2020 Compliance Round-Up: The Top 10 Regulatory Headlines for Investment Advisers This Year

WHAT HAPPENED?

Amid the unique changes and challenges 2020 has brought, there has been plenty of regulatory news from the U.S. Securities and Exchange Commission and the Office of Compliance Inspections and Examinations (OCIE) in the headlines. From the adoption of Form CRS to Chairman Jay Clayton’s departure from the SEC, the events from this year will continue to affect investment advisers well into 2021 and beyond.

Here are ten of the most crucial regulatory updates from the year that could have a lasting impact on your firm:

  1. Regulatory focus on cybersecurity: The SEC and OCIE have continued to focus resources on evaluating cybersecurity and mitigating and cyber threats among market participants. With new risks arising from firms conducting business remotely this year, the SEC further increased its oversight of firms’ cybersecurity and risk management practices.
  2. Environmental, Social, and Governance (ESG) compliance: Focus on ESG compliance continues to grow as socially-responsible investment products rise in popularity among firms and investors. In 2019, the SEC began sending letters to firms advertising the use of ESG strategies, in part, to determine how these investments are being identified. To close compliance gaps in this area, ESG disclosure rules are anticipated to be proposed by the SEC in the coming months or years.
  3. Form CRS and Regulation Best Interest (Reg BI): With the adoption of Form CRS and Reg BI this year, the SEC took steps to evaluate early compliance with the new provisions. For Form CRS, examiners have looked at whether firms working with retail clients have complied with initial delivery requirements and whether filings contain all the necessary information. Firms subject to Reg BI have been examined to measure adherence to disclosure obligations and conflict of interest concerns, for example.
  4. Exams of private fund advisers: Over a third of SEC-registered investment advisers manage private funds – and regulators increased exam activity of this group in 2020. Common compliance issues identified among these advisers were in the areas of conflicts of interest, fees and expenses, and handling of material non-public information and code of ethics policies and procedures.
  5. Updated Accredited Investor definition: The SEC updated the accredited investor definition this year, making way for a wider group of market participants to invest in private placements. Newly accredited investors now include individuals with certain certifications and credentials, certain business entities with more than $5 million in business assets, and spousal equivalents, who may now pool their finances to qualify as “high net worth”.
  6. Fund of funds rules: Rules governing increasingly popular fund of funds arrangements were modernized this year. The new framework includes recension of previous fund of funds rules, limits to voting and control, and changes to Form N-CEN.
  7. Branch office concerns: New focus was placed on compliance deficiencies associated with branch offices. Common inadequacies observed by OCIE often dealt with policies and procedures issues or poor personnel oversight. Note: many of these observations can be applied to work conducted from home or remotely, even for advisers without branch locations.
  8. Compliance program deficiencies: OCIE published its observations of common weaknesses among adviser compliance programs. Many of the violations were the result of lack of CCO authority, stale or weak policies and procedures, and poor communication and inadequate compliance resources among internal stakeholders at firms.
  9. Amendments to advertising and solicitation rules: While a vote on proposed amendments to the longawaited advertisement and solicitation rules was on the table for the SEC’s Dec. 16 meeting, a last-minute change of plans removed the item from the agenda. Currently, there is little information on when the vote will be rescheduled, but it could be held as soon as Dec. 21, 2020.
  10. Change in SEC leadership: Chairman of the SEC, Jay Clayton, will complete his tenure as head of the commission at the end of 2020. At this time, a replacement for Clayton has not been identified by the incoming Biden administration.

WHAT DOES THIS MEAN FOR ME?

Fairview will continue to update you with essential regulatory news and information. If you have questions about regulatory events from 2020 that could affect your firm, our team of seasoned compliance experts is ready to assist you with your compliance program. Contact us today for more information.

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Fairview®
Founded in 2005 with the goal of developing streamlined solutions for investment advisers, Fairview® is now servicing investment advisers, foundations, and funds with nearly $300 billion in collective assets.