Advertising and Marketing Regulation | Compliance Programs | Custody | Cybersecurity | Department of Labor | Form ADV | Hedge Funds | Private Equity Funds | SEC Risk Alert


At the end of the year, I review the changes to the SEC’s regulatory environment over the past 12 months.  My goal is to identify the biggest hot buttons for regulators and determine where compliance professionals should focus their efforts for the coming year.

The SEC issued three guidance updates and five risk alerts in 2017.  The most significant and far-reaching guidance deals with Custody Rule compliance and standing letters of authorization (discussed later in this article), which will undoubtedly create a lot of clean-up work for retail investment advisers this year.  The risk alerts provide intelligence culled from SEC sweep and routine examinations, and dealt with cybersecurity, advertising rule violations, and top compliance violations found during exams.

The SEC’s enforcement arm remained active, although it brought fewer enforcement actions (754 versus 868) and imposed less “monetary relief” ($3.789 billion versus $4.084 billion) in 2017 than in fiscal year 2016.  The numbers don’t really tell the whole story, but the Division of Enforcement’s Annual Report for 2017 highlighted the fact that the SEC has started two initiatives by forming a new Cyber Unit and a Retail Strategy Task Force.  Clearly the SEC is throwing serious resources at cybersecurity and protection of retail investors.  I selected a few enforcement cases that provide examples of what happens when firms ignore simple blocking and tackling.

Regulatory activity in 2017 was minimal.  Only one rule was finalized by the SEC under the Advisers Act that resulted in a few technical amendments to Form ADV and Form ADV-W.  These changes basically prohibit mid-sized investment advisers in Wyoming from registering with the SEC, in light of the fact that Wyoming just passed legislation to regulate investment advisers.

The top 11 takeaways from 2017 for investment advisers are:

  1. Prepare for the new disclosure requirements of the Form ADV.
  2. Lock down the Form ADV process for ensuring the form’s accuracy.
  3. Review and revise client standing letters of authorization to comply with SEC guidance on the Custody Rule.
  4. Confirm your Compliance Program addresses The Five Most Frequent Compliance Topics Identified in OCIE Examinations of Investment Advisers identified in the SEC’s Risk Alert.
  5. Review the SEC’s Risk Alert on Most Frequent Advertising Rule Compliance Issues and make sure your marketing review addresses those issues.
  6. Check out the SEC’s Risk Alert on  Observations from Cybersecurity Examinations, and consider adding the recommended best practices to your compliance program.
  7. Ensure that the Firm’s Compliance Manual addresses the  Impartial Conduct Standards as required by the DOL’s Fiduciary Rule.
  8. Review and test the fee billing process.
  9. Enhance your training program on the Pay-to-Play Rule (Rule 206(4)-5) and test for campaign contributions by firm employees.
  10. Perform a comprehensive review of all fees and expenses earned and charged by private funds to determine whether disclosure to investors is required and/or adequate.
  11. Get a handle on messaging apps used within your firm.

These recommendations are based on what the regulators are saying and where they are focusing their resources.  For a more detailed analysis of these takeaways, check out our blog post here.

If you have questions or need help, please feel free to contact us at 724-935-6770, or use our Contact Us page.

 Hardin Compliance Consulting provides links to other publicly-available legal and compliance websites for your convenience. These links have been selected because we believe they provide valuable information and guidance.  The information in this e-newsletter is for general guidance only.  It does not constitute the provision of legal advice, tax advice, accounting services, or professional consulting of any kind.