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Regulation and compliance

24 new rules and proposals to watch from the SEC and other regulators

ByTobias Salinger
August 9, 2023 2:56 PM

Regulations from the SEC and other agencies could hit financial advisors and wealth management firms in at least two dozen different areas of their business in coming years.

That's the key takeaway from a report released last week by compliance and technology firm COMPLY, which made an effort to list every major new rule or proposed guideline affecting financial services companies. For advisors, the array of regulations resemble a bus "barreling toward you," which makes how to get out of the way more important than the "why" behind all the new rules set in motion by Securities and Exchange Commission Chair Gary Gensler's team and other law enforcement bodies, said COMPLY Chief Regulatory Officer John Gebauer.

"Advisors, in general, should be very focused on this," Gebauer said in an interview. "The sheer magnitude of the wave of rules that are likely to be approved in the coming six to 12 months really means that advisors need to get their house in order."

The past 18 to 24 months of regulatory rulemaking have been "among the most active periods" in the 25-year career of Paul Miller, a partner in law firm Seward & Kissel's Investment Management Group, he said.

"It will be more expensive to start an [RIA] and register with the SEC and develop compliance policies and procedures around the new and proposed rules," Miller said in an interview. "It's just becoming more expensive to do so."

Representatives for the SEC declined a request for comment on the number of new rules or potential regulations.

Asked about which could have the biggest impact on the industry, Miller cited the initiatives relating to ESG, predictive analytics, changes to the SEC custody rule and one from last year that's not mentioned below on the "swing-pricing" of mutual funds. Gebauer also mentioned possible updates to the custody rule, as well as cybersecurity rules and proposals, potential new RIA outsourcing guidelines and prospective requirements on registered investment advisory firms that manage private funds.   

To see 24 rules, regulations and proposals for financial advisors from the Securities and Exchange Commission, FINRA, the Labor Department and the North American Securities Administrators Association, scroll down the slideshow. For a look at a trade group's concern about the magnitude of new SEC rules in the last three years, click here.

Regulation and compliance
13 rules in less than 3 years is too much, advisor group tells SEC
June 22, 2023 4:14 PM

Note: Each of the quotes below comes from COMPLY's report, "2023 Regulation Rundown."

NASAA model rule on examination requirements for advisory representatives

Summary: Advisors with state-registered RIAs get the same chance to keep their licenses without being employed by any firm as brokers who have left the industry.

Status: Adopted September 2022

Remark: "Individual investment advisor representatives (IARs) registered in states that have adopted the NASAA model rule (or a variant thereof) must complete continuing education requirements. This applies to both state-registered and SEC-registered investment advisors with registered IARs, and more states continue to implement this rule."

NASAA model rule on examination requirements for brokerage agents

Summary: The rule gives state-registered brokers no longer employed by any firm a longer opportunity to hold on to their licenses without joining another company.

Status: Adopted September 2022

Remark: "Individual broker-dealer agents can now keep exam qualifications for an extended period of time (5 years vs. previously 2 years) when stepping away from the industry. In order to do so they must enroll in the [Maintaining Qualifications Program], pay the annual fee and complete the requisite continuing education courses required by FINRA."

NASAA real estate investment trust policy revisions

Summary: Under the proposal, brokers recommending REITs would need to comply with the SEC's Regulation Best Interest, restrict the concentration of portfolios in alternative products and abide by other new requirements.

Status: Proposed July 2022

Remark: "The NASAA guidelines would have broker-dealers look at updated criteria in connection with offering non-traded REITs."

NASAA amendments on dishonest or unethical business practices by brokerage agents

Summary: As a result of the new model rule, state-registered brokers could lose their licenses if they don't abide by arbitration awards, restitution orders and regulatory penalties.

Status: Adopted May 2022

Remark: "This underscores that broker-dealers and individual agents subject to any arbitration award or similar monetary payment obligation must indeed pay the specified amounts."

NASAA amendments on unethical business by advisory firms and representatives

Summary: The model rule orders RIAs and their advisors to pay arbitration awards, restitution and fines or face possible enforcement actions from state regulators.

Status: Adopted May 2022

Remark: "This underscores that investment advisors and individual agents subject to any arbitration award or similar monetary payment obligation must indeed pay the specified amounts."

DOL proposal on definition of ‘fiduciary’

Summary: A narrower proposal than the fiduciary rule vacated by a federal appeals court decision in 2018 would still ramp up the standards governing RIAs, brokerages and other financial firms providing investment advice for a fee to retirement plans and IRAs.

Status: Published Fall 2022

Remark: "The definition of 'fiduciary' is central to the Advisers Act and [the Employee Retirement Income Security Act]."

DOL proposal prohibited transaction exemption procedures

Summary: The first updates to the Labor Department's policy on retirement rollover advice in more than a decade would bulk up scrutiny on transactions, disclosures for investors and restrictions on conflicts of interest.

Status: Published Spring 2022

Remark: "This regulation is in place to protect retirement investors who are moving retirement funds to another similar retirement fund."

FINRA rule on further opportunities for Maintaining Qualifications Program

Summary: Brokers no longer affiliated with any FINRA member now have more ways to keep their licenses current through continuing education.

Status: Approved March 2023

Remark: "The rule change provides an option for associated persons who are not currently registered with a FINRA member firm to maintain their representative of principal licenses by participating in the Maintaining Qualification Program."

FINRA rule providing more public information on ‘restricted’ firms

Summary: Under the new rule, brokerages whose compliance cases have mounted to the point of being a "restricted firm" will be identified as one on the public BrokerCheck database.

Status: Approved February 2023

Remark: "The rule change expands public information disclosure about member firms to now include a 'restricted firm' designation, if applicable. The change increases customer protection by increased transparency."

FINRA remote inspections pilot program

Summary: FINRA's proposal would create a pilot program enabling audits and inspections of branches and offices without an in-person visit, which is an idea prompting concern among some stakeholders about supervision and investor protection.

Status: Proposed April 2023

Remark: "The proposed rule, if adopted, will continue to align FINRA rules to the changing reality of the increasing importance of remote work and remote supervision practices."

FINRA remote supervision proposal

Summary: The proposal would alter FINRA's rules to allow for remote offices of supervisory jurisdiction and other compliance personnel working from home.

Status: Proposed March 2023

Remark: "This rule change provides significant relief to broker-dealers who allow supervisors to work from their residential locations while maintaining customer protections."

FINRA arbitration proposal for technical changes after independent report

Summary: The regulator is seeking to modify the arbitrator selection process and pre-hearing and hearing session procedures in response to an outside law firm's report on what happened in the course of a contentious dispute between Wells Fargo and a former customer.

Status: Proposed December 2022

Remark: "The proposed rule change, if adopted, will require technical changes in the FINRA
arbitration process."

FINRA expungement arbitration proposal

Summary: The potential rule would make the process of removing a client complaint from a broker's record more difficult by imposing tougher standards on the arbitration process. 

Status: Proposed July 2022

Remark: "This proposed change, if adopted, would make the expungement process more arduous for associated persons, but it only applies to associated persons seeking expungement of certain investment-related complaints from their [Central Registration Depository] records."

SEC cybersecurity rule

Summary: All types of registrants face new cybersecurity risk management and disclosure rules under the new guideline.

Status: Adopted July 2023

Remark: "Disclosure of cyber risks and incidents will enable retail clients to view information and make informed decisions about the firm. It is important that firms understand the requirements for this disclosure."

SEC proposal on conflicts of interest from predictive data analytics

Summary: Brokerages and RIAs would need to eliminate or neutralize certain conflicts of interest tied to technologies predicting investor behavior.

Status: Proposed July 2023

Remark: "Many firms are using some type of predictive data analytics or AI as a regular part of their operations. This proposal is important because there is a concern that these predictive data analytical systems may favor registrants over investors."

SEC cybersecurity risk management proposal for brokerages

Summary: Under the potential rule, brokerages would have to develop cybersecurity policies and procedures, report incidents to the SEC and, in some cases, disclose them to the public. 

Status: Proposed March 2023

Remark: "Broker-dealers will need to implement risk-based policies and procedures to mitigate the documented risk to firm and client systems and data. Additionally, this rule requires notification of incidents with a tight timeline."

SEC privacy and safeguarding customer information proposal

Summary: The proposal would mandate that brokerages and RIAs adopt written policies and procedures on unauthorized access to customers' private information.

Status: Proposed March 2023

Remark: "The Reg S-P update brings the rule more into alignment with the [Gramm-Leach-Bliley Act] and also imposes specific reporting and notification requirements for privacy breach incidents."

SEC safeguarding advisory client assets proposal

Summary: A potential update to the SEC's custody rule would change investor protection guidelines for RIAs.

Status: Proposed February 2023

Remark: "This proposed rule represents a major shift in the definition and application of custody. The definition will be broadened to include discretion as well as expanded beyond funds and securities to 'assets.'"

SEC regulation best execution proposal

Summary: The possible new guideline would expand the requirements for brokerage policies and procedures governing conflicts of interest, documentation and other subjects.

Status: Proposed December 2022

Remark: "This rule will require new procedures to be implemented and supervised by broker-dealers to meet the enhanced requirements for best execution."

SEC outsourcing by investment advisors proposal

Summary: The regulator would impose new minimum standards on due diligence, monitoring and other areas for RIAs using outsourced vendors and services.

Status: Proposed October 2022

Remark: "This rule would require advisors to more thoroughly vet and supervise vendors used by the firm for any function to be outsourced. It also contains requirements for certain contract provisions, which could lead to renegotiation of terms for many vendors used by advisors."

SEC proposal on ESG disclosures

Summary: Under the potential rule, RIAs would share new information publicly regarding their environmental, social and governance practices.

Status: Proposed May 2022

Remark: "Advisors and investment companies will be required to draft new disclosures to address their practices around ESG initiatives. These disclosures will be uniform to provide simple comparisons by investors."

SEC proposal on climate-related disclosures

Summary: Brokerages would have to make new disclosures about material risks to their business related to climate change under the proposed guideline.

Status: Proposed March 2022

Remark: "This proposed rule would require new disclosure of metrics that may not have been previously monitored or documented by the firm (greenhouse gas emissions, for example)."

SEC cybersecurity risk management proposal for advisory firms

Summary: In addition to RIAs needing to adopt written cybersecurity policies and procedures, the rule would mandate reporting of significant breaches to the SEC.

Status: Proposed February 2022

Remark: "Cybersecurity has been a top priority for regulators for many years and those priorities are now being codified into rules. Firms must understand the risk and have resilience plans in place for when (not if) a cyber event occurs."

SEC private fund advisors proposal

Summary: The rule would bulk up disclosure requirements for RIAs that manage private funds and eliminate certain sales practices, conflicts of interest and compensation systems.

Status: Proposed February 2022

Remark: "This proposed rule will increase documentation required to be produced and maintained by advisors to funds as well as other investment advisors. Private fund advisors will be most affected regarding audits of funds, fairness opinions and preferential treatment disclosures."
Tobias Salinger
Chief Correspondent, Financial Planning
Regulation and compliance Politics and policy Risk SEC
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