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 Commissions ("SEC") 2019 exam priorities, the Financial Industry Regulatory Authority's ("FINRA") updated cybersecurity best practices report, and the SEC's warning to advisors on text messaging and electronic communication. Check back each week for the latest list of top stories.
Here's our top investment adviser compliance articles for the week of December 14, 2018:
On Thursday, the SEC announced its 2019 compliance examination priorities. According to the Office of Compliance Inspections and Examinations ("OCIE"), there will be continued focus on fees in general including proper advisory fee billing, mutual fund share class selection, and wrap fee programs. 17% of SEC-registered firms were audited last year which is close to double the rate from just a few years ago. While the issues highlighted in this most recent release are certainly a priority for 2019, they are not the only issues that the OCIE will address during examinations.
- SEC exams to focus on investor fees and advisor conflicts of interest in 2019 (Author -Mark Schoeff Jr., InvestmentNews)
The SEC disclosed on Thursday that the agency will target disclosures of fees and expenses to retail investors along with conflicts of interests in its 2019 examinations of investment advisers and brokers. This decision was made with the protection of ordinary investors in mind. According to Mark Schoeff Jr., “The SEC will zero in on advisers who recommend high-fee share classes as well as those who participate in wrap fee programs that combine advisory and brokerage services.”
While cybersecurity efforts have recently been top of mind for securities firms, FINRA says it still finds many firms 'practices to be substandard. Understanding that many firms simply don’t know or fully understand cybersecurity best practices, FINRA released the “Report on a Selected Cybersecurity Practices” that details best practices to provide guidance to broker-dealers. According to Ryan Neal, “The topics include cybersecurity controls in branch offices; methods of limiting "phishing" attacks; identifying and mitigating insider threats; elements of a strong penetration-testing program; and establishing and maintain controls on mobile devices.”
Sid Yenamandra reflects on 2018 and highlights some major cyber breaches that have happened this year. He mentions that 2019 is already on pace for an increased number of breaches to occur, particularly for independent financial advice firms. With that in mind, Yenamandra shares the four most significant cyber risks to look out for in 2019. These include: data breaches with third-party vendors, web and mobile apps, email phishing attacks, and personal devices.
- SEC warning: Advisor texting and social media on watch (Author- Jessica Mathews, FinancialPlanning)
Earlier this week, The SEC OCIE issued released a new National Exam Program Risk Alert reminding RIA firms of their obligations related to the use of electronic messaging. The increasingly large amount of electronic messaging taking place is causing concern for regulators and creating compliance challenges for firms. In order to help firms move towards the right path, the SEC recommended certain procedures such as prohibiting business use of certain messaging applications, employee training on adviser’s policies, and more.
Don't forget to check out last week's top RIA compliance news articles on SEC's Regulation Best Interest Proposal, the SEC's continued focus on proper share class selections and disclosures, and the new RIA in a Box tool designed to help RIA firms prepare for an audit. Be sure to check back next Friday for next week’s top articles!