Each week we’re giving you our weekly report highlighting the top compliance news articles from various industry news publications. We have selected the most relevant and important news articles related to registered investment adviser ("RIA") compliance and regulatory issues. This week's recap focuses on the Securities and Exchange Commission's ("SEC") Regulation Best Interest Rule ("Reg BI"), compliance concerns related to COVID-19, and cybersecurity.
Here's our top investment adviser compliance articles for the week of April 3rd, 2020:
1. SEC details Reg BI compliance goals as enforcement deadline looms (Author- Kenneth Corbin, Financial Planning)
This week, the SEC released risk alerts to clarify examiners’ expectations around compliance with new rules, including Reg BI. As quoted by Kenneth Corbin, the director of the SEC’s Office of Compliance and Inspections (“OCIE”), Peter Driscoll states, “We understand that this implementation will be an iterative process, and our focus will be on firms continuing good faith and reasonable efforts, including taking into account firm-specific effects from disruptions caused by COVID-19." The Financial Industry Regulatory Authority (“FINRA”) is also following the SEC’s lead on Reg BI. Furthermore, firms must act on meeting the June 30th Form ADV Part 3 ("Form CRS") deadline using guidance previously released by the SEC to construct the form.
2. RIA in a Box Introduces Automated Form CRS Creation Tool (Author- Diana Britton, Wealth Management)
RIA in a Box has launched a new tool as part of its MyRIACompliance platform to automate the creation of the Form CRS. The tool pulls data from the RIA firm’s existing form ADV and a short questionnaire to streamline the creation of the form. “When it comes to Form CRS, the challenge for RIA firms will be to distill the information down to only two pages, especially when you consider that the official Form CRS rule release is 564 pages,” said GJ King, president at RIA in a Box. SEC-registered RIA firms that serve retail investors must file the Form CRS by no later June 30th, 2020.
3. SEC Updates Custody FAQ to Address Coronavirus Concerns (Author - Melanie Waddell, ThinkAdvisor)
On Thursday, the SEC updated its custody rule FAQ guidance. “As the Investment Adviser Association explains, the updated FAQ issued by the agency’s Investment Management Division addresses delays in auditors’ completing surprise exams; delays in access to firm mail that may contain inadvertently received checks; and not being able to maintain physical certificates with a qualified custodian,” Melanie Waddell states. In this article, legal experts interpret the guidance and custody requirements of the SEC.
4. Securities Regulators Say They’re On Lookout for Pandemic-Related Fraud (Author- Tracey Longo, Financial Advisor Magazine)
Regulators from the SEC, Finra, and the North American State Securities Association (“NASAA”), spoke at an SEC Investor Advisory Committee meeting last night, and warned that they are monitoring for fraud and unsuitable behavior during the COVID-19 pandemic. This includes schemes from withdrawing from retirement accounts, complaints related to suitability, private placements, elder abuse, and more. As quoted by Tracey Longo, “Past experience tells us that opportunistic scam artists will undoubtedly prey on the fears and concerns of retail investors in the midst of a crisis. Some of the types of frauds and schemes we anticipate seeing are microcap fraud and stock manipulation around the viral crisis and items in demand during the crisis,” NASAA President Christopher W. Gerold stated.
5. What you should know about New Cybersecurity Risks (Author - David Canter, Wealth Management)
In light of COVID-19 and many firms working remote, there are several new phishing and cybersecurity risks that advisors should be prepared for. In this article, David Canter shares examples of common phishing attacks that firms are facing related to coronavirus, and tips on how to spot them. In addition, Canter explains how you should be training your employees and educating your clients on combating cybersecurity threats. “Cybersecurity is top of mind for many advisors and investors as they adapt to working in new ways and with new technologies. By making a plan to anticipate and respond to potential threats, advisors can stay a step ahead to help safeguard their firms and their clients,” Canter states.
Don't forget to check out last week's top RIA compliance news articles focusing on the SEC's plan to move forward with the Form CRS deadline, advice on how to RIAs can handle the coronavirus disruption, and the surge of COVID-19 cybersecurity threats.