Happy New Year!
In this article, I’ll outline the 2019 regulatory hot buttons to help your RIA be “bulletproof” in 2020 (no guarantee you’ll be bulletproof, but we can strive for the highest standard):
The SEC and OCIE (Office of Compliance Inspections and Examinations) publish risk alerts reminding investment advisory firms of compliance risks and specific regulatory rules. These “risk alerts” are basically because they found a large number of compliance deficiencies specific to that area during regulatory examinations throughout the year. Also, as I’ve posted about earlier in 2019, the SEC passed the new Form Customer Relationship Summary and it’s required in 2020.
- SEC Risk Alert Flags S-P Privacy Notices and Safeguard Policies (Apr. 2019)
On April 16, 2019, the SEC released a risk alert around Regulation S-P. The alert reminds advisers to implement policies and procedures for safeguarding customer information. OCIE observed that investment advisory firms did not provide proper notices to their clients including the right to opt-out, annual privacy notices, and initial privacy notices. Remember in 2020 to abide by the requirement to have written policies and procedures to safeguard your clients’ information.
2. SEC Cyber-security Risk Alert Flags Network Storage Issues (May 2019)
On May 23, 2019, the OCIE released a risk alert after seeing violations in security features of network storage systems. Compliance issues resulted from mis-configured network storage solutions, inadequate oversight of vendor-provided network storage solutions, and insufficient data classification policies and procedures. Starting in 2020, make sure your compliance team reviews your cyber-security policy and these risks in detail; money is well spent on a 3rd party to help in this realm, hire a professional to examine yours before an issue arises.
3. SEC Finalizes new RIA Form ADV Part 2 Requirement, Form CRS (June 2019) – Click this link to view the “instructions” on the SEC’s website!
On June 5th 2019, the SEC finalized a new requirement known as Form ADV Part 3 (Form CRS); which requires SEC-registered RIA firms to provide a two-page “plain English” relationship summary to their retail investors. This form requirement was put into place to help provide retail clients and prospects with a clear “easy-to-read” summary of the firm’s fees, services, conflicts on interest, and disciplinary information. If your firm is already registered or had an application for registration pending with the SEC as an investment adviser before June 30, 2020, you must electronically file your initial relationship summary (Form CRS) beginning on May 1, 2020 and by no later than June 30, 2020 either as: (1) an other than-annual amendment or (2) part of your initial application or annual updating amendment.
4. SEC Risk Alert: RIA’s Failed to Supervise Employees with a Disciplinary History (July 2019)
On July 23, 2019 the SEC issued a risk alert addressing the risks associated with hiring employees with a past disciplinary history. An RIA needs to design and implement policies and written procedures to properly address this risk. This risk alert resulted from examinations which resulted in numerous compliance deficiencies in the area of undisclosed conflicts of interest. The risk alert cited specific examples of inadequate disclosure of past disciplinary events, undisclosed conflicts of interest, and improper documentation of the firm’s supervised persons.
5. SEC Proposes Significant Changes to Advertising and Solicitation Rules (Nov. 2019)
On November 4, 2019, the SEC announced that it has voted to propose amendments to rules under the Investment Advisers Act of 1940 including Rule 206(4)-1, commonly referred to as the “Advertising Rule” and Rule 206(4)-3, The proposed amendments aim to modernize the rules which have not been updated since 1961 and 1979, respectively. The proposed changes are in the area technology, the expectations of investors seeking advisory services, and the evolution of industry practices. The changes are subject to a 60 day public comment period. For more details, click this link to read about it on the SEC’s Website.
Have a great January and CHEERS to 2020!
Sonja Rae Wall @ RIA-CCO
