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 release of the North American Securities Administrators Association's ("NASAA") annual enforcement report, the release of RIA in a Box's Private Fund Platform, and the Securities and Exchange Commission ("SEC") changing the definition of accredited investor. Here's our top investment adviser compliance articles for the week of September 18th, 2020:
1. State Regulators Flexed Enforcement Muscle in 2019 (Author – Mark Schoeff Jr., InvestmentNews)
The North American Securities Administrators Association (“NASAA”) has released its annual enforcement report, which shows an uptick in investigations, enforcement actions and money returned to harmed investors compared to years prior. For example, the number of enforcement actions “was 2,275, an increase of 39% from the five-year average of 1,631”. Joe Borg, NASAA enforcement section chair, explained, “These administrative actions are critical components of investor protection, and data shows are increasingly using their administrative authority to effectively police the market.” Lisa Hopkins, NASAA president, explains further, “This report reflects the responsive and effective actions taken by NASAA members against a wide variety of actors who seek to do harm to Main Street investors.”
2. RIA in a Box Launches Compliance Software for Private Funds (Private Equity Wire)
Private Equity Wire discusses the release of RIA in a Box’s Private Fund Platform and the features that address the unique regulatory requirements private fund advisers face. RIA in a Box created this new platform to address the SEC risk alert released earlier in the summer and to help simplify the compliance process for private fund advisers. This new platform “is designed to streamline the private fund adviser registration process, automate the myriad of required regulatory filings, and help implement a robust compliance program designed to address all the key compliance requirements highlighted in the SEC’s recent private fund adviser risk alert.”
3. State Regulators Collect $700 Million in Investor Relief, Penalties in 2019 (Author – Patrick Donachie, WealthMangement)
Patrick Donachie dives deeper into the annual enforcement report findings from the North American Securities Administrators Association (“NASAA”). The report found a dramatic increase in investigations and enforcement actions from 2018 to 2019, equaling a jump from 23% to 33%. The report as found “that the enforcements led to $623 million in restitution ordered for investors, as well as $80 million in fines.” Donachie also mentions that this report also proves the success of the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, stating that “28 jurisdictions had enacted rules or legislation based on the model act, with states fielding 709 reports, opening 233 investigations and bringing 15 enforcement actions relating to the model act.”
4. Financial Trade Groups Urge SEC to Make Digital Communications Delivery the Default Option (Author – Tracey Longo, Financial Adivsor Magazine)
Many financial trade groups within the industry are calling on the SEC “to make electronic delivery of all investor communications the default option.” Among other reasons, the seven trade groups pointed to the fact that “ with more than 90% of adults in the United States using the internet, nearly 89% filing federal taxes electronically and most clients of financial firms already opting for electronic delivery of investment-related communications”, now would be the best time to amend the rule. Kenneth E. Bentsen, Jr., president and CEO of Securities Industry and Financial Markets Association (“SIFMA”), adds that “it’s a logical next step for the SEC to take, and even more so in the time of the COVID-19 pandemic.”
5. Sizing Up the SEC Accredited Investor Definition Changes (Author – Melanie Waddell, ThinkAdvisor)
Melanie Waddell discusses the change the SEC made to its rule that outlines the definition of “accredited investors” last month and what to expect moving forward. The SEC has that qualification as an accredited investor will be “based on defined measures of professional knowledge, experience or certifications – including holding certain Financial Industry Regulatory Authority (“FINRA”) licenses – in addition to the existing tests for income or net worth.” The FINRA licenses that now qualify are General Securities Representative license (Series 7), Private Securities Offerings Representative license (Series 82), and Investment Adviser Representative (state-registered advisors) license, or the Series 65.
Don't forget to check out last week's top RIA compliance news articles that focus on Form CRS disclosure issues, the newest SEC risk alert on cybersecurity, and succession planning.