Worried That Your Next SEC Audit Will End in Fines? TAKE THE ASSESSMENT

Spring cleaning has begun and the SEC is full steam ahead

Stay informed about the SEC's latest regulatory actions and initiatives as they rejuvenate their focus this spring. Ensure your practices are compliant.

Spring cleaning has begun and the SEC is full steam ahead

In the latest round of SEC Regulation Best Interest exams, the SEC is shifting its focus beyond an adviser’s good faith efforts to comply. While acknowledging the need for further learning and education in this intricate requirement, the SEC intends to increase the frequency of exams. This does not immediately entail enforcement letters, but deficiency letters may be issued instead to prompt a more assertive response and drive compliance with the requirements. The objective is to encourage advisers to take their obligations seriously and make necessary improvements.

Expect the SEC to focus on complex products during this Phase 2 of Reg BI exams. What are complex products? Inverse or leveraged exchange products, penny stocks, variable annuities, derivatives, as well as securities with low liquidity, asset-backed securities or investments tied to market volatility. Of course, there is no SEC specific definition of complex products, but the SEC states that they are looking to see whether the rep can explain it in the first instance and whether there are higher costs associated with it.

Can we get an idea on what to expect for potential enforcement letters? Well, with this being built similarly around FINRA concepts we can look to them for some insight. One area of focus will be policies, procedures and systems. Just as FINRA has been able to do in the past, the SEC will be able to bring about enforcement solely based on deficient supervisory systems – even if there isn’t a single unsuitable recommendation made. The care obligation could bring about some enforcement letters as well seeing as how this area of Reg BI seems to be built off the FINRA suitability rule with a few changes.

So, what does this mean to you?

It’s time to make sure you are prepared for the cleaning headed your way?

You don’t get a hall pass if you have a decently operating supervisory system. Nope! This will be a violation in terms of Reg BI, so how’s your supervision? Are you compliant? We are past good faith effort. The SEC has deemed it open season.

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Author Bio

Leila Shaver is the Founder of My RIA Lawyer, a law firm that provides compliance and legal consulting for financial institutions. With extensive experience as a securities attorney and compliance expert, she has served as Chief Compliance Officer and General Counsel to RIAs, BDs, and TAMPs with billions in assets under management.

Leila understands the challenges RIAs face and is committed to helping RIAs streamline their processes, mitigate risks, and ensure compliance with regulatory requirements. She received her Juris Doctor from Atlanta’s John Marshall Law School and is a West Georgia Young Lawyers’ Association member. Leila has received numerous accolades for her work, including the Carroll County Bar Association’s Outstanding Young Lawyer Award in 2017.

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