August 21, 2023
InvestmentNews.com has an interesting article by Mark Schoeff Jr. today that Registered Investment Advisors and brokers should read.
https://www.investmentnews.com/tsunami-of-new-rules-bears-down-on-advisors-241228
- Introduction
- SEC preparing to approve major proposals in the upcoming year.
- Investment firms face increased costs and compliance workloads.
- Impact of Marketing Rule Implementation
- Landmark marketing rule announced by SEC in May 2021.
- Implementation deadline of Nov. 4, 2022.
- Investment advisors are concerned about updating policies and controls.
- Upcoming challenges may surpass stress caused by marketing rules.
- Upcoming SEC Rules Affecting Advisors
- SEC finalizing major rules affecting advisors, including outsourcing, custody, cybersecurity, ESG usage, and mutual fund liquidity.
- Investment Adviser Association (IAA) expects approval of final rules early next year.
- Rules to be effective from January through early fall, starting compliance clock.
- IAA’s Perspective on Rule Implementation
- Implementing multiple complex rules simultaneously poses a unique challenge.
- IAA urges SEC to consider the costs and benefits of interrelated and overlapping proposals.
- Brokerage firms and registered representatives also anticipate compliance difficulties.
- Advisors’ Challenges and Preparations
- Advisors to design and implement policies, train personnel, and consider in-house compliance expertise.
- Concerns about resource limitations and timely reactions to rule implementation.
- IAA advocates for a comprehensive implementation timeline with tiered and staggered compliance requirements.
- SEC Chair Gary Gensler’s Agenda
- Gensler aims to enhance transparency, efficiency, and cost reduction in financial markets.
- Emphasis on fewer proposals compared to predecessor Jay Clayton.
- Total of 64 final rules under Clayton over four years; Gensler took the helm in April 2021.
- Potential Regulatory Costs and Impact
- IAA survey shows cybersecurity rule costs exceeding SEC estimates.
- Concerns about cybersecurity proposal, including assessment and reporting of cyber breaches.
- Regulatory costs impacting small advisory firms, brokerages, clients, and investors.
- Impact on Compliance Officers
- Chief Compliance Officers (CCOs) face challenges with the regulatory environment.
- Compliance burdens are likely to affect smaller firms more significantly.
- Compliance concerns could catalyze M&A in the small advisor sector.
- Preparation for Regulatory Convergence
- Advisors are advised to review policies and procedures in preparation for regulatory convergence.
- SEC’s proposals address areas familiar to advisors, with the potential for clarification of best practices.
- SEC’s prescriptive rules may present challenges in implementation.
- Expectations for Final Rules and Implementation
- Final SEC rules are likely to remain consistent with proposals.
- The expectation of staggered final implementation dates.
- Spread-out compliance dates are beneficial for adequate policy, procedure, testing, and education.
- Conclusion
- Investment advisors anticipate challenges with upcoming SEC regulations.
- Focus on preparation, policy alignment, and compliance education to manage complexities.