RIA Compliance and Practice Management Blog

Top RIA compliance news articles for the week of September 2nd, 2022

Posted by RIA in a Box

Sep 9, 2022 2:30:01 PM

This weeks recap focuses on Securities and Exchange Commission (SEC) audits, the Department of Labor's Rollover Rule, and the SEC's recently drafted strategic plan.

Each week, we are 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 Department of Labor's (DOL) model rule for continuing education (CE), the Securities and Exchange Commission (SEC) stance on cryptocurrency regulation, and recent compliance violations related to client fees, Form ADV, and the Custody Rule.

Here are our top investment adviser compliance articles for the week of September 2nd, 2022:

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    1. More States Adopt Advisor CE Requirements (Author – Thomas D. Giachetti, Think Advisor)

Thomas Giachetti provides an overview of state jurisdictions that have adopted the NASAA's model rule for investment advisory representatives (IAR) continuing education (CE) requirements. The CE model rule was announced in 2020, recommending IAR's complete at least 12 CE credits per year from an authorized provider. Maryland, Mississippi, and Vermont are the most recent states to adopt the model rule. All IARs within jurisdictions that adopt the model rule in 2022 have an effective date of Jan 1, 2023. Giachetti concludes the article by sharing that he expects more states to implement the IAR CE requirements in 2023 and beyond. 

    2. SEC’s Gensler continues push to crack down on crypto rule-breakers (Author – Bloomberg News, InvestmentNews)

SEC Commissioner Gary Gensler continues to push for investor protections for cryptocurrency investments. Gensler states the public deserves the same protections that they receive from other issuers or securities. The article describes the cryptocurrency asset class as operating in a "legal gray area." Opposing parties argue the decentralized nature of cryptocurrency is too complex to provide information typically required by the SEC and regulatory oversight will potentially destroy businesses. 

    3. SEC Strikes Again on 12b-1 Fees, Fining Another RIA (Author – Melanie Waddell, Think Advisor)

The SEC's recent enforcement actions related to 12b-1 fee violations have made headlines once again. This article discusses how the federal regulator recognizes this violation as a breach of fiduciary duty, and has identified a clear instance of inadequate disclosures related to the 12b-1 fee conflict of interest in the Form ADV. A key takeaway from the article is that firms must implement policies and procedures designed to prevent violations of the Advisers Act and the rules thereunder in connection with mutual fund and money market fund share class selection and principal transaction practices, or disclosure of these practices to advisory clients. 

   4. Plan Sponsors Should 'Exercise Caution' Before Adding Crypto: Wendy Von Wald (Author - Allison Bell, Think Advisor)

Employers and retirement plan fiduciaries are encouraged to practice caution when considering offering cryptocurrency investment options to investors. In this article, fiduciary liability product manager Wendy Von Wald shares insights on cryptocurrency related investment options in a Q&A format. Von Wald groups cryptocurrency with other non-traditional investment options, which draw scrutiny due to the volatility and higher risk compared to traditional investment options. She emphasizes fiduciaries' obligation to act in the best interest of plan participants, regardless of high demand or interest in trendy cryptocurrencies. The fiduciary must consider what is appropriate and prudent under the fiduciary standards of conduct required by the Employment Retirement Income Security Act of 1974 (ERISA). 

   5. SEC Hits 9 RIAs With Custody, Form ADV Violations (Author – Melanie Waddell, Think Advisor)

In a recent wave of enforcement actions against RIAs, the SEC identified instances of non-compliance with the Custody Rule and violations related to Form ADV filings. The SEC states that violations of the Investment Advisers Act’s Custody Rule puts the security of client assets at risk. In some cases, advisors did not promptly file their amended Form ADV to demonstrate they had received audited financial statements, after initially reporting they had not yet received the audit reports.

Two takeaways from the article are for RIAs to ensure that client assets are properly safeguarded by performing adequate audits, and also to complete and deliver required disclosures, such as the Form ADV. It is also made clear that the financial industry can anticipate a new rule proposal or an upcoming amendment to the Custody Rule. 

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Don't forget to check out last week's top RIA compliance news articles that focus on SEC audits, the DOL's Rollover Rule, and the SEC's recently drafted strategic plan.

Topics: RIA Operations, RIA Compliance, RIA Technology

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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