As we proceed into the “half way” point entering Q3 2023, it is important to examine and monitor the industry compliance trends so far for this calendar year.
We’ve gathered direct reporting from our Directors, Managing Directors and the Executive Team at Vigilant Compliance (over 400+ years of experience at this level) for their insights into how 2023 is going and what firms can/should expect going forward.
This article highlights the following below and is applicable to all types of Registered Investment Advisers (“RIAs”) and Broker Dealers.
- Current Industry Trends;
- Comments on SEC Examinations; and
- Major Topics of Recent Concern including:
- Off-Channel Communications;
- Cybersecurity/AI; and
- Vendor Due Diligence.
3 General Trends
- Firms continue to invest heavily in compliance to defend themselves from the ambitious SEC Regulatory Agenda.
- Chief Compliance Officers (“CCOs”) are facing increasing pressure to adapt quickly to the abundance of new rules the SEC plans to adopt.
- Major industry adjustments have been made to maintain compliance with the Marketing Rule.
- Advisers that haven’t been examined in the past 4-5 years appear to have higher selection rates.
- The request lists from SEC Examiners/Investigators are getting longer with expectations of complete data files for testing.
- Firms should heavily prepare for Sweep Exams related to newer regulatory enactments.
- There continues to be an increase in on-site SEC Exams, as we previously expected.
- It is vital that all business communications are archived properly for easy access during SEC Examinations/Investigations.
- Off-Channel Communications are bringing in large fines, and Firms are working hard to bring employees into compliance with it.
- Firms need to ensure that non-business communications do not cross the line into leaking confidential information.
- Failure to properly monitor electronic communication increases the risk of both SEC Enforcement and Litigation.
- Close monitoring of employees in all communication mediums should help reduce the risk of potential Fines and Litigation.
AI and Cybersecurity
- Cyberattacks are an on-going threat that compliance departments need to be aware of, regardless of the size of the Firm.
- There is a new adopted rule (announced on 07/26/23) related to cybersecurity incident disclosure.
- AI use may add considerable compliance risk to Firms, and some CCOs are justifiably worried about AI use by employees.
- Use of AI, with ChatGPT as a frequent topic, will require significant industry insight to implement moving forward.
Vendor Due Diligence
- Firms are being asked for more information on vendor due diligence, especially on Due Diligence Questionnaires (“DDQs”) from potential investors.
- Vendors that perform vital tasks for Firms should receive the highest levels of Due Diligence.
The Vigilant Team continues to focus on its goal of providing (1) hands on, (2) efficient, (3) reliable, and (4) cost-effective compliance solutions to the industry.
We will continue to leverage our deep industry insight to provide Firms with best-in-class CCO Services required to achieve their business goals while helping them reduce their risk of regulatory burden.
If you have any questions in particular for Vigilant as we enter the second half of 2023, please feel free to submit them to our Vice President of Sales, Business Development and Marketing, CJ Schaible (email@example.com), who will compile the questions submitted and potentially post a follow up to this content with answers from our Team if there are enough questions asked.