of-its-kind enforcement action

Quotes

11:58 – “So if I had to stack these things in priority, the first thing is, do I know the rules? Am I knowledgeable? So is a compliance officer knowledgeable? That’s kind of, it’s rough. There are layers to that. The first thing is, do you know the regs that apply to your business? And that’s where, you know, that’s where there’s a ton of content from NSCP, from law firms, from consulting firms—like, we get that, we get the knowledge. But then there’s two layers on top of that. Then there’s also, do you know the industry you’re in? Like, it’s one thing to know the rules, but do you know what’s going on in the industry? What’s happening for investment managers and broker-dealers in aggregate? And then what’s happening in your business? Like you need to know your business. And that’s kind of like the foundation, like that knowledge piece.” – Rob Tull

20:29 – “The beauty about empowerment is we tend to think, once I’m the named CCO, I am, by default, empowered. That’s the way we tend to get because the rules are title-focused, we get title-focused. But what we forget is that title has nothing to do other than who gets to wear the target. What it really talks to in our ability to be empowered is our ability to demonstrate–it’s how well we demonstrate our competence and our knowledge. And it’s not an ivory tower task. It is a ‘what do you bring to the business as a value-add, to take compliance from a checklist to make it something that is additive to the business. And that is the most important thing. And it’s not just–and this is beyond the concept of profitability, beyond that concept–it is how do you make the organization better top to bottom.” – Rob Tull

Show

Headlines

• FinCEN proposed to include “investment adviser” in the definition of “financial institution” under the Bank Secrecy Act (“BSA”)
• SEC”) issued an updated FAQ for investment advisers relating to SEC Rule 206(4)-1 (the “Marketing Rule”), and the reporting of gross and net performance within advertisements

Interview with Karen Barr and Lisa Crossley

• General overview of the IAA and the NSCP
• What is the state of the investment adviser industry?
• What were some of the key metrics from the Investment Adviser Industry Snapshot 2023?
• What are some of the current policy initiatives coming out of the SEC and where do these proposals stand now?
• What are some of the sleeper policy initiatives you anticipate hearing about in 2024?
• What are 2024 organizational initiatives for the NSCP?
• What are 2024 organizational initiatives for the IAA?

Final Segment – History Has Your Back

• Understanding what Billie Jean King meant when she said “Pressure is a Privilege” and what it can teach all compliance officers heading into a busy 2024

Quotes

11:18 - “I think one of the things that I heard in both of your quick responses there and thinking about both organizations that I personally love, being someone who’s obviously very involved in the space, is this idea of community. With the IAA, it is the community of those that are providing services in that trade. On the NSCP side, it’s those that are kind of practicing the specific trade inside of the firms doing compliance. You build these fantastic communities that really help lift each other up in a lot of different ways.” – Patrick Hayes 

23:52 - “It’s very important to let folks know that they need to advocate on this issue. And I just want to say we appreciate that advocacy. It’s your advocacy that inherently helps NSCP members, especially on that issue and so I just wanted to add one thing that we did a little bit differently than this year. It was always–When I was a CCO, I never understood why there was an educational bridge between the SEC and the compliance professionals. And I was fortunate this year to get the ear of Marshall Gandy, who is the Associate Director of the Division of Examinations and to discuss that, and I said ‘How about if your staff came to our conference to sort of get an inside look at what compliance professionals and those that serve them and services providers are grappling with?’ And they did take me up on it, and we worked with Richard Best and the rest of the examination staff, and the feedback we got was that it did open their eyes, and they were able to talk to compliance professionals and spears, and learn themselves that we need more of that type of dialogue with regulators too.” – Lisa Crosley 

Show

Headlines

• The SEC adopted two new rules under the Securities Exchange Act (Rule 3a5-4 and 3a44-2) to further define the term “as a part of a regular business.”
• The new rules expand the scope of firms that are required to register as broker-dealers and as government securities broker-dealers.

Interview with David Scalzetti

• Background on the SEC Names Rule requiring registered investment companies whose names suggest a focus in a particular type of investment to adopt a policy to invest at least 80 percent of the value of their assets in those investments (an “80 percent investment policy”).
• What specifically do managers of a mutual fund need to do to comply with the Names Rule?
• What are some of the ways firms can do to better manage the data to ensure compliance with the Names Rule?
• How can data assist in the portfolio management process to benchmark against how other firms are evaluating their growth, value, or sustainable investment strategies?
• What are some best practices firms can utilize to comply with the Names Rule or enhance its own internal controls?
• Background on SEC Rule 15c2-11 (Broker Dealer Quotations over a quotation medium)
• What can firms do to ensure compliance in difficult areas like fixed income that carry new requirements under SEC Rule 15c2-11?
• How can data assist in determining which fixed income securities may be eligible for the relief provided in the SEC Staff’s December 16 No-Action Letter?

Outtakes

• SEC Fines 16 Firms More Than $81 Million for Off-Channel Communications

Quotes

11:24 - “So the names rule dates back to the dot.com era. Really when the SEC was finding some nefarious actors were marketing themselves as technology funds because everyone was getting in on technology. Although, they may not have been investing in true technology funds. So they introduced the requirement to have an 80 percent investment policy requirement for the use of thematic or even industry-specific or even location-specific terms implied in the fund’s name, that at least 80 percent of investments need to align with that. That rule was recently amended to add two things. Explicitly add strategy terms like value and growth which were considered exempt from the 80 percent policy.” – David Scalzetti

15:18 - “So the investment policy requirements (the 80 percent test) is exactly a data… So from my perspective, we view this as you have a value fund. You advertise that you’re a value investor. Well, what does that mean to you? And not every value fund is going to have the same exact definition of what constitutes a value strategy. But no matter what your definition is, the rule is going to require you to be transparent around that definition.” – David Scalzetti

19:26 - “Something doesn’t have to be sustainable today if you’re using your ownership as a stewardship to improve the greening of those investee companies. But then, if that is your strategy, you should be showing improvement of those companies over time, in whatever metric you consider to be sustainable.” – David Scalzetti

24:47 - “From my perspective, data providers, such as yourselves, should have one rule: ‘What can we do to help that audience, your audience here, most seamlessly use this data to simplify and streamline those workflows that they’re going to have to do anyway?’” – David Scalzetti

Show

Headlines

• Mark T. Uyeda was recently sworn in for his second term as SEC Commissioner
• SIFMA comment letter requesting DOL to withdraw “Retirement Security Rule” proposal

Interview with David Scalzetti

• How has the topic of valuation continued to evolve in the compliance space and how can data be used with valuation to enhance a firm’s compliance program?
• What are the compliance obligations associated with SEC Rule 2a-5 of the Investment Company Act?
• How can data support compliance with good faith determinations of fair value in compliance with 2a-5?
• How can data support compliance with valuation methodologies across investment strategies?
• Best practices when thinking about and establishing a valuation process
• The impact of data on liquidity and portfolio management
• Establishing a liquidity risk management program in compliance with SEC Rule 22e-4 under the Investment Company Act
• How can firms use data on liquidity to manage through volatile markets?
• How can portfolio management and liquidity data be used to substantiate compliance with the SEC Marketing Rule?

What’s On My Mind

• Understanding the American bison and how it faces adversity

Quotes

11:28 – “We’ve been a major consumer of underlying input data and analytics information. So collecting bids, and quotes, and tree data, and other information that is very useful to understanding the valuation. Historically, most clients just want the answer key. Like, you know, ‘I don’t care what the inputs are, just tell me what your good faith estimate of that fair value price is.’ But as we’ve evolved over time as an industry and the regulators have evolved, you’ve seen more and more requests from the regulators to better understand what went into that valuation and how they get comfortable using a particular valuation. When, in a lot of cases, the underlying input data could lead to a range of good faith estimates. So what we’ve noticed and what we’ve been focusing on is repurposing a lot of that input data into metadata that is useful for whether it’s an IPV team or a compliance officer or someone in regulation or reporting to better understand how that evaluation works.” – David Scalzetti

20:17 – “So backtesting is a huge piece…Being as large of a provider as we are and [with the] number of clients we have, we get a lot of challenges on our price, and more often than not the challenges are a function of being concerned about a particular valuation, but just getting some trigger events that may be completely market norm like the price moved by more than one or two percent regardless of whether that’s appropriate for what happened in the market or not. But understanding challenges and having transparency into that. And then finally, just broader transparency into market data and unchanged prices and things like that. So, again the four categories [to me] around valuation focus on methodology, backtesting, challenge, and statistics and underlying transparency and metadata.” – David Scalzetti 

35:20 – “We’ve taken a position that a lot of that input data that we have that goes into our valuation methodologies is also valuable to help solve for liquidity in a systematic and measured approach. So the way we think about liquidity and we use a fairly standard definition, it’s just the ability, to exit a position without having a significant impact on the price.” – David Scalzetti 

Show

Headlines

• Review of the accredited investor definition
• SEC denial of Coinbase petition

Interview with Brian Rubin

• When does the Commission typically bring enforcement actions against compliance personnel?
• Are compliance officers on the front line?
• Are compliance officers responsible for implementing and executing policies and procedures?
• Do compliance officers need to become experts of everything?
• What is a wholesale failure?
• Did Grewal cite any examples of CCOs being charged for purely compliance-related failures?
• Are there other instructive examples of CCO liability cases?
• What was the SEC’s approach to determining CCO liability in the Hamilton case?
• How could the SEC have applied the NSCP Framework in the Hamilton case?
• How do you see the issue of CCO liability evolving in the future?

What’s On My Mind

• US Supreme Court case on SEC could have wide impact on agency enforcement.
  

Quotes

11:42 – “I would tend, I think, to slightly take a different perspective than Mr. Grewal and agree with you that I think traditionally, the way most of the time I think about compliance, it's not that it's the front-line supervision. I do think that compliance, just in as much as they are another person at the firm who should engage in practice compliance. Compliance as a functional area inside a firm may have dedicated professionals that live within it, but everybody at the firm should practice compliance.” – Patrick Hayes 

22:54 – “So, unfortunately, I don't think the phrase wholesale failure helps anybody. at all. It just leads to more questions. That's one of the reasons why we developed a framework.” – Brian Rubin 

25:25 – “Yeah, so it was odd that he cited that case as an example of ‘Here's a really good case where he charged the CCO,’ because, in fact, in that case, he was wearing multiple hats. He wasn't just the CCO, he was the founder of the firm. He was the sole owner of the firm and the shareholder of the firm, and he was the CEO and he was, according to the order, the only individual responsible for implementing and developing compliance policies and procedures. and the code of ethics. And he was charged because he was responsible for implementing the policies and procedures. And again, implementing sounds like a business function. It doesn't sound like an advisory function. So in my mind at any rate, it didn't make sense that he said, ‘Here's a great case where he charged a CCO for failing to act as a CCO should be acting’ because this guy was in effect the firm. And we often talk about compliance cases where people wear multiple hats and those cases are different from cases where somebody just is acting in a compliance function and is charged for acting in that compliance function.” – Brian Rubin 

Show

Interview with Christopher Mulligan

• How is the Division of Examinations approaching the new SEC Marketing Rule one year after the compliance date?
• What are some of the best practices you’ve seen successful firms implement into their compliance programs?
• How can firms best substantiate the statements and claims they make in their marketing?
• What are some of the challenges you’ve seen firms struggle with during examinations of the new Marketing Rule?
• What are some of the issues you’re seeing with regard to testimonials and endorsements?
• What are some of the issues you’re seeing with regard to performance marketing?
• How can firms avoid the traps associated with marketing templates and stale information?
• How do you see SEC examinations continuing to evolve in the marketing and advertising space?

Quotes

09:11 – “So in exams, what we have tried to do is train our staff and be as prepared as possible. We know registrants are doing that, right? So we want to work as hard as they are in terms of understanding the new rule and being able to analyze the compliance with it. But we also want to communicate as clearly as possible what we're looking for and what we're analyzing to help registrants who are trying their best to comply with the new rule to understand how, what we're going to be looking for so they can spend the time to be prepared.” – Christopher Mulligan

21:17 – “We've also seen examples of policies that just weren't tailored. And this is where off the shelf can be very dangerous. So policies and procedures that either reference activities that they don't do and have no intention of doing or worse, they don't address testimonials or endorsements even in their engaged in those activities. Or they share on top in the policy procedure, they're still talking about the Cash Solicitation Rule, and they haven't been replaced with the endorsement and testimonial section.” – Christopher Mulligan

31:03 – “I don't want to be scary, but we have seen deficiencies across most of the elements of the new marketing rule, while also seeing great work. So I hope that this is balanced and that this is motivation to make sure you don't have any of these issues, but also for those advisors that are, that have done a great job, to keep up.” – Christopher Mulligan

32:15 – “People will put together templates or have a stable of pre-approved materials and stuff like that. That's great. That's a good thing that you can have pre-approved materials, but the one thing you've got to be conscious of and one of the things you talked about is don't just let it sit there and get stale and grow moss on it over time. You've got to go back and look at that because sometimes some of the services that are provided in that pre-approved template or those other types of offerings, those persons may no longer be at the firm.” – Patrick Hayes

Show 

Headlines

• The SEC Division of Examinations releases its 2024 Examination Priorities.

Interview with Dalia Blass

• What does the SEC rule proposal say?
• What are some of the issues or challenges with the rule proposal and what are some of the key issues involved?
• What “covered technologies” are included in the rule proposal?
• What constitutes an “investor interaction”?
• How is conflict of interest defined in the rule proposal?
• What does “neutralization” of a conflict really mean?
• How does the definition in the rule proposal reconcile with the standards of conduct used by the Commission in other contexts?
• Does the proposal contemplate the impact to other rule proposals?
• Does the proposal provide details regarding the cost of complying with the rules as proposed?
• For those firms using predictive data analytics, does the proposal discuss who should be conducting the relevant assessments and testing or supervising this activity?
• Have there been any additional developments since the rule was proposed and what can firms do now?

History Has Your Back

• Developing an appreciation for the mark of civilization and how to approach issues inside your firm’s compliance program.

Quotes

09:19 - “It actually tracks some of these statements that we had heard from Chair Gensler. He has spoken previously several times about the use of technology by broker-dealers and investment advisors, and the potential for conflict to be embedded in the use of that technology when it comes to interactions with investors. So what this rule proposal does–the target of this rule proposal is to look at the conflicts of interest that could be associated with the use of predictive data analytics and find ways to make sure that these conflicts are being addressed by the brokers or the advisors. So that, you know, at its core, it is about understanding the conflicts and managing these conflicts with respect to these technologies.” - Dalia Blass  

20:08 - “It's really important to, first of all, appreciate the power of technology in our space and what it has delivered to the American main street investor, American investor in general.” - Dalia Blass   

22:52 - “So yes, there could be issues, but let's understand what the issues are (and if they're addressed) and do a cost benefit. Because the last thing we want is something that, frankly, would raise the cost so much, would be so onerous, would be so complex that, you know, it will not enable, you know, smaller broker dealers and advisors to compete and also become a significant barrier to entry for anybody wanting to come into this space.” - Dalia Blass   

39:11 - “Every rule, Patrick, regardless of how fantastically written it is, will have unintended consequences, will have interpretive issues, you know, will start as you as you build into your compliance network, you will start seeing the pull and push of problems, because you can never anticipate every single issue with a new rule that comes into play.” - Dalia Blass 

Welcome back to the Compliance in Context Podcast! On today’s show, we feature a Lessons From The Front Lines episode on the recently passed SEC Private Fund Adviser Rules with an esteemed panel of experts featuring three former regulators who served at the very highest levels of the SEC—Kristin Snyder, Dan Kahl, and Pete Driscoll. It’s no secret the SEC has been laser-focused on the private funds industry over the last several years, and now that the groundbreaking final rules have finally passed, our experienced panel will be able to arm you with some key questions and items to consider as you start to think about the overall impact to your firm and how to implement these changes into your firm’s compliance program. This is an episode you won’t want to miss!!   

Show

Interview with Kristin Snyder (Debevoise & Plimpton LLP), Dan Kahl (Kirkland & Ellis) and Pete Driscoll (PwC)

• What’s the biggest surprise from the proposed to the final rules?
• What are the three conditions to achieve legacy status?
• Breakdown of the Quarterly Statements Rule
• Where did the SEC give on Prohibited Activities?
• Breakdown of the Restricted Activities Rule
• What did the SEC have to say about the standard of liability facing private fund advisers?
• Breakdown of the Preferential Treatment Rule
• What constitutes material economic terms?
• When it comes to adoption, how can firms operationalize these new rules into their compliance programs?
• What are some major challenges that firms face with regard to these rule proposals?

Quotes

10:36 – “There’s a lot unsaid in there and a lot of trepidation as to application in the future. The commission very clearly said it wasn’t going to address state law liability issues. But to me there are significant questions where the overlay of federal fiduciary standard and state law and what the staff’s views may be with respect to limitations of liability and how they address that. There was colloquy at the open meeting that this is no different than what the Commission did ago in fiduciary interpretation. But I think the devil will be in the details on application and the years to come on the pullback on the exculpation and whether it was actually meaningful or not.” – Dan Kahl

12:45 – “There are provisions that allow for legacy provisions to stand, but you really have to be careful in kind of unpacking exactly what is and isn’t covered by those legacy provisions because it’s not a blanket status that’s applied across the board.” – Kristin Snyder

20:52 – “And that’s what I’m hearing from clients is probably the biggest concern on how are we going to implement such a broad rule or series of rules, all the requirements–I mean, there’s five rules–frankly, and given the breadth of what’s included, the detail that needs to be captured needs to be automated on a quarterly basis. You mentioned quarterly statements and both you and Dan mentioned the operational lift. And that’s what I’m hearing from clients is probably the biggest concern on how are we going to implement such a broad rule or series of rules.” – Pete Driscoll

Show

Headlines

• The SEC adopted significant new regulation of private fund advisers under the Advisers Act, as well as other requirements that apply to all SEC-registered investment advisers

Interview with Marc Gilman

• How has your AI experience evolved over the course of your career?
• The shifts of information management and how to think about information management wholistically?
• How do firms that are using AI approach compliance?
• How does AI find a different way to capture relevant compliance information?
• What are the benefits of AI on the firm’s compliance program?
• In addition to compliance, what are some of the benefits to the business side as well?
• What advice would you would give compliance officers out there that may have heard of AI, but don’t quite know what to make of it or how to use it in their compliance programs?
• Can compliance use machine-learning to help identify items for testing?
• What are some of the other practical uses for AI when it comes to testing or other key areas like cybersecurity?

History Has Your Back

• Understanding how the ancient Japanese artistic practice known as kintsugi and the Japanese philosophy of wabi-sabi can give us perspective on the new SEC private fund rules

Quotes

13:48 - “I think that's a really great, great way to frame it. There's really been a maturation in that space from, you know, kind of thinking about information in kind of silos, whether that's in business units or in, you know, structured versus unstructured types of data. And I think what organizations have realized over time is they really need a holistic approach to that data. Obviously, at Theta Lake we're very concerned with kind of communications data and how that maps into that fabric.” - Marc Gilman 

21:12 - “So just yesterday, big SEC and CFTC announcements of $555 million fines adds to the $2 billion that's already been refined by them. So it is a very critical area of compliance focus right now. And I think the recent enforcement actions often get labeled as the WhatsApp fines, just because that was one of the platforms that the regulators had mentioned in some of the earlier enforcements. But I think the way that I look at them is really more as like the capture fines, right? Because pursuant to SEC rule 17a4, those communications related to your business as such, it doesn't matter what platform they're taking place on, if they are relevant to your business, you're going to have to capture them.” - Marc Gilman 

32:11 - “The value of having really good compliance where compliance is so often and wall gets this to other other functionalities get this too, but you know, you're seen as a cost center solely, right? But in some areas like this one than the ones that you're describing, that's such a perfect example of how having a really great compliance program and building it out in the right way gives you a strategic and competitive advantage over other folks in the same space.” - Patrick Hayes 

45:17 - “There's a lot of different variations, you know, from everything in between the video calls to recordings, to emails, et cetera, yeah, being able to then use that and again, kind of cut through the noise and get to the content that really matters is a much more effective way to really help provide meaningful data and help you run your firm's compliance program.” - Patrick Hayes 

Show

Headlines

• The SEC proposed a rulemaking that would require broker-dealers and investment advisers to eliminate conflicts of interest associated with the use of predicative data analytic (“PDA”) technologies

Interview with Chuck Senatore

• How would you describe the current state of cryptocurrency in our financial markets?
• The merits of certain coins and why some question their necessity
• What is the concept of “Timeless Principles” in the investment management space?
• What challenges does the SEC have in this space?
• What additional regulatory uncertainty currently exists?
• Have any solutions been proposed by the industry?
• How do you see the state of cryptocurrency evolving in the near future?

What’s On My Mind

• Reviewing the impact of the Ripple decision

Quotes

10:25 – “There's been a lot of bumpiness, growing pains, some actors that were less than responsible, which are part of where we are now in terms of what would it mean in terms of how we can get to a place where the responsible parties are able to step in and be in a position to where these lessons that are being learned painfully can actually be a foundation of future growth.” – Chuck Senatore

13:07 – “So I guess the question about whether we need the coins, I guess my answer would be maybe a little bit facile. But at the end of the day, I think that to make a decision about whether these things are needed would really be unfair to the innovation process. And if when we think about a lot of other things, I mean, let's say like there are government-based payment protocols, Fedwire, there's a bunch of things that are involved with that. But there are other payment use cases that have evolved. And the marketplace is deciding whether they have value. I mean PayPal, there's a bunch of as an example of sort of like a non-government based payment system and there are tons of others. And the good part about this is that these new offerings, these other offerings are actually promoting better outcomes and I think we should let things play out and let's see how things work out in terms of whether something is desirable, something is making sense or not.” – Chuck Senatore

15:55 – “When I think about timeless principles, it really is a function of how a player in the marketplace, regardless of whatever the laws might be, there's an element of business ethics, there's an element of what I again, or some of these timeless principles are actually highly grounded in things I think that are an element of common sense in the human experience.” – Chuck Senatore

Show

Headlines

• SEC Division of Examinations issued a Risk Alert discussing the new Marketing Rule

Interview with Tracy Abbott and Ted McCutcheon

• What is valuation?
• Why is valuation such a key issue in the investment management space?
• What are some best practices that firms can use in this space?
• How does the role of compliance fit into valuation? What should and shouldn’t be included in the CCO’s purview?
• What is the impact of bad data on valuation?
• How can firms build proper governance around valuation?
• The importance of making sure employees understand the rules around valuation

Outtakes

• SEC settlement with investment fund to resolve claims that the fund failed to adopt and implement necessary written policies and procedures related to the valuation of fund portfolio investments.
• Having the right process and policies and procedures in place can be just as important as avoiding violative conduct

Quotes

12:09 - “To get a little more specific, the improper valuation or valuation impacts directly the calculation of fees—what investors pay for the services. Valuation impacts performance advertising and reporting, which is a huge selling point for advisors. You know, valuation impacts the funds share sale price. Misvaluation or valuation problems…can result in private or regulatory liability for fraud, negligence, breach of fiduciary duty.” – Ted McCutcheon

14:14 – “The first thing you need to look at is, what kind of assets does your firm trade in, right? So is it level one assets, which is just stocks and bonds? Is it level two assets, which are difficult to valuate but there are still pricing services? Or are they level three assets which are entirely illiquid and very difficult to process? So, I think, from a risk-based approach, it’s really important to just dig right in. First, what is your firm’s business?” – Tracy Abbott

24:40 – “It really is absolutely critical. Even though, sometimes if your policies and procedures are too specific, you’re a little bit limited so it is really difficult to juggle. It really is a balancing act. Especially with some of those level three assets and illiquidity.” – Tracy Abbott

Show

Interview with Carlo di Florio (Co-Host), Christine Tetherly-Lewis (ACA Aponix), and Mike Pappacena (ACA Aponix) and Amber Allen (Fairview Cyber)

• Historical look at the SEC’s focus on Cybersecurity
• Formalization of cybersecurity protocols and Rule Proposal 206(4)-9
• Overview of the Cybersecurity Risk Management Rules and Amendments for Registered Investment Advisers and Funds
• What is Rule 10, how does it relate to 206(4)-9, and what are some of the key differences and similarities?
• When has a cybersecurity incident occurred?
• How can firms provide proper oversight and staffing of its cybersecurity program?
• What are the incident disclosure periods for 206(4)-9 and Rule 10
• When does a firm actually “know” an incident has occurred that requires reporting to the SEC or disclosure to its clients?
• How does Cybersecurity Rule Proposal reconcile with Rule 206(4)-11 and the rule proposal on outsourced service providers?
• What are the components of the Cybersecurity Rule Proposal and what is the impact of each?
• When it comes to potential adoption, what are some major challenges that firms face with regard to these rule proposals?

Quotes

10:14 – “You really see the growth and focus by the SEC and FINRA and other regulators starting in 2010 and forward timeframe. You mention a number of risk alerts there and I would observe that the exam division has published more risk alerts, special reports, exam priorities specifically focused on cyber than any other subject. And the same thing at FINRA with some really excellent reports.” – Carlo di Florio

12:20 – “So under the proposed rule 206(4)-9, the SEC has set forth this proposal that would require advisors to adopt specific and fairly prescriptive requirements to address cybersecurity at a firm level. It would require comprehensive programs to address things like cybersecurity risk assessments which would be conducted annually and potentially more frequently depending on changes in firm risks and also even just industry risks.” – Amber Allen

31:44 – “You don’t know what you don’t know is sort of a cliché when it comes to cyber, but making sure that you have appropriate tools in place that can help you detect an incident or a potential incident. I think that what firm’s need to do with respect to understanding if there is a significant incident is really—when they look at their incident response plans and how they receive alerts, notifications, and monitoring—is really set some guidelines and some boundaries around what that all means.” – Mike Pappacena

33:28 – “I think it’s really critical for firms to have thorough monitoring programs in place so they can keep an eye on potential breaches. And under the proposed rule, the SEC did note that firms should be reporting once they have a reasonable basis for concluding that an incident is occurring or has occurred. And it’s interesting that it also noted specifically that, that does not mean that they know that the incident has occurred.” – Amber Allen

35:24 – “Testing of all of these practices is really, really important. The best way to be prepared is to roleplay. Step through some of these scenarios. Make sure you know how you would react, how you’d maneuver, and ultimately, how you’d survive one of these issues if an incident does, kind of, reveal itself.”  – Christine Tetherly-Lewis

Show

Headlines

• SEC Chair Gensler Testifies before House Financial Services Committee highlighting regulatory initiatives on equity markets and private funds, artificial intelligence and predictive data analytics, crypto assets, and climate change disclosure.
• SEC Division of Examinations Risk Alert identifies compliance deficiencies of newly registered investment advisers.

Interview with Ed Wegener and Lisa Robinson

• Reviewing the 2023 Report on FINRA’s Examination and Risk Monitoring Program
• What is rationale behind the new “Financial Crimes” section
• What stood out to from the Related Considerations in “Cyber” and where do you see the FINRA staff focusing in on during examinations?
• What’s the impact of SEC rulemaking on the “Cyber” area and what can firms do now?
• Where is FINRA staff focusing in the AML space?
• Why do you think FINRA called out “Manipulative Trading” specifically?
• What are successful firms doing to help mitigate the risk related to off-channel business communications?
• What are some key questions you could expect from FINRA staff conducting an examination in the area of Trusted Contacts?
• How is FINRA conducting exams on Reg BI?
• How are firms that use mobile apps having to enhance their policies and procedures in sales and marketing and what are some best practices you’ve seen from successful firms in this area?
• What is the purpose of the MAP and how has this group evolved over time?
• Lessons learned during the transition from regulator to industry

What’s On My Mind

• Brock Purdy as Mr. Irrelevant from the 2022 NFL Draft
• Compliance as the unsung hero

Quotes

13:55 - “There is a significant focus on firms’ controls over access to sensitive information. So they’re going to be reviewing policies, procedures, and controls with respect to how firms manage and control access to sensitive information. So that’s both the initial determination of who would have access to what but then also making sure that there’s periodic regular reviews with respect to who has access to what, to make sure that it continues to be current and appropriate.” - Ed Wegener

17:34 - “You know one of the things about cyber security is not only does it have a regulatory component (you need to make sure you have controls in place to have a good, compliant program), but also there’s a tremendous amount of reputational damage that can happen if there’s some sort of breech or if you’re involved in some sort of imposter website or something like that.” - Ed Wegener

29:05 - “What we find for firms that has been successful is having initial and annual training for the employees of the firm. Going over what is approved, what isn’t approved by the firm, and having an annual questionnaire that goes over that list. Making the training mandatory. And letting them know that there are consequences when they go ahead and use these unapproved methods for business-related communications.” - Lisa Robinson

35:22 - “It’s training and education of employees. Are they providing training to their employees upon the trusted contact person, the escalation process (if they ever need to put a temporary hold)? Things like that; FINRA is going to want to know if they’re doing. One of the first things that FINRA is always going to ask for is [about if] the WSPs are related to this. Is it an adequate system that you have in place to make sure that they’re following the rules?” - Lisa Robinson

Show

 Headlines

• SEC Proposes New Cybersecurity Requirements
• SEC Proposes Amendments to Reg S-P
• SEC Proposes Expanded Application of Reg SCI

Interview with Issa Hanna and Genna Garver

• History and background of the Custody Rule and recent developments
• What are the specifics of the rulemaking?
• Review of the scope of assets covered under the rule proposal
• How are real estate assets treated?
• What is the scope of activities covered?
• What is the impact on managers that have discretionary authority?
• Review of the written agreement and attestation requirements
• What is the real cost of compliance here?
• What does this rule tell us from a policy perspective about the focus of the SEC in this area?

History Has Your Back

• The legend of the Greek physician Agnodice
• Celebrating women in the investment management space

Quotes

17:20 – “I think one of the major things that they’re doing here as a part of this rule–or this rule proposal–is to bring the guidance that’s been scattered all over the place, within the text of the rule. So everyone knows where to find everything. It’s all accessible. That is something that everybody should welcome, right? Regulators should make the rules and make the guidance as accessible to everyone as possible.” – Issa Hanna

44:21 – “I just think that there is this misconception that the assets we’re talking about have to be the assets that they’re providing investment advice on. And it’s much broader than that, even under the current rule, so I think that’s something to look out for.” – Genna Garver

Show

 Headlines

• 2023 Examination Priorities from the SEC Division of Examinations

Interview with Sara Donaldson and Adam Aderton

• Introduction to ESG
• What is the recent impact of ESG on the broader markets?
• What is the rule proposal regarding Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices?
• What is the Names Rule proposal discussing rule changes to prevent misleading or deceptive fund names?
• What are the final amendments to Form N-PX and additional proxy voting disclosures?
• What does the active rulemaking in this space tell us about the state of the SEC broadly?
• What are we seeing from the SEC in the ESG enforcement space?
• In applying ESG, how are issues getting visibility, disclosures being drafted, and policies and procedures being written and tested?

What’s On My Mind

• Joshua Bell plays violin in the DC Metro subway
• Finding the extraordinary in the everyday

Quotes

16:34 – “Even if you don’t consider yourself an ESG manager, but you’ve told investors that you consider ESG factors in making investment decisions (perhaps from a financial materiality standpoint), these rules could affect you and scope you in to being an integrational fund manager, depending on how the final rule is adopted.” - Adam Aderton

41: 58 – “Yes, it is helpful because it makes a clearer roadmap in terms of what we need to do and the data needed and the expectations that the SCC has. I think it is onerous, but on the other hand, because it is so detailed, you can just get tripped up on not following one step or not doing a step that you said you were going to do cause it’s in your compliance policy. So it’s a balance, and I can respect the SCC trying to take care of the investors. But on the other hand, it’s putting a lot of work and risk on the investment advisors that are running and managing those firms.” - Sara Donaldson

Show

Interview with Ranah Esmaili

• What are some of the general examination practices you’re seeing right now?
• What are some of the key areas where you’re seeing this play out in examinations today? 
• In the areas of cyber and information security, where do you see exam teams focusing their efforts?
• Is the SEC focusing on the issue of off channel communications during examinations and what are they looking at?
• How can firms enhance their electronic communications policies, procedures and practices in anticipation for an exam?
• What is the focus in examinations in the private fund space?
• What is the focus in examinations in the mutual fund space?
• Now that the compliance date for the new Marketing Rule has passed, what’s the SEC doing on the exam front?
• What are some things firms can be doing post-Compliance date to ensure good marketing rule hygiene?
• Tips for firms that looking to prepare for exams

Quotes

10:07 - “We’re talking about environmental, social and government investing, so ESG. The SEC has been scrutinizing ESG investing out of a concern for green washing. And that term ‘green washing’ is basically the practice of making investments look more E, S, and G friendly than they really might be.”- Ranah Esmaili 

13:00 - “Compliance failures alone can really carry serious consequences. So when the SEC is focused on ESG compliance, policies, and procedures, that’s really not just an academic exercise. It can carry really serious consequences.”- Ranah Esmaili 

24:04 - “Firms can send out periodic compliance reminders, just so that the issue is always at the top of employees’ minds. They can conduct training. They can require employees to certify compliance with the firm’s policies and procedures. And they can conduct electronic surveillance, looking for indicators of unauthorized communications. To the extent that the firms are identifying employee violations of their [recordkeeping] policies, they should have a thoughtful approach for dealing with those violations, particularly where they find employees that have repeat violations.” - Ranah Esmaili 

Show

Headlines

• DOJ, SEC and CFTC Charge FTX and Founder with Fraud (criminal indictment, SEC Complaint, CFTC Complaint)
• SEC Commissioner Peirce Criticizes SEC's Climate Disclosure Proposal

Interview with Karen Barr and Lisa Crossley

• What is the mission and purpose of the IAA?
• What is the mission and purpose of the NSCP?
• Discuss the state of the registered investment adviser industry and the Investment Adviser Industry Snapshot 2022
• Review key metrics from the survey and how the investment adviser industry has grown significantly over the past few years
• Given some of these trends, how do you see the investment adviser industry evolving in the future?
• Review the impact and focus of DEI initiatives within each organization and within the industry
• How did you get to the position you’re in now?
• What is some advice you would give to other women in our industry looking to take on leadership roles within their own organizations?

Final Segment – History Has Your Back

• Examining the old Navajo tradition of polishing turquoise and how it can impact the way we view our past experiences and lead us toward a brighter tomorrow

Quotes

11:00 - “The Investment Advisor Association is the leading association, advancing the interests of fiduciary investment advisory firms. And I do say ‘firms’ because we’re a trade administration. Our members represent the broader universe, both asset managers and RIAs, and they range in size from some of the largest asset managers in the world to the smaller five- and ten-person shop that really make up the core of our industry, and everything–everything–in between.” – Karen Barr

15:58 - “The mission of NSCP is to create a diverse professional community for compliance, by compliance. And I’m often asked, ‘What does that motto for compliance by compliance mean?’ NSCP is a 501C6 organization. It’s a membership organization versus the IAA, which is a trade organization…The ‘For compliance, by compliance’ comes from the fact that [the NSCP] is offering resources to compliance professionals, whether that’s conferences, webinars, forums, committees, our monthly publication, our ability to speak at our events…It is compliance professionals who help with all of those initiatives.” – Lisa Crossley

Show

Headlines

• FY 2022 SEC Enforcement Results
• SEC Proposes New Oversight Requirements for Certain Services Outsourced by Investment Advisers

Interview with Debbie Hennelly

• What is mental resiliency?
• What is burnout and when does it occur? 
• How can compliance officers deal with burnout?
• What are ways compliance professionals can prevent burnout?
• How do we recognize when burnout is occurring?
• Tips and insights on dealing with burnout
• How can maximize our own potential and the performance of team members?
• Valuable resources for dealing with burnout

Final Segment – History Has Your Back

• Examining the life of Eve Ball and how to embrace second chance opportunities inside your compliance program and as part of your annual review

Quotes

24:09 - “The transformational piece of what we do is when we get people in the organization who are outside of ethics and compliance to really own the preventive stuff and get them to understand that, even if risk management is in our job title, we’re not the ones–really–that control the risk. They do.” - Debbie Hennelly

34:34 - “When you get into ethics and compliance, the legal floor for behavior is just a floor and going beyond what the law or regulations require is when the companies values or mission or purpose, the culture, is what drives behavior or should drive behavior beyond what’s legally required.” - Debbie Hennelly

Show

 Headlines

• Chair Gensler interview with PLI regarding disclosure requirements of digital assets
• Chair Gensler interview with Coinbase regarding cryptoassets as securities

Interview with Amber Allen and Craig Watanabe

• Review the evolution of the SEC’s Cybersecurity guidance
  • Reg S-ID
  • Reg S-P
  • Prior enforcement actions
  • SEC Risk Alerts
• Discuss the specifics of Proposed Rule 206(4)-9
• Analyze the benefits of cybersecurity risk assessments
• Outline additional elements of the new rule in conjunction with best practices from prior guidance
  • User Security and Access
  • Information Protection
  • Vendor Management
• Examine the use of incident response plans and applicability of cyber insurance
• Summarize key steps firms can take to protect their firms now and what to do when a breach occurs

Final Segment – Outtakes

• SEC and CFTC Sweep Uncovers “Egregious Misconduct” Related to Off-Channel Business Communications

Quotes

09:24 - “I think evolution is a good word and I would view this most current proposal (Rule 2064-9) as evolutionary rather than revolutionary. And in your introduction, I really picked up on one key word and I think that really characterizes what the SEC is doing, and that is codify. And I’ll take it one step further: formalize.” - Craig 

12:05 - “Having the potential obligation to disclose an incident within 48 hours of that occurring could be a pretty onerous requirement for the firms, especially when they’re trying to juggle some of the things that go alongside of a data breach.” - Amber 

26:32 - “One of the problems with cybersecurity is that it’s easy to talk about but hard to do. And I will say this, it’s particularly challenging because many compliance officers don’t have a lot of savviness with regard to IT and, in particular, information security.” - Craig 

Show

• 02:12: Implementation timelines and main challenges
• 17:51: Key consideration in drafting policies and procedures
• 31:57: Key considerations in marketing approval workflows
• 48:30: Setting a date for implementation and training
• 54:40: Suggestion for testing and monitoring
• 1:00:20: How can technology help with implantation, execution, and monitoring

Quotes

02:27 - “It can be very helpful to break it down into distinct phases that are, maybe a little bit more manageable. So with regard to the task at hand–the marketing rule–I would break it down to four phases. 1, drafting your policies and procedures. 2, creating or modifying your marketing review workflows. 3, setting a date for implementation and training. And then 4th, performing testing and monitoring.” - Craig 

6:44 – “I can summarize my thoughts in one word, that is, assessment.  I think that each firm needs to do an assessment based upon how this rule will impact them and how based upon their assessment, then try to coordinate, and it might be helpful to go back to the four steps I outlined previously and design a timeline that makes sense to the firm.” - Craig

08:18 - “From a practical standpoint, one of the things that I’ve seen via our marketing reviews is really substantiation. You’ll be surprised how many firms will say, ‘We are the best at doing x, y, and z.’ And if Julia and I are in a review, we’ll say, ‘If the FCC were here on an exam, could you produce that in a relatively quick manner?’ and in most of the cases it’s no. It could be a rating, an award that they’re citing. That could be just where they’re getting some sort of impetus for why they are the best at what they do.” - Chas 

20:29 – “You can make decisions to go above and beyond the rule for operational continuity, ease and what you think works best to achieve the objectives of the rule. – Carlo

21:40 – “This is a real opportunity for compliance teams to gain parity with internal business groups that had not existed in the past.” – Chas

28:31 – “For us as compliance officers, we have to expand our horizons beyond the written word." – Craig

57:16 – “There are times we have seen inception returns back to 1988.  I think it might be worth taking a look at those really long histories to see if you still do have the substantiation.” – Julia

Resources

ACA Group Marketing Rule Resource Library

LinkedIn: ACA Group, Compliance in Context, NSCP

Twitter: @acacompliance, @compliancepod

Websites: ACA Group, Compliance in Context, NSCP

Show

Interview with Jacqueline Hummel, Anthony Dillingham, Matt Shepherd

• 7:11: Review of the industry (social media, adoption and entanglement, live presentation/speeches, inadvertent endorsements).
• 45:36: Building the right disclosures (disclosure of compensation and conflicts of interest)
• 1:01:40: Third Party Ratings
• 1:08:20: How will this area be reviewed by the Division of Examinations?

Quotes

07:33 - “The prior advertising rule contained an outright prohibition against the inclusion of testimonials and over time that was supplemented by a series of no-action letters where essentially the industry was writing to the SCC and saying, ‘If we do this, is this a testimonial?’ And they would say, ‘Well, maybe but not if you do it this way.’” - Matt 

10:04 - “The definition of endorsement and testimonial… They’re not the same but they are very, very similar. So, just for the sake of keeping the conversation simple, I’m going to say that they’re basically the same and what’s different between the two is the identity of the person who makes that statement.” - Matt  

18:48 - “You still have to remember that no matter what you put out there you are still subject to the fraud provision of the Advisers Act.” - Jacqui

31.52 – “The degree of adoption and entanglement, whether a third-party communication is even going to be deemed an advertisement of the adviser at all, is going to be dependent on the extent the adviser has adopted or entangled itself.” – Patrick

49:57 – “There is still going to be a dichotomy between state registered investment advisers and federally registered investment advisers.  So, while many states will follow the SEC’s lead, there are still exceptions.” – Jacqui

1:03:32  - “It is always best practice to disclose whatever the reader, or listener, or the watcher of that marketing material would want to know.  What does this rating mean in context and how did you get it?”– Jacqui

Resources

ACA Group Marketing Rule Resource Library

LinkedIn: ACA Group, Compliance in Context, NSCP

Twitter: @acacompliance, @compliancepod

Websites: ACA Group, Compliance in Context, NSCP

Show

Interview with Karyn Vincent, Janice Kitzman, Julia Reyes and Shivani Choudhary

• 3:09: Net vs Gross Performance
• 16:22: 1, 5, ads 10-year requirements
• 25:00: Related performance
• 40:03: Extracted performance - attribution
• 51:43: Hypothetical performance
• 1:07:15: Portability of performance
• 1:10:58: Recordkeeping

Quotes

4:43 – “Given that the definition of performance refers to a portfolio, I think it’s reasonable to assume that performance does not include items that are meant to be analyzed or be composed for portfolio performance.  For example, standard deviation and other risk measures are not the returns of a portfolio.”  - Karyn

12:48 – “Whatever you are providing to a prospect investor, at the end of the day would that be construed as misleading or not is the mindset you should be thinking about.” – Julia

20:31: “I am a big believer in updating GIPS report annually and just leaving them alone. [In times of market volatility] the safest approach is to include any other performance information including year-to-date returns either in other materials or maybe as an attachment to the GIPS report.  If the GIPS report is used as a standalone advertisement it has to meet all of the requirements of the Marketing Rule.  This is what many firms do now and should continue with this approach.”  - Karyn

31:57: “GIPS compliant firms will definitely have a leg up with the Marketing Rule because they will have already calculated composite returns that they too will consider meet the requirements of the Marketing Rule” – Karyn

57:49: “Every time someone turns around with [a] model, and it’s often a chain, that is being used within these platforms, you have to stop and say is it ok that I am giving this performance to people.  There is going to come a time when you say, “no.” - Julia

With just three months until the compliance date for the new rule, this series is the perfect master class to set you and your firm up for success. Listen and enjoy! 

Show

Interview with Genna Garver, Bree Ward, Matt Shepherd

• 1:50: Introductions
• 4:12: Impact of the new rule to Private Funds
• 15:08: Performance
• 19:15: Extracted Performance
• 32:18: Related Performance
• 43:35: Hypothetical Performance
• 55:10: Endorsements: Replacement of Cash Solicitation Rule, Disclosures, Cap Intro Programs, and Testimonials
• 1:13:10: New private fund rule proposals

Quotes

07:26 –“The big take-away here is that the marketing rule is a merger of the prior cash solicitation rule and the advertising rule... Out of the gate, the combined rule, on its face because of the two-pronged definition to the term advertisement bring in pooled investment vehicle private fund, in particular investors, for compliance generally for both rules and that’s a fundamental shift for how the prior rules both operated.” – Genna

14:11 – “As a practitioner, either on the legal side or the compliance side, you have to presume that written materials or recordings are going to be deemed advertisements. – Genna

18:00 – “Historically, some information has only been presented gross because it’s either mathematically difficult or impossible to come up with a net version of that number. Or is it meaningful to present a net version of that number... The problem is that the rule creates this new definition called extracted performance… The rule explicitly says, if you show extracted performance it must be shown net and that’s a problem. “ - Matt

1:14:37 – “Get your policies and procedures drafted in a way that really tries to catch the ethos of this rule. Which is: Is it fair and balanced? Are you making disclosures? And try to capture your processes in a way that makes sense, that you can justify them, and then follow them.” – Bree

Resources

ACA Group Marketing Rule Resource Library

LinkedIn: ACA Group, Compliance in Context, NSCP

Twitter: @acacompliance, @compliancepod

Websites: ACA Group, Compliance in Context, NSCP

With just three months until the compliance date for the new rule, this series is the perfect master class to set you and your firm up for success. Listen and enjoy! 

Show

Interview with Issa Hanna, Amber Allen, and Chas Spiros

• 2:30: Overview of the rule and additional insights
• 8:30: Practical application of the rule: What is and isn’t an advertisement?
• 14:17: Prohibitions: What will be prohibited under the new rule?
• 20:30: Solicitors and Promoters: How does solicitation fit within the framework?
• 35:25: Performance: What the requirements that apply to performance?
• 53:45: Form ADV and Books and Records: Are there changes to other rules?

Quotes

5:30 – “They made the rule more evergreen so it could withstand the test of time; and to the extent that mediums of communication change overtime … the rule is equipped to handle that.” - Issa

10:00 – “What I think firms will have to get used to and what is new are the compensated testimonials, and endorsements, and third-party ratings. Firms are going to have to have a mechanism for reviewing this material and memorializing it from a books and records perspective which will be really critical.” – Chas

15:28 – “Instead, firms should use a layered disclosure approach. If you’re going to highlight a benefit of your advisory services, for example, you should also be talking about the material risks that are associated with that benefit. And the risks should be discussed within the “four corners” of the ad.”- Amber

17:09 – “If you’re trying to rely on something being an opinion, you want to make sure that your advertising piece is couching that statement like “in our BU” or “we believe.”” – Amber 

25: 33 – “When it comes to testimonials and endorsements, just because something falls within the definition of a testimonial or endorsement doesn’t necessarily make it a prong 1 or prong 2 endorsement under the rule. It has to be compensated, adopted, or entangled by the advisor. There has to be one of those things going on before the endorsement or testimonial becomes an advertisement under the rule and the requirements of the rule kick in.” – Issa 

48:53 – “One important component of the application of the new rule is going to be the training component. So with all of these changes with how firms are presenting performance it’s really important to make sure your marketing team is trained well in advance of that November 4 deadline.” - Amber

Resources

ACA Group Marketing Rule Resource Library

LinkedIn: ACA Group, Compliance in Context, NSCP

Twitter: @acacompliance, @compliancepod

Websites: ACA Group, Compliance in Context, NSCP

Show

Interview with Steven Levine and Chris Mulligan

• 2:30: Motivation for the new SEC Marketing Rule
• 8:00: Fundamental principles
• 10:49: Key Nuances and FAQs
• 20:00: Feedback from the industry
• 23:11: Impact of comment letters
• 28:13: Impact of the new rule on SEC Examinations
• 32:47: Review of policies and procedures during examinations
• 48:00: Application to compliance programs

Quotes

03:13 – “The existing regulatory regime that we were working with was potentially a bit dated. The advertising rule that was in existence before this most recent rule adoption, was adopted in 1961. So we were dealing with an advertising rule from 1961 and there was a cash solicitation rule that was adopted in 1979. Decades have gone by since those rule adoptions.” – Steven

04:33 – “One of the motivators for this most recent marketing rule was to put everything in one place. Eliminate the system that we currently had where there were a bunch of pieces of relief all over the place and just codify everything at the commission-level into a single rule. The hope there is that everyone would be on the same page in the industry as to what the guideposts are for operating at this space.” – Steven

13:00 – “And that FAQ basically says that an advisor may–but is not required–to comply with the new marketing rule in advance to the new compliance date. However, if an advisor chooses to comply with any part of the new marketing rule, it must shift it’s compliance program over too. Basically, it must comply with all of the rule, not only part of it.” – Steven 

18:30 – “In order to demonstrate to the SEC staff that a particular advertisement complies with the rule, pointing to a no-action letter is no longer an acceptable way to do that. There has to be something within the rule itself or be adopting release that justifies the underlying content that is being questioned.” – Steven

32:47 – “I think any tips I could give is, start with your policies and procedures. Start with your policies and procedures. That’s where we’re going to look at first, right? You have to, at least, acknowledge, like, we’re going to want to know that you’ve acknowledged that the world has changed and there’s a new rule, right? And that is kind of expressed through your policies and procedures.” – Chris

49:37 – “I would encourage people to read the new rule as a standalone piece of regulation and really digest it as a standalone thing. Right now it might be very complicated for people to try to piece together, ‘Well this is what the old regulatory regime was. Let me see how it ties into the new regulatory regime. People might be drawing arrows all over the place to see what lines up with what.” – Steven

Show

• Interview with Tanner Dowdy
  • Introduction to gamification

• • Background on relevant factors affecting gamification
  • Key themes of Tanner’s law review article
  • The Gamestop phenomenon
  • Consumer protection and market stability versus freedom of choice and the democratization of the financial markets
  • Retail traders versus institutional finance
  • Key harms of gamification and impact of Reg BI
  • Key benefits of gamification
  • How gamification impacts the future of the financial markets

Quotes

12:34 – “There is a distinction in academia (based on what I’ve read researching my article)between “gamification” (you know, in air quotes) and, more broadly, digital engagement practices. ... DEPs are a little broader than gamification, you know, robo-advisors would fall into the DEPs. Anything that’s more, pressing the future edge of aligning digital technology with brokerage services or investment advisor services.” – Tanner 

17:28 – “Based on my research and what I’ve seen, it depends on who you ask. I think you bring up a great point in that gamification, there are layers of competing interest and so, right off the top, consumer protection versus democratization is the headline one, if you will. Then there is another layer of (you, kind of, hinted at this) retail trader versus institutional finance.” – Tanner

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context 

Show

• Interview with Miriam Lefkowitz and John Walsh
  • 7:11: Introduction to compliance in mythology

• • 12:48: Background on classical mythology
  • 15:30: The mythological tale of Metis
  • 19:54: Securities compliance lessons we can learn from the tale of Metis
  • 31:20: The mythological tale of Bodhisattva Guan Yin
  • 36:20: Securities compliance lessons we can learn from the tale of Bodhisattva Guan Yin
  • 46:34: The mythological tale of Anansi the clever spider
  • 51:33: Securities compliance lessons we can learn from the tale of Anansi the clever spider

Quotes

21:07 - “If we start with that approach and think about how we can build structure around that. Recognize that there are some elements, right, there are talents and weaknesses that often exist in people and I think that’s interesting. We can put some people in that corner. And then we bring in Metis, and Metis is a really interesting character. She’s prudence. I like thinking of compliance as having a lot of the qualities of Metis—prudence and wisdom to start.” - Miriam 

23:24 - “When you have a new product or a new business line or a new offering, what you need is a combination of both the cleverness and the wisdom of compliance and then the business. You need both elements to partner together to persuasively move forward.” - Miriam 

40:33 - “The King may not be an impressive character early on but he recognizes the error of his ways and he learns and it’s an extreme example, but all right, that’s what makes it a myth. I think it’s helpful that compliance can actually be a model and that it can be learned from.” - Miriam 

40:59 - “I like the idea that she’s open to all who call out to her. And the idea that all who suffer can reach out—call out to the Bodhisattva. And, Patrick, I suspect it’s not part of the original story, but I really like the term “compliance suffering.” It’s a new phrase, but it’s one I’m going to tell you right now, I will try to remember to attribute it to you, but I’m going to use it a lot. I like it. I may even reach out to the celestial Bodhisattva of compliance suffering from time to time.” - John 

43:50 - “With the right attitude you realize that, that’s the cost of doing business in a highly regulated industry. Regulations are designed with a good purpose which is, of course, to protect the markets, to protect the investors. And while it feels like a heavy burden, that’s inevitable, how we choose to deal with it, it’s on us. And compliance can really feed that.” - Miriam 

53:45 - “When you do catch the biggest snakes, all the other animals will cheer. Even if they didn’t before. And you have to wonder how much of it was because they were afraid. They want to root for you. Inside they were rooting for you. They eventually will root for you. But they’re depending on you to be the one that’s brave. Of course, we all know, Anansi is never afraid.” - John

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context 

Show

• Interview with Chuck Senatore
  • 8:30: What is the origin story of crypto?

• • 11:58: What is a merkle root?
  • 14:08: What is a distributed ledger?
  • 15:15: What are the various assets and investment vehicles that are included in the “crypto” bucket
  • 20:10: What are NFTs and alternative tokens?
  • 25:30: What are the challenges with these types of assets and what is the value proposition of these assets?
  • 31:33: What is decentralized finance and how could it disrupt the marketplace?
  • 40:05: What is the state of regulatory oversight for digital assets and the impact of President Biden’s executive order?
  • 47:20: What are the some of the challenges with stablecoins?
  • 51:53: What in the marketplace have we seen the most significant adoption of cryptoassets?
  • 59:00: What are the specific considerations compliance officers need to address as it relates to cryptoassets?
  • 62:52: In the digital asset space, what are the gamification and suitability challenges?

Quotes

14:08 - “The other thing that’s important about BitCoin that is important for a number of other developments is the concept of having a distributive ledger that everybody has a copy of. Everybody has it. Every single transaction. Whether in this case it’s the blockchain or we’ll talk about other blockchains that form the foundation of ethereum and smart contracts. The secret sauce is that everybody can see it.” - Chuck Senatore

16:02 - “[Ethereum] is kind of the next most important possible coin because what ethereum has is ethereum tokens. The ethereum system is really the ecosystem that creates the ability to actually create decentralized apps.” - Chuck Senatore

21:54 - “So you have these non-fungible tokens–and the reason that they’re called non-fungible because they have a digital signature that says, ‘You know what? There’s only one of these.’ As opposed to Bitcoin can be fungible and other sorts of things that can be repeated and aren’t necessarily unique. Essentially what makes it non-fungible is it’s uniqueness.” - Chuck Senatore

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context 

Show

• Headlines
  • 1:14: Digesting the Annual Priorities from the SEC Division of Examination

• Interview with Susan Schroeder
  • 7:38: Introduction & General Remarks on the 2022 FINRA Report

• • 11:27: “Reasonableness” and Testing AML Programs
  • 16:16: Tackling Cybersecurity and Technology Governance
  • 23:30: Mobile Devices and Investing
  • 32:13: How Best Execution Standards are Changing
  • 37:21: Challenges Surrounding Trusted Contact Information

• History Has Your Back
  • 45:43: Using Bruce Lee’s words as inspiration to elevate our firms and provide peace of mind

Quotes

09:45: “On a really high level, my reaction to the report when I read it was that the report reflects the enormous amount of innovation and disruption that is rippling throughout the industry. Right? I think we’ve all heard a lot about new business models through fin-tech businesses for example, that are changing the way people invest. Changing the shape of investment relationships.” - Susan Schroeder 

10:20: “One of the things you can also see emerging is the fact that FINRA’s rules are not written for the way business is done today and some of their observations and some of their priorities really reflect a disconnect between rules that might be seventy years old and practices that are very 2022.” - Susan Schroeder

12:16: ““I think now though, a lot of the challenge you’ll see across the industry is that the industry has room. Right? With the proliferation of new technologies, with people doing app-based trading on their phones, you’ll see events like the Gamestop event last year where the amount of trading that is done in a single day just eclipses previous records.” - Susan Schroeder

17:02: “I think, the fact that we talk about technology governance as if it’s a known thing is already a big indicator that your firm should be worried because that is a framework to exist. Right? No one was talking about that, even, for years ago. And this notion of technology governance is that the business is obligated to supervise the technology. Right? I think it’s a new concept and one that has not been well built-out by the regulators.” - Susan Schroeder

26:57: “The mobile app gives everybody access to…real time information.  It is funny to me that there is as much concern that it is driving customer behavior when I consider it really to be a great equalizer, in providing information to people in a way a large group of investors could not have before.” - Susan Schroeder

Resources:

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Twitter: @compliancepod 

Compliance in Context 

Headlines

• 1:09 – The Digital Assets Executive Order from President Biden
• 4:26 – Leadership Changes at the SEC

Interview

• 6:20 – General Remarks on Chair Gensler’s comments before the ILPA
• 12:40 – New Reporting Requirements in Form PF
• 17:40 – Sections 5 and 6 in the New Form PF
• 20:40 – Response to the Proposed Amendments in Reporting Requirements
• 22:30 – The Ongoing Importance of Documenting Process
• 25:16 – Impressions from the SEC’s January 2022 Risk Alert
• 33:41 – The New Rule Amendments for Private Funds under the Advisors Act
• 40:04 – Changes to Side Letter Provisions
• 44:15 – The Comments Period Time Crunch
• 46:18 – Looking Forward for Private Funds
• 51:20 – Jeff’s Favorite 2022 Super Bowl Commercial

Outtakes

• 53:50 – Using FINRA settlements to understand best execution standards for broker-dealer firms

Quotes:

10:30 “A lot of these rule proposals they are coming up with, these are solutions looking for a problem, because a lot of these suggestions are already being pushed by the institutional investing population.” ~ Jeff Blumberg

16:37 “If the SEC could justify the time and expense these managers are going through to put this information together and say here is what we learned by looking at last quarter’s Form PF filings, that would absolutely be something the industry would appreciate.” ~ Jeff Blumberg

23:41 “I’ve never seen the SEC come in and say you didn’t get best execution.  What I’ve seen is them say you don’t have a process for pursuing best execution.  I think you have the same kind of situation here, which is, it’s not so much they’re going to say this was material so you’re going to get in trouble; they’re  going to say we think it’s material, you didn’t, but because you took a reasonable process and put it in place, the next time the same thing comes up you should treat it as material.” ~ Jeff Blumberg

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context 

Interview

• The importance of investor protection
• What is the Bressler Map and what is its purpose?
• What is the mission of the NASAA Senior Diminished Capacity Committee? 
• How has the “NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation” impacted the industry? 
• What expectations should firms have in order to properly supervise these activities?
• Enforcement trends in the area of senior investor exploitation
• How will investor protection continue developing in the future, both from an industry side and a legal/compliance side?

Quotes:

“I would say, from the very beginning I was keeping an eye on victims, their profiles, and how they could be exploited. We definitely had cases, when I was a prosecutor, that were ‘white collar type crimes.’ And obviously bad actors are looking to exploit people that are vulnerable, whether it’s their age or if they have some other vulnerability.” - Richard Szuch

“Every state had a law that applies to exploitation to older people but it’s usually about their personal safety, whether their home is secure, whether they’re physically okay. Some states have exploitation regarding finances in their laws. But then there’s been a new group of laws that have developed with the advent of NASAA’s Model Act.” - Richard Szuch

“40 or 50 percent of the investment advisory firms surveyed had not really changed their way of doing business in the past five years. So if I were to say that there was one thing that really needs to get out there, it’s education for the investors and for the firms, about the importance of this structure to be put around their business.” - Richard Szuch

“NASAA just put out (with the SCC and FINRA) a training module that, in essence, mimics what I used to do when I was in private practice, to train firms about what they needed to know.” - Richard Szuch

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context  

Headlines

• Proposed Amendments to Form PF and private fund Risk Alert
• SEC Proposed Amendments for Private Fund Advisers

Interview

• NSCP Regulatory Advisory Committee
• Commentary from regulators on CCO liability
• NYCBA Framework
• How will the Framework impact firms and firm leadership?
• How will the Framework impact examination teams and the examination process?
• What is the impact of the Framework on regulator enforcement?

History Has Your Back

• Jiayuguan Pass of the Great Wall
• The wall stabilizing brick
• The value of precision in compliance

Quotes:

 “The two key principles of the framework (that you noted on the outset), impact the overall exam process. Right? So one is, I think the NSC framework does a really good job of emphasizing, taking a holistic approach to looking at the compliance program, and the culture within the firm, overall. And then two, doing so earlier in the regulatory exam or the enforcement of the investigative process.” – Carlo di Florio 

“We hope that FINRA and the SEC (and other regulators) might be able to use this Framework as a solid foundation by which to conduct parts of their investigation processes. But then again, another benefit would be for a persons (like yourself and others) that might be thinking about how to defend against an enforcement action, just to be able to show that there were other mitigating circumstances involved.” – Patrick Hayes

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context  

Headlines

• NSCP Firm and CCO Liability Framework

Interview

• Reaction to SEC Chair Gensler’s Speech at Northwestern Pritzker School of Law’s Annual Securities Regulation Institute
• Reviewing “Twelve Tips for Teleworking Cybersecurity” in May 2020 edition of Currents
• What is the Windows 11 upgrade?
• Usability vs. Security
• What is the Trusted Platform Module?
• What are the best tips for cybersecurity and user awareness training?
• What is cyber hygiene?
• What are some other best practices you’ve seen in cybersecurity lately?
• How best to leverage cyber insurance and related expertise?

What’s On My Mind?

• “Living Years” by Mike + The Mechanics
• The Life of John Madden
• Fastidious preparation as compliance coach
• Living with a sense of appreciation

Quotes:

 “Cybersecurity is almost always at the top or near the top of the list in terms of risks and I think that’s going to be the case for some time for this foreseeable future so it’s going to be a big risk for everyone, a big risk for the industry.” – Craig Watanabe  

10:12 - “I think Regulation SP is somewhat of a misnomer because the S stands for safeguarding and the P stands for privacy. But if you ask most people, ‘Reg SP?’ ‘Oh, yeah! Privacy.’ We kinda forget Section 30, which is the safeguarding part of the rule. And that’s where all cybersecurity regulation basically resides.” – Craig Watanabe

“In the Fortress Model, the idea is you create this fortress. Everything on the inside of the fortress, all the interior is safe and you try to keep all the unknowns (all the bad stuff) out. That model works really well when you have a centralized work environment and you have a centralized IP. It’s a perfectly reasonable, very usable, and a very functional model. That model, however, doesn’t work as well in a remote or hybrid work environment.” – Craig Watanabe 

“I think there has been a paradigm shift at Microsoft and other big vendors, with an emphasis on security. That’s clear to me. I don’t think Microsoft would have done these things prior.” – Craig Watanabe  

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context  

Headlines

• SEC recently proposed Amendments to its Electronic Recordkeeping Requirements

• SEC Division of Enforcement Publishes Annual Report for Fiscal Year 2020

Interview

• Who is an investment advice fiduciary?
• Why has the DOL’s interpretation of investment advice fiduciary caused controversy? What is the five-part test?
• What was the Deseret Letter?
• What is Prohibited Transaction Class Exemption 2020-02?
• Where does roboadvice fit under PTCE 2020-02?
• What types of transactions did the DOL treat as rollovers? What types of factors should be considered when recommending a rollover from a tax qualified plan to an IRA?
• What is the impartial conduct standard?
• What is the nonenforcement Policy of DOL and IRS with respect to PTCE 2020-02, and when is it scheduled to end?
• How will Prohibited Transaction 2020-02 be Enforced?

Outtakes

• SEC complaint against mutual fund executives that mislead investors by misrepresenting investment risks
• Funds suffered losses over $1 billion
• Be transparent with disclosures to investors

Quotes:

“The DOL treated five different types of transactions as rollovers, even though only some of them would constitute a rollover under the Internal Revenue Code.  These were plan-to-plan; plan to IRA; IRA to plan; IRA to IRA; and commission based account to fee based account.” – Marcia Wagner 

To satisfy PTCE 2020-02, financial institutions and investment professionals must acknowledge their fiduciary status in writing; disclose their services and material conflicts of interest; adhere to impartial conduct standards; adopt policies and procedures prudently designed to ensure compliance with the impartial conduct standards; document and disclose specific reasons why any rollover recommendations are in the participant’s best interest; and conduct an annual retrospective compliance review” – Marcia Wagner

“[I]in determining whether a retirement investor should rollover assets from a tax-qualified plan to an IRA, the financial institution or investment professional should take into account the retirement investor’s investment objectives, risk tolerance, financial circumstances and needs.  In addition, they should document the services available under the new arrangement; consider the long-term impact of any increased costs, determine why the rollover is appropriate notwithstanding any additional costs, and the impact of any economically significant investment features such as surrender schedules; index annuity caps, and participant rates.” – Marcia Wagner  

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context  

Interview

• Background on FINRA’s Office of Financial Innovation
• Discussion of recent whitepapers from FINRA OFI
• Artificial intelligence (AI) in the securities industry
• What are the implications of the cloud for the securities industry
• Background on SEC’s FinHub
• Digital assets and custody
• Breaking down Bitcoin ETPs
• An in-depth look at gamification

Quotes:

“Our Office of Financial Innovation was actually only opened up about two and a half years ago. And its overarching mandate is really to facilitate innovation in a way that supports investor protection and market integrity, which is the overall mandate of FINRA.” – Haime Workie  

“So this idea of being excited about something new that you’re doing, that carries a bit of risk. But also having the ability to step back a little bit and say, ‘Look, you know, here are things we need to think about before we take on this new adventure.’ In a similar vein, as technology gets introduced to the marketplace, there’s a lot of excitement to be had about the potential ways it can benefit the investor, the firm, the marketplace. But it’s also important to step back and think about what are the risks that are being introduced into the system? And what are the implications of those?” – Haime Workie 

“[I]t's [SEC’s FinHub is] really kind of an all-arms group within the Commission itself...it really coordinates the SEC oversight and response regarding emerging technologies and financial regulatory and supervisory systems. Including specifically I think in the areas of distributed ledger technology. blockchain which forms are large part of our work, but also automated investment advice or what what's popularly called robo-advice digital marketplace financing and artificial intelligence machine learning. Those are also areas where we where we often get involved.” – Neel Maitra

“But what's been really introduced I would say, and it's fairly recent introduction in the past four or five years and kind of ramping up in the in the past one or two years, is this process where you have these app-based systems that provide nudges or provide influences that potentially steer investors a certain way. Many of these nudges or influences maybe things that are short of recommendations. But at least in my view, they are definitely designed to elicit certain types of behaviors and what we've heard is frequently firms will do A-B type of testing to see what type of behaviors are being elicited and which things, which ways of kind of having the APP interface is more effective in terms of eliciting those types of behaviors.” – Neel Maitra

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context  

In our Headlines section, the first-ever bitcoin-linked exchange-traded fund will began trading recently and the SEC provided comments on the regulatory issues involving GameStop trading from January of earlier this year.

Finally, we’ll wrap up today’s show with another installment of History Has Your Back, as we review a posthumous quote from one of the world’s most well-traveled chefs to better understand how we can maximize our knowledge in compliance.

Topics:

Headlines

• The first-ever bitcoin-linked exchange-traded fund (ProShares) began trading on 10/19/21.

• Four proposed bitcoin ETFs are in line for an October decision from the SEC on whether to approve, deny or delay their submissions (Valkyrie Investments, Invesco, and VanEck)

• In a new report, the SEC reviewed regulatory issues involving GameStop trading in January 2021.
• SEC Commissioners Hester M. Peirce and Elad L. Roisman criticized the report as too narrative
• Chair Gensler stated the review of the GameStop event presented the SEC with opportunities to further make the equity markets as fair, orderly, and efficient as possible.

Interview

• What is the NASAA and how was it formed?
• What is the mission of NASAA?
• What are some of the current initiatives the NASAA is really focused on now?
• Where does the IARC stand now?
• What did Phase I of NASAA’s Reg BI efforts look like?
• What changes have firms made since Reg BI has been adopted?
• What is NASAA working on in the senior investors space?
• What about Report and Hold?
• How can compliance officers can be the best defense in this area?
• What is the Whistleblower Act?
• What is the background on the Restitution Pool for defrauded?

History Has Your Back

• Quote from celebrity chef Anthony Bourdain demonstrates empathy and many of the soft skills important for compliance officers
• Taking the time to connect and understand our colleagues will pay dividends personally and professionally.
• The 2021 NSCP National Conference is just around the corner!

Quotes:

“And really the ultimate goal is for us to make a determination about whether the rule as it stands is really moving has raised the bar for how brokers act in relationship to their clients and is it really driving the behavior towards the customers best interest.” - Melanie Lubin

“This is important—here's the explanation: customers, particularly elderly customers, tend to be worried that somebody's going to get their hands on their money and all the things that we've taught them to be worried about—But [we] want them to understand that a trusted contact is not a power of attorney, but it's someone that if you’re the person you have a professional relationship with starts to get a little bit worried about what's going on, they could pick up the phone and call that other person.” - Melanie Lubin

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context  

In our Headlines section, the SEC seeks comment on Broker-Dealer and Investment Adviser Digital Engagement practices, we look to we look at a recent SEC Investor Advisory Committee meeting to demonstrate contrasting views on market regulation, and close with a quick update on the SEC’s telework timeline.

Finally, we’ll wrap up today’s show with another installment of Outtakes, as we look to showcase how even an exempt reporting adviser can find itself in hot water with the SEC and its LP investors, particularly where an auditor isn’t involved

Headlines

• SEC seeking comment on Digital Engagement Practices (DEPs)
• SEC Investor Advisory Committee meeting offers contrasting views on market regulation from SEC Chair Gensler and SEC Commissioner Peirce
• SEC recently updated its COVID-19 Telework Operations Status

Interview

• How to stay motivated in your compliance job?
• What’s better to focus on in your career—technical or professional development?
• What’s the “right” degree or accreditation to have as a compliance officer?  Were there certain things that you considered when you were coming up?
• What are the best ways to onboard a new compliance employee?
• As a manager, how are you able to effectively able to lead a team during this challenging environment?
• Discuss the benefits of the apprenticeship model
• Goal Setting / Professional Development – 3-year professional development plan

Outtakes

• Exempt Reporting Adviser and related private fund were investigated by the SEC for securities laws violations
• When recommending or doing due diligence on private fund investments, make sure there is an auditor involved.

Quotes:

“I think one of the things that helps me stay motivated is remembering that I’m responsible for driving my own career, whether that’s in compliance or if that’s a whole career shift (and I know there’s a lot of people who are contemplating that and taking that big leap). But I own that. That’s mine.” - Jennifer Selliers

“There’s people in my life that are my cheering squad, right? When I need that pick-me-up, I know I can call them and they’re going to be like, ‘You know, buck up camper! You got this! You just take that bull by the horns! Run with it! You’re making the right decision!’ right? And then there’s some other days when I feel like, ‘I’m feeling like I need to do this. I need to talk this out with somebody. And I’ve got another group of people that’ll be like, ‘I don’t know what you’re thinking but you’ve got to take that back to the table.’ [laughs] Right? You can see those types of people, along with other types of people that just help you build and round out your professional and your career goals.” - Jennifer Selliers 

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context  

In our Headlines section, we examine yet another FINRA warning about a new Phishing Email Campaign targeting BD and RIA firms and discuss some changes in leadership at the CFTC. And finally, we’ll wrap up today’s show with another installment of What’s On My Mind, where we explore how a key element of acoustic design could be a critical component of your defense during an SEC examination.

Headlines

• FINRA recently alerted members to another phishing campaign involving the use of fraudulent FINRA domain names: “@finrar-reporting.org,” “@Finpro-finrar.org,” and “@gateway2-finra.org.”

• CFTC Commissioner Brian Quintenz who recently announced that he will be leaving the office at the end of August 2021.
• Quintenz has been a notable crypto advocate for the duration of his term
• In his statement upon departure, he highlighted his work on cryptocurrency issues

Interview

• In your mind, what are the biggest challenges with billing and issues around fees and expenses?
• What are some of the best ways an adviser can mitigate these challenges and issues?
• NSCP Compliance Forum discussing the threshold for refunds to be paid out
• Should firms need to disclose all the situations in which they’re not going to refund fees under a certain amount?
• What were the lessons learned from the Share Class Disclosure Initiative? 
• What are some best practices around documentation?
• What types of activities are included here?
• What are hallmarks of a successful billing program?

What’s on My Mind

• The history of unwanted sound
• The job of acoustic design
• Using acoustical privacy as a key line of defense during an SEC exam

Quotes:

“The best thing I can tell people is processes and disclosures. As you were asking the question we talked a little bit about, ‘Is there a monthly fee or a quarterly fee? Is it charged in advance or is it charged arrear? Is it charged on a 360 day or a 365 day? Is it refunded at what period of time?’ So there’s a lot of what ifs that come into place and I think that’s what gets people hung up.” - Melissa Loner “The more flexibility you have, which you want to have for advisors and advisors want to have that for clients, but it puts in a larger risk to not have everything that’s needed to be done. I know you’re going to ask about this later but it goes to disclosure, it goes back to processes, it goes back to consistency.” - Melissa Loner 

“Disclosures is a big one because that’s the first place that the regulators are going to go. They’re going to go to your disclosure and then they’re going to match that up to the billing that you’ve been doing. And, in addition to that, they’re also going to match that up to your supervisory procedures or your clients’ manual or your operations procedural to ensure that you’re following that consistently.” - Melissa Loner  

 “So one of the best practices that I largely suggest is to have an annual process where you look at how your billing is actually happening and then review all of those documents to ensure that they’re actually reflective.” - Melissa Loner  

 “You’ve got to make sure that the trifecta of your disclosures, and your brochures, and your advisory agreements match what you have for your internal compliancies and procedures and your internal controls. And if you can marry those three things in a way that is consistent, it’s at least going to, hopefully, give you a foundation for success.” - Patrick Hayes 

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context  

In our Headlines section, we do another dive into some recent buzz and regulatory activity surrounding cryptoassets, we’ll cover a defense of family offices from a couple key regulators, and finally, we’ll wrap up today’s show with another installment of What’s On My Mind, where in the spirit of this year’s Olympic games, we look back at a quote from the greatest sprinter of our generation to help provide peace of mind to compliance officers everywhere, no matter the stage in their career. 

Headlines

• Letter from Senator Warren to SEC Chair Gensler
• Expanding the authority of the SEC or the CFTC to regulate cryptocurrency exchanges
• Bloomberg Op-Ed from SEC Commissioner Hester Peirce and CFTC Commissioner Brian Quintenz focused on the regulation of family offices
• Examining the risks involved in the failure Archegos Capital Management

Interview

• How to build a diverse and global compliance program
• Developing a culture of compliance
• Understanding the Five Fundamentals of Compliance

• Identifying and mitigating conflicts of interest in multi-faceted firms

What’s on My Mind

• Quote from Usain Bolt on setting the proper expectations
• Understanding and overcoming the challenges in running a compliance program

Quotes:

“One of the first things to do is to check your ego at the door. So when it comes to a global compliance program, I have to realize what I don’t know. And so when we look at, let’s say, Aon or my current position at MorningStar, there were several jurisdictions where I could--in no way--consider myself an expert. So what’s really important there is you make sure you have the right talent onboard.”

“It’s so important to, number one, when you first get there and you first start meeting these executives or heads of sales or product, or operations, or finance, or all the various compartments, is to really take some time and to sit down and to listen to them.”

“Because that’s the advice that we're giving the business on kind of a day-to-day basis you know. When they come to us “Hey what should I do about this?” or “I'm thinking about doing this, what do you think?” And that advice should be drawing from all of these five different fundamentals, you know it should be drawing from where's our where's what's our most risky behavior? It should be drawing from what do our policies and procedures say? It should be drawing from, well, you know, we tested that process and they’re talking about they want to increase the capacity of that and that wasn't very good or hey we had a recent exam or there’s an outstanding issue or whatever it is.”

Resources:

Compliance in Context Contact Form 

Compliance in Context, LinkedIn 

Twitter: @compliancepod 

Compliance in Context  

To do this, we continue the third installment of our Lessons From the Front Lines series. Much like our regular shows, this series will provide same excellent content to help you put Compliance In Context, but will deliver that content in a more narrative form—like a fireside conversation with an industry pro. The show will focus on providing practical advice and takeaways that focus on real-life, tough lessons other industry professionals and regulators have learned on the front lines of our industry.

To help guide us through today’s conversation, we welcome in David Curran, the Chief Sustainability and ESG Officer at Paul Weiss. For anyone wanting to learn more about ESG or struggling with implementing ESG policies inside your firm’s compliance program, you won’t want to miss this episode. Listen in as David provides invaluable insights from his experiences on the front lines of the ESG space.

And if you have an idea for a future Lessons From the Front Lines episode, reach out to us on LinkedIn and Twitter or at complianceincontextpodcast.com.  We’d love to hear from you!

Interview

• Reviewing the frameworks of ESG
• How can we demysitify ESG?
• Why do firms struggle with ESG so much?
• Having a technology process to address ESG controls
• Biggest challenges in moving the ESG conversation forward
• How best to respond when you identify a deficiency
• Detailing the attitude shift on ESG in the investment management space

Quotes: 

“[I]f you are taking a position on something that you believe in, that is essential to your corporation terms of its commitment, how are you governing it is really the essential issue. So to demystify it, for example, with compliance and legal executives, is to think of it like a compliance and legal regime. Governance is governance and governance means, how do you have a policy and procedure? How do you track, measure, monitor, and report on progress against these obligations? It's not any more complicated than that.”

“[Governance] is at the core of virtually every major corporation’s business agenda today. It is not esoteric. It is not out in left field. It is existential.”

“And so the demystification is to take it into its component parts. And part of that is to disassemble ESG, look at the governance part, flip the acronym and say, ‘Whatever you’re doing in the S category, whatever you’re doing in the E category, how are you governing them?” Because if you're not governing it, it doesn't get done.”

Resources:

David Curran, Paul, Weiss, Rifkind, Wharton & Garrison LLP

Compliance in Context Contact Form

Compliance in Context, LinkedIn

Twitter: @compliancepod

Compliance in Context

Strap in for another informative and exciting episode! 

Topics:

Headlines

• Timeline of regulatory activity surrounding crypto and digital assets
• Views from SEC Chair Gensler
• Identifying the risks and opportunities in crypto
• El Salvador becomes the first country in the world to adopt Bitcoin as legal tender

Interview

• Background and mission of the NFA.
• The NFA examination process.
• The importance of educating member-firms.
• New NFA initiatives for 2021.
• Trends in enforcement
• How the NFA adjusted to COVID-19 work restrictions.
• Thoughts on remote supervision

What’s on My Mind

• Reviewing the issue of Gamification and its impact on the market
• Finding the balance between investor protections versus overregulation

Quotes:

“Our mission is officially to safeguard the integrity of the derivatives markets by and protect investors and ensure that our Members are meeting their regulatory responsibilities”

“It really has been a focus my entire career and it started from the top, I mean our Presidents and CEOs say to us, you know, one of our functions is education, and that includes Member education. If our if our mission is to safeguard the integrity of the derivatives markets and protect customers, the best way to do that is to have Member firms who are in compliance with the rules and regulations. Most Members want to do the right thing and so it's our job to make sure they understand what the rules and regulations require and if they do it. But it's also our job for those firms who don't want to follow the regulations that we identify them quickly and get them disciplined.”

“We’ve been successfully doing our jobs remotely and these inspections have been going well remotely. So, do we have to go back to what things were like pre-pandemic?”

Resources: 

Compliance in Context

 Headlines

• NASAA April 2021 Investment Adviser Section Report highlighting 2020 activities
• Metrics surrounding state registrants
• Model Rule on Written Policies and Procedures
• Compliance Grid
• Cybersecurity Checklist and additional guidance

Interview

• What is the purpose of insurance and the importance of risk transfer?
• Detailing different types of insurance impacting broker-dealers and RIAs
• The intricate details surrounding cybersecurity insurance
• What to consider when purchasing professional liability insurance
• What do you do if you have a claim?

What’s on My Mind

• Reviewing the life of hero firefighter Ed Pulaski
• The Pulaski Axe
• Why having the right tool can make all the difference

Quotes:

“One thing to consider from a client perspective, do you want to do business with a company that has not protected itself with a policy?” 

“If you think about have professional companies protect themselves, think about yourdentist, think about your doctor, think about your attorney, think about your accountant—these individuals are providing a professional service, and there are times when they will commit a negligent act; they will inadvertently cause injury to their client. And the clients, have the opportunity to recover any damages or any losses related to that injury. Those services are insured by professional liability policy. Professional liability insurance policies are also available to companies that are in the financial sector—broker dealers, registered investment advisers.” 

“It’s very important for broker-dealers when they are considering pursuing professional liability insurance, number one, to make sure that they have an insurance broker who’s very familiar with that type of policy.”

“Fortunately, there are a number of carriers that are extending coverage for broker-dealers and RIA’s for cyber.”

Resources:

Compliance in Context

Headlines

• SEC Commissioners weigh in on how certain underrepresented founders and investors can get access to capital
• Commissioner Lee suggested the SEC evaluate how its regulations impact such communities
• Commissioner Peirce recommended that the SEC provide greater flexibility to the accredited investor definition and individuals serving as “finders”

Interview

• The mission of the Municipal Securities Rulemaking Board.
• The pillars upholding the MSRB.
• Providing infrastructure to MSRB
• The business case for cloud migration
• Data privacy and information security
• Transition away from LIBOR and related challenges
• ESG in the municipal securities market

Outtakes

• SEC issued emergency enforcement action against an alleged Ponzi scheme straight out of Hollywood

Quotes:

“But that's not the only thing that Congress mandated us to do. Reading the Exchange Act, Congress also mandated the MSRB to establish information systems that promote a fair and efficient market, that facilitate capital formation. And those information systems, is what I mean by our core pillar of technology. It's the technology systems that undergird the market.”

“Technology is fundamentally intertwined with compliance.”

Resources:

Compliance in Context

For our feature interview, we welcome in New York City Attorney and compliance expert, Richard Chen. Together we discuss the practical tilt of running an effective compliance program and how compliance officers can be more productive. 

To wrap up the first episode of Season 2, we offer another installment of the History Has Your Back segment where we look back at the dating life of Warren Buffett, a quote from the most famous citizen of Motunui, and a good lesson in both life and compliance.

Headlines

• CRS Reviews SEC Disclosure Policy and Practice on Climate Risk
• Recent Timeline of SEC statements regarding ESG
• Future state of ESG and avoiding regulation by enforcement

Interview

• Setting priorities using the Eisenhower principle.
• Compliance calendars and time management.
• Identifying the Proper Allocation of Resources:
• Automation and the use of technology
• Cutting and delegating compliance responsibilities
• Collaborating with firm leadership and other business units
• How CCOs can protect themselves
• Fostering a culture of compliance within your organization

History Has Your Back

• Pitfalls in the dating life of Warren Buffett
• Navigating the separation between work and personal life

Quotes: 

““I think that one of the helpful frameworks I use is called the Eisenhower Principle, which categorizes tasks based on whether they’re important or urgent.”

“...As compliance professionals, we are collaborative. We all want to get to the same place and so, it’s important for us to each put in what we know best about what’s going on, in order to perform effectively.”

Resources:

Compliance in Context

Resources:

Compliance in Context

For our feature interview, we welcome in former NSCP Board Member Rob Tull for an in-depth conversation focusing on the stress and demands inherent in being a legal and compliance professional that can lead to personal and career burnout, and what you can do to reclaim your sanity and energy, and even increase your creativity for problem-solving. 

Finally, we’ll wrap up today’s show with another installment of the What’s On My Mind segment, where we do a deep dive on newborn babies, sleep deprivation, and compliance.

Headlines

• Commissioner Peirce Reaffirms SEC Mission to improve the way markets work and to make them work for more people in Light of GameStop
• SEC, NASAA, FINRA raise awareness regarding social isolation and Rrsk of investment fraud

Interview

• Demands of being a legal/compliance professional can lead to personal and career burnout
• Understanding the causes and impact of stress
• Managing the challenging expectations of compliance professionals.
• The fallacy of stress
• Stressful environments and the impact on decision making
• Getting comfortable with risks and deep water survivors
• Best practice recommendations to stay grounded and increasing your creativity for problem-solving

What’s on My Mind

• Newborn babies and the notion of banking sleep
• Acclimating yourself to a stressful or challenging environment
• Training your compliance program to perform at its best

Quotes:

“Stress is actually a form of a threat response.”

“Deep water survivors are the kind of people that if you were at the beach, they seem like the crazy person that swims way past out the breakers and you're just like “Where are you going? You’re going to drown.” And what I found in people that are like that is that they have an equation for risk which basically says my risk of a problem exists in the first 10 feet of water. Everything else below that is irrelevant. If I solve the top 10 feet of water I'm not drowning, so it doesn't matter how deep the water is. And so that got me thinking about in risk solving...you get so wrapped up in the details that you forget the fundamentals, which is if I do these core things at the top—and again if I just rely on compliance principles, not necessarily the specifics of the rules, but if I know my principles, and I can nail my principles down—then I shouldn't have to worry about how deep the risk is, if I can do the basics, I will survive.  It might not be pretty, but I'll survive.”

“So what I found for me is when we're stressed out, we're running on depleted resources. And not only that there's a burnout factor, and it's like it's a question of “What are you willing to lose in the process of burning out?” And, we have to, we have to be willing to step out of that situation.”

Resources:

Compliance in Context

To help guide us through today’s show, we welcome in Ed Wegener, the former Senior VP and Midwest Regional Director of FINRA to discuss some real lessons learned on the front lines of the investigation and enforcement process.

Topics:

• Reviewing the life cycle of a regulatory investigation
• Analysis of findings from routine examinations, cause examinations or enforcement investigations.
• Use of data analytics in the investigation process
• Conclusion of the Investigation
• Referral to enforcement and escalation of findings
• Enhanced focus on the impact the supervisory process and requisite due diligence of products, OBAs, private transactions, borrowing from customers, etc.
• Discussion of policies and procedures and related training protocols
• How does the firm monitor for compliance with its policy?
• Reviewing the FINRA 2021 Annual Regulatory and Exam Priorities
• Industry innovations to enhance the process of investigations and enforcement

Quotes:

“When they do conduct an examination, they have been getting really good at taking that information that they gather through things like electronic blotters—putting that through their analytical systems and using that to identify areas of potential focus. And so the way we used to think about it was, it’s trying to find needles in haystacks and the analytics aren’t necessarily going to find the needles for you, but they're going to tell you that if there are needles they're probably in this part of the haystack.”

“I think as an examiner at FINRA, what I really want to know is not particularly what I find on the examination, but when I leave the firm, what are they going to be doing to make sure they have controls over the risks that I’m concerned about.”

“You know it’s interesting I’m not sure that Reg BI is changing the landscape in terms of that from the perspective of really understanding the products that you're selling. I think there's always been that expectation, you know whether it was reasonable basis—suitability requirement or the care obligation with respect to Reg BI but the important thing is that firms before they start recommending products that they understand those products. They understand the features and the risks and that the people who are selling them understand them as well.”

Resources:

Compliance in Context

To help guide us through today's conversation, we welcome in Rob Kaplan and Bruce Karpati. In sharing their experiences as former Co-Chiefs of the Asset Management Unit, Bruce and Rob discuss the role of SEC Enforcement and its impact on the industry. 

Topics:

• What is the role of the Division of Enforcement in the industry, and how does the SEC send a strong message in enforcement cases?
• Review the concept of “regulation through enforcement”
• Were there consistent failures or compliance violations in the cases you saw in the Asset Management Unit?
• Discussion of how negotiations that occur in an enforcement case can result in unintended consequences affecting the industry
• Analyzing the lines between clearly violative activity and “minor” violations
• Identifying the top one or two lessons learned from each of these cases and the biggest takeaways for compliance

Quotes:

“The good public policy way...is when an enforcement matter comes out and it says you cannot do X, right. You cannot have loans to affiliates that are not properly documented because we don't like that. It's when next time somebody comes to the chief compliance officer and says, hey, we're thinking about making this loan to affiliates that they say you know what “[t]here's this enforcement case that says you can't do that,” or the CEO has been waiting or other compliance professional or the GC has been waiting for a case to come out on point to be able to arm them in discussions with the business side to help set the standards.”

“If you’re sitting on the compliance side and you read one of these summaries of these orders and you’re still confused as to what you actually have to do, that’s a real problem.”

“That to me is the risk: Is that you don’t take something small seriously. You have disclosures that ignore it, it snowballs, and then you have a pattern and practice as it goes on, that you could have really avoided and you don’t know how to get yourself clean.”

Resources:

Compliance in Context

Interview  

• Discussing the motivation to help move the conversation on CCO liability forward
• Biggest takeaway from the NSCP CCO Liability survey
• Concerns over whether personal liability will be imposed in cases of simple negligence
• Thoughts on outsourced Chief Compliance Officers
• Discussing the impact of a new Administration, SEC Chair, and Head of Enforcement
• Thoughts on the new SEC Marketing Rule including key takeaways
• Review the SEC request allowing limited purpose BDs to custody “digital asset securities”
• Focus areas for Commissioner Peirce in 2021
• Career advice for new compliance professionals

Quotes: 

“And I think the compliance people at a firm play a really important role in being a bridge and saying to the operational people at the firm, the people who are providing the advice, or doing the day-to-day interfacing with clients, they need to hear from compliance people about how to do that in a way that's compliant with our many rules. And so it's a partnership of sorts. And if you have a liability regime that doesn't work, then you're going to scare good people away from taking those jobs and the whole thing will bring it down.”

“But I think it was interesting to see the percentage of people who were worried about the liability uncertainty question and and so seeing that people are trying to grapple with that it was quite enlightening. I think a couple of other things that really struck me.”

 “And so how can we put ourselves in the shoes of the compliance officer and say okay this is someone who was really dealing with quite a few issues and was trying to do a good job on those issues. Something fell through the cracks, obviously. That's a very different situation than you when you have someone who has the title of compliance officer and doesn't do anything in the job. Those are the cases where I think the line is sometimes hard to draw and that's the line I really need help drawing.”

Resources: 

Compliance in Context  

For our interview segment, we welcome in former NSCP Chair and teleworking compliance expert Craig Watanabe to do a deep dive on how firms can best prepare their compliance programs for the increase in teleworking and the types of supervision, cybersecurity, and data privacy issues that are involved there.

Finally, we’ll wrap up today’s show with another installment of the What’s On My Mind series, where we’ll look at the new DOL prohibited transaction exemption for investment advice fiduciaries and the greatest comedy centered around Punxsutawney, Pennsylvania.

Headlines

• SEC Alerts Investors to Rising Number of Investment Scams
• SEC Adopts Amendments to Investment Adviser Marketing Rule

Interview

• Review the trend toward decentralization and the impact of the pandemic
• Compliance challenges that teleworking introduced
• Fortress versus endpoint security model and teleworking cybersecurity
• Other tips and recommendations for teleworking cybersecurity
• Best practices for handling remote supervision
• Review of regulatory guidance for remote audits

What’s on My Mind

• Groundhog Day, déjà vu, and the new DOL Prohibited Transaction Exemption for Investment Advice Fiduciaries

Quotes:

“And of course, our industry is no exception. We are seeing strong trends toward decentralization, which were evident as you mentioned, prior to the pandemic, but I think just got a huge kick forward with the pandemic and what I think is interesting is most experts believe that this trend will have a residual impact. In other words, when this pandemic is ultimately over, we probably will not go all the way back to baseline, pre-pandemic levels.”

“And so the evolution that we are seeing is, we're seeing cybersecurity evolve from a fortress model to an endpoint security model.” 

“...Going over and above and being a great compliance department, I think that was all part and parcel of that idea of being not just a good compliance department, but being a great compliance department.”

Resources: 

Compliance in Context

For the interview portion, I chat with Michelle Canella and Hope Brown. The three of us dive into diversity, equity, and inclusion in the financial services industry and discuss the importance of mentors and sponsors.

Listen in for a better understanding about what diversity, equity, and inclusion look like in action in the financial services industry.

Headlines

• Stephanie Avakian steps down from the SEC’s Division of Enforcement.
• The SEC punts on discussing the proposed advertising and cash solicitation rules
• Reviewing the IAA/NRS Evolution Revolution Report.
• Updates to the New York State’s IAR rules

Interview

• Defining and distinguishing diversity, equity, and inclusion.
• Ways to implement these concepts inside your organization.
• How compliance professionals can take on issues of diversity and inclusion.
• The importance of mentorship and sponsorship in the workplace.
• NSCP diversity and inclusion efforts and other 2021 activities

History Has Your Back

• Mentors create environments of trust and safety, stimulating development both personally and professionally.
• Elevate yourself and your firm by connecting with others to become a mentor or mentee
• As a tribute to mentors everywhere, a review of Rudyard Kipling’s poem, If

Quotes: 

“Well, first and foremost, I really believe that in order to effectuate change, you should change yourself first.”

““I think that mentors and sponsors are both critical to the success of any professional, and in our particular case, compliance professionals. I think, in particular, for women and for people of color, who typically have fewer interactions with leaders within financial services organizations.”

Resources:

Compliance in Context

For our interview segment, we welcome in former NSCP Chair and industry stalwart Miriam Lefkowitz to do a deep dive on how firms can best prepare for the practical application of Regulation Best Interest into their compliance programs.  

Finally, we’ll wrap up today’s show with another installment of the What’s On My Mind series, where our focus today will be on the recent rule proposal for “finders” and how this broker-dealer exemption could be just what we need to help struggling businesses with capital formation.

Topics: 

• Jay Clayton’s announcement of his departure from the SEC
• Major settlement related to improper sales of volatility-linked exchange-traded products.

Interview

• REG BI and Form CRS preparation.
• Practical application of the rule after a full quarter in place
• How to avoid trip wires
• Comparing good vs. bad disclosures
• Methods for staying current with regulations and the NSCP Reg BI Forum

What’s on My Mind

• SEC Commissioners Encourage Small Business Advisory Committee to Consider Proposed Registration Exemptions for “Finders.”

Quotes:

“I think disclosures around monitoring are challenging because there are responsibilities and duties that flow from whether your broker or whether you're an investment advisor.”

“The SEC did discuss...the nature and the scope of the review, they've done to date and true to their word. They're looking for good faith efforts to comply. And for the most part they found it.”

Resources:

Compliance in Context

Topics:

Headlines

• FINRA Proposes Rule Change on Remote Inspections
• OCIE Highlights Supervisory Deficiencies at Adviser Branch Offices

Interview

• Reviewing recent trends in SEC and FINRA enforcement actions.
• Forecasting future enforcement action stemming from COVID-19 and Reg BI
• Discussing recent remarks from SEC Commissioner Peirce on CCO liability
• Detailing NSCP Currents authorship and related topics Outtakes 

• The proper allocation of business versus personal expenses and how to avoid violations of federal securities laws

Quotes:

“We have heard that with regard to penalties and financial sanctions, we are looking at record numbers.” 

“In two, three years, I expect we’ll see enforcement actions related to Reg BI, as well.” 

"Ultimately, compliance is here to help elevate the services that our firms provide their respective clients...And so, we want to be able to reward those folks that are part of that process to help elevate those services.”

Resources:

Compliance in Context

The interview segment features Rob Kaplan and Bruce Karpati discussing the origin story of SEC’s Asset Management Unit. Finally, we continue the History Has Your Back series by taking deep look into a letter from Julius Caesar to Cicero during the Roman Civil War to shine a light on opportunities for personal and professional growth.

Based on listener feedback, regular episodes of The Securities Compliance Podcast will drop every two weeks and may occasionally offer extended interviews with bonus content. In addition, the podcast will expand its offerings to include a master class miniseries for members of the National Society of Compliance Professionals (NSCP), and the future launch of the Lessons From the Frontline series.

Headlines:

• When the Nail Fails–Remarks before the National Society of Compliance Professionals analyzing CCO liability

Interview:

• Origin Story: Asset Management Unit’s evolution and impact
• SEC: Building the expertise in specialized areas, including five experts and fundamental areas of investment management
• Process initiatives and improvements
• Seeds of Collaboration: Leverage expertise across different SEC divisions
• Conflicts of Interest represented the foundation for issues review by the AMU
• NSCP Private Fund Forum
• Horizon issues for private funds: supervisory responsibilities and valuation issues

History Has Your Back:

• Ancient Rome is split between two separate factions
• In a letter to Cicero, Julius Caesar employs a strategy of mercy and empathy as a sign of true strength.
• Compliance professionals can show real strength and gain credibility inside their firms through understanding and empathy

Resources:

Compliance in Context