Games May Change, But Fundamentals Don’t

Anniversary Letter

As this year’s Fourth of July arrives, Americans here at home are celebrating a very big milestone being the 250th Anniversary of the formation of the United States.  At the same time, millions of fans from all around the world are watching the World Cup unfold as the tournament enters the knockout stages. While these events may be unrelated, both are a reminder of the importance of preparation, adaptability and perseverance.

For Investment Advisers and their Compliance teams, the past twelve months may not have involved penalty kicks or knockout rounds, but they certainly required the ability to adjust to changing conditions.  Over the past year, much of the industry’s attention focused on Supreme Court decisions, shifting regulatory priorities, and the SEC’s decision to withdraw 14 previously proposed rules.  Other notable items included FINRA gift limit raising to $300, proposed FINRA OBA reforms, vacation of the 2024 DOL Fiduciary Rule, and potential private market access for retail investors.  These developments created plenty of headlines and speculation about what would happen next.  However, the past year has also not been without its own share of work and requirements for firms to implement.

For RIAs industry wide, a significant development was the arrival of the amended Regulation S-P Rule compliance deadlines.  Firms spent time enhancing their Incident response programs, strengthening vendor oversight, and evaluating how they can better safeguard their client’s information.  The amendments reinforced that cybersecurity and data protection are no longer just technology concerns, but they are now a core compliance responsibility. 

RIAs also received some breathing room on the AML front.  Regulators delayed the compliance date for the new AML/CFT requirements until January 1, 2028.  This will provide RIAs with additional time to prepare for what will be a significant expansion of compliance requirements.

While new rule-making initiatives may have slowed over the past year, firms should not interpret these developments as a reduction in the SEC’s oversight. The SEC may have changed leaders, but the game is still being played. Under Chairman Paul Atkins, the Commission appears to have moved away from what some considered a “regulation through enforcement” approach.  While Investor protection is still the goal, recent communications from Chairman Akins suggest a renewed emphasis on pursuing fraud, market manipulation, and other significant violative conduct more so than technical deficiencies. Like a World Cup referee, the SEC is still watching the match closely although focusing more on penalizing serious fouls rather than every minor technical error.  Regardless of the shift, firms (like Championship teams) cannot ignore the fundamentals.  Documentation, disclosures, supervision, training and recordkeeping, etc., remain critical components of a strong compliance program.

Similar to last year, Artificial Intelligence (“AI”) was one of the industry’s most discussed and written about topics throughout the past year and the SEC has yet to provide more formal guidance on the matter.  At the same time, cyber criminals are undoubtedly leveraging AI to enhance phishing and impersonation attacks, reinforcing the need for strong cybersecurity controls.  The SEC’s rollout of EDGAR Next, and FINRA’s ongoing rollout of ID.me highlight regulators’ emphasis on identity verification and access management.

State regulators also continued efforts to modernize investment adviser regulation.  In May, NASAA adopted amendments designed to align state advertising requirements more closely with the SEC’s Marketing Rule.  Along with the SEC’s Marketing Compliance FAQ issued in January, these developments reflect an ongoing effort to provide firms with more consistency and clarity in advertising compliance.

At The Consortium, we understand that compliance is not a single event, exam, or deadline.  Much like a World Cup tournament, success depends on consistently executing fundamentals and adjusting to the playing field conditions along the way.  As we celebrate both Independence Day and America’s 250^th birthday, we hope you can take a well-deserved opportunity to recharge and reflect on your accomplishments of the past year while spending some time with family and friends.

Have a safe and enjoyable 4^th of July, everyone, and happy 250^th birthday, America!

–Todd Sakoda

–John T. Carr

–Lisanne M. Butterfield

–Greg Walsh

The Consortium has been lifting the burden of compliance for advisors since July 4, 1989.

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