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 growing cybersecurity threats amid the coronavirus COVID-19 outbreak, the Securities and Exchange Commission's ("SEC") postponing Form ADV submissions, and the importance of succession planning.
Here's our top investment adviser compliance articles for the week of March 13th, 2020:
Jeff Berman discusses the importance of being hypervigilant during this time of uncertainty, especially when it comes to cybersecurity. Berman sources the law firm Eversheds Sutherland, who has posted advice on their website on how to remain on guard and cautious. The firm stated, “Be wary of clicking on links embedded in emails and entering credentials. There is no doubt we will see an uptick in phishing emails appearing to come from the Centers for Disease Control, the World Health Organization, other health-related organizations, or even companies’ own HR departments.” Employees working remotely without a secure connection also provide an easy access point for hackers, which is a topic GJ King, president of RIA in a Box, also touched on earlier this week, stating, “during turbulent times, firms are at an increased risk of cyberattacks and systems being compromised”.
2. SEC Postpones Deadline for Form ADV Submissions (Author- Patrick Donachie, Wealth Management)
The SEC announced last week that they will be postponing the Form ADV submission deadline one month due to COVID-19. The order released by the SEC stated, “The disease has led to disruptions to transportation, including buses, subways, trains and airplanes and the imposition of quarantines around the world, which may limit investment advisers’ access to facilities, personnel, and third party service providers. In light of the current situation, we are issuing this Order providing a temporary exemption from certain requirements of the Advisers Act.” However, firms who believe they will need to utilize the submission delay must send the Commission a “brief description” outlining why and the estimated date that they will be submitting their Form ADV via email to IARDLive@sec.gov, and will need to post their reasoning on their websites and inform clients.
3. Advisers should think twice about taking the SEC up on its ADV filing extension (Author - Mark Schoeff Jr., InvestmentNews)
Even though the SEC postponement of Form ADV submissions may come as a godsend for some firms during these uncertain times, Mark Schoeff Jr. and other compliance experts suggest advisers think twice before taking advantage of the new deadline. Brain Hamburger, chief executive of MarketCounsel said, “That admission poses a danger for advisers because it may point to a problem with a firm’s business continuity plans. That’s not a good look for advisers. It doesn’t breed confidence with the regulators. It certainly doesn’t breed confidence with your clients while they are dealing with volatile markets. We’re strongly recommending that our clients not take the offer by the SEC to extend their filing and delivery obligations.”
4. Succession Planning in a Pandemic: 6 Steps to Take Now (Author- William Cerynik, ThinkAdvisor)
Since COVID-19 was first reported in the United States, businesses have been scrambling to get a grip on this new reality and how to move forward successfully. As a result, business continuity plans have been a hot topic, with many firms having little to no plan at all. To address this issue and to calm nerves across the wealth management industry, the Financial Industry Regulatory Authority (“FINRA”) released Regulatory Notice 20-08 to address business continuity planning, referring to the pandemic preparedness guidelines that had been released in response to H1N1 “swine flu” in 2009. William Cerynik said, “The coronavirus outbreak of 2020 will likely serve as the defining milestone for continuity planning in the wealth management space. Any firms which have failed to sufficiently address real-time redundancy, mobile communication capabilities, and work-from-anywhere readiness may be left behind for good.” Cerynik goes on to list six steps to take to create a successful business continuity plan.
Fred Reish shares his thoughts on the “examples given by the SEC about the application of the best interest standard when considering account types” in Part 4 of his “Regulation Best Interest, RIA Interpretation and Consideration of ‘Account Types’” article series. Reish breaks down each example given by the SEC in layman’s terms for broker-dealers and investment adviser to best understand what Regulation Best Interest (“Reg BI”) requires from them when identifying account types.
Don't forget to check out last week's top RIA compliance news articles focusing on impacts of the coronavirus ("COVID-19") on RIA firms, business continuity plans ("BCP"), and the latest in Financial Technology ("FinTech").