There’s always something about the freshness of a new year. It’s like the nostalgia from the first day of school: opening a box of #2 pencils, kids laughing and leather squeaking from all the new tennis shoes. The new year is a chance to restart, well, everything. And sometimes that’s a really good thing.
Coming off a 2023 with heavy crackdowns on Marketing Rule violations, SEC exams hyperfocused on cybersecurity and an energetic SEC that upped its audit frequency by a whopping 25%, most compliance teams could use a beat. We feel you! Our team at Smartria is focused not only on what went down in 2023, but how can we take that and apply it to our tools and services to bolster the work of wealth management executives across the U.S.
As the regulatory landscape evolves, staying ahead of compliance requirements is crucial for maintaining trust with clients and avoiding potential legal issues. Our recent article “Year End “ highlights the importance of conducting a comprehensive review of compliance policies and procedures, assessing your cybersecurity measures, and ensuring that disclosures accurately reflect any changes in your advisory business. Once firms complete this essential year-end review, the next step is understanding where to go in the next year.
Let’s talk about the SEC’s 2024 Examination Priorities.
The SEC’s focus areas provide a roadmap for financial advisors to align their compliance efforts with the regulatory expectations set forth by the commission. Among the key priorities are the continued emphasis on protecting retail investors, market structure, and digital assets. They plan to continue their reinforcement of their previously disclosed ‘four key pillars.’
#1 – Retail Investor Protections
The SEC will scrutinize any potential conflicts of interest in their ongoing commitment to investor protection. Their analyses will center on advisory fees and expenses, sales practices and conflicts of interest as defined in their formerly adopted fiduciary standard under Reg BI. Robust compliance programs will address conflicts through onboarding and annual attestations, vendor due diligence records and employee trade monitoring. As the market continues to evolve, so should your urging financial professionals to evaluate their trading practices and systems to align with evolving market dynamics.
#2 – Market Structure
The SEC will monitor any adjustments to, or influences on, the integrity and efficiencies within financial markets. Examination priorities include evaluating market participants’ compliance with regulations, such as those related to trading practices, and assessing the resilience of critical market infrastructure. Firm infrastructure that centers around a ‘Culture of Compliance’ will find this bullet relatively straightforward. Preparing your firm for any investigations around this topic will rely heavily on standard recordkeeping and proactive employee training. Compliance software that sets reminders, prompts employee action and notifies leadership of failure to comply will ease any burden on compliance teams.
#3 – Digital Assets
The SEC has become hyper-aware of digital assets in the marketplace, with an increased effort behind the newly adopted Marketing Rule, which was the prevailing concern of recent crack-downs. Digital assets continue to permeate the market, whether in demonstration of fund priorities, investor opportunities or in the form of explicit advertisements. The SEC’s priorities include scrutinizing the offer, sale, trading, and management of digital assets, emphasizing investor protection and compliance with securities laws in the evolving digital landscape. In more relatable terms, content that involves any promise or illustration of implied future performance will be heavily scrutinized and may increase the likelihood of an SEC audit. Compliance tools that offer streamlined documentation for marketing submissions and reviews will be prepared should they receive SEC attention this year.
#4 – Climate & ESG Risks
More than ever before, the SEC is examining how firms are considering climate and environmental, social, and governance (ESG) impacts within their services and offerings. These include assessing how financial firms integrate climate and ESG-related considerations into their operations, risk management, and disclosure practices, promoting transparency and accountability in addressing these evolving risks. Firms can implement compliance technology solutions to monitor for real-time alerts and reports on any deviations from established ESG policies. ADditionally, firms can automate their documentation process, ensuring a detailed record of any ESG-related decisions and actions, promoting transparency in their overall processes.
Compliance shouldn’t be a burden, but it often is.
We’re always ready to talk compliance: strategies, tactics, and guardrails, and we know the most important information for CCO’s at this moment in time is a comprehensive guide to the year. That’s right – we’re noting exactly what YOU and your team need to properly level-set for the year ahead, and ensure your back office is ready to comply. We call this level of preparedness “building a culture of compliance.” In order to navigate the complexities of the year ahead, and breathe easy if the SEC comes calling, we recommend a year-long approach to fostering a healthy, error-free compliance infrastructure.
Let’s talk about your 2024 compliance priorities and make sure you’re ready for the year ahead.
