The Securities Compliance Podcast: Compliance In Context

Welcome back to the Compliance In Context podcast! On today’s show, we welcome in Ranah Esmaili and Louis Froelich to help us review the current state of crypto and digital assets, the impact of a new administration, how firms operating in this space should be thinking about custody, and what the SEC Enforcement Division is focused on as it relates to this embattled asset class. In our Headlines section, President-elect Donald Trump has named his choice to run the Securities and Exchange Commission, and finally, we’ll wrap up today’s show with another installment of Outtakes, where we examine what a recent SEC complaint against the chief investment officer of a large investment advisory firm can teach us about the importance of trade allocation and avoiding instances of cherry picking in the delivery of advisory services.   Show Headlines President-elect nominates former SEC Commissioner Paul Atkins to lead SEC   Interview with Ranah Esmaili and Louis Froelich What is the current state of crypto? What is the impact of a new administration on the SEC broadly? What is the impact on crypto, specifically? What baseline SEC rules should registrants still keep in mind? In the digital asset/crypto space, what is the current state of enforcement? What will the SEC continue to investigate (no matter the change in administration)? Do you think cases against platforms for being unregistered BDs will go away? What about custody? What is the current state of the Custody Rule proposal? What are SEC examination teams focused on when conducting examinations in the crypto/digital asset space? Are there any specific cases currently in litigation that you’re paying attention to and why? Using your crystal ball, what do you see changing in the crypto/digital asset space in 2025?   Outtakes The SEC recently sued a former CIO for allegedly orchestrating a “cherry picking scheme” allocating better performing trades to certain favored portfolios, and worse performing trades to other portfolios   Quotes 10:24 – “You know, I think [crypto] is here to stay. I also think that even in a decade from now, people maybe asking the same question. Let’s dive into where we’re at right now. Crypto is everything that you’ve said. It’s a wildly volatile asset class considered its own asset class right now. Most people still don’t really understand what the stuff does. As you know, if their businesses start to invest with it or trade with it, you know, kind of where to begin.” ~ Louis Froelich 11:50 – “The crypto lobby is a very real thing. It was one of the largest spenders in the last campaign. And so when sometimes people look at the headlines of the results or why is crypto such a thing, I don’t think it’s a coincidence, right? I think there’s a lot of people that made a lot of money in the space, had vested interests, have worked very hard and deliberately to kind of have the election results that we have and have crypto, kind of, part of the national conversation.” ~ Louis Froelich 17:42 – “So I expect we’re going to continue to see crypto asset offering fr...

Welcome back to the Compliance In Context podcast! On today’s show, we look at the evolution of compliance through the lens of the NSCP, analyzing key growth milestones, identifying new resources and building for the future, and reviewing what’s up next for the organization in 2024. In our Headlines section, we review recent decisions from the Supreme Court in the Loper Bright case and the long-term impact federal agencies’ rulemaking interpretations. And finally, we’ll wrap up today’s show with another installment of Outtakes, where a recent SEC Enforcement action provides us significant insight and also raises more questions regarding the SEC’s stance on cybersecurity controls.   Show Headlines Reviewing the Loper Bright case and the long-term impact federal agencies’ rulemaking interpretations   Interview with Lisa Crossley and Melissa Loner Background and history on the founding of the NSCP How did compliance evolve within the NSCP and what disciplines were added? How is the NSCP building for the future of compliance?  Reviewing recent resource and staff additions Discussing expanded member offerings and volunteer opportunities How is the NSCP Planning for the future of compliance? New and exciting developments for the 2024 NSCP National Conference   Outtakes SEC charges global provider of business communications and marketing services for internal control and accounting failures charges relating to cybersecurity incidents and alerts in late 2021.   Quotes 22:58 – “I think the community is what runs deep through NSCP and what makes it so special. I mean, I have wonderful friends that I’ve met through NSCP. I’ve had job opportunities that with the help of members of NSCP, it is a very strong community. There’s so many ways to be involved, whether, you know, whether it’s very micro to being on NSCP’s board. So that’s something that Melissa will talk about in terms of volunteer development. But I can speak from my own experience that I felt that, you know, immediately there was a group of members who just were there to help me along the I introduced me to other people got me involved, like whether it was speaking or being on a committee, just being able to have those connections is so important, similar to having your social connections. So that’s something that I’ve always tried very hard to make sure that we maintain and we would maintain those opportunities in various work for our members ~ Lisa Crossley 30:50 – “You look at how the NSCP has evolved over the last couple of years with adding podcasts, adding more virtual sessions, right? We still hear about COVID and how people had to switch up from that and get more creative. We’re sort of in that realm again. We’ve also talked about that with the compliance officer of the future, right? How many of us back in the day thought that we would need to know so much about cybersecurity or any of that type of technology? We have AI, right? That’s a huge initiative all over. So just looking at how we continue to evolve in the subject matter, because the compliance professional of the past is not going to be the compliance professional of the future, right? And so looking at AI, I know that is also a big initiative of Lisa’s is to see not just how we can offer continued resources and AI to our members, but how do we encompass and integrate AI into the National Society of Compliance Professi...

Welcome back to the Compliance In Context podcast! On today’s show, we review an incredibly important topic for all SEC-registered broker-dealers and investment advisers, namely third-party due diligence of service providers—what situations require it, regulatory considerations, and what are the basic building blocks for establishing a successful due diligence program inside your firm. In our Headlines section, we review the recent SEC rulemaking amending Regulation S-P. And finally, we’ll wrap up today’s show with another installment of History Has Your Back, where an old quote from an ancient stoic might just help you make the best of a bad situation when things in your compliance program don’t go exactly as planned.   Show Headlines   SEC adopts rule amendments to Regulation S-P to enhance protection of customer information   Interview with Kevin Gleason   Reviewing the importance of third-party due diligence in the investment management space What are the basic building blocks of a successful third-party due diligence program? What key elements of service provider agreements should be reviewed? What risk factors should be considered when building your due diligence program? What are some of the common situations requiring third-party due diligence and what regulatory considerations should be examined? How can firms make sure to avoid regulatory enforcement in this area? When designing your firm’s due diligence program, what key considerations can help support proper supervision and ongoing monitoring? Are there other business units outside of compliance that should be involved in the process? Establishing a frequency of review that works with your firm’s compliance program Understanding the value of third-party due diligence and how to navigate challenges in the process Reviewing practical takeaways and lessons learned   History Has Your Back   Examining a famous quote from the Stoic philosopher Epictetus and what it can teach us about dealing with the pressures of compliance   Quotes 17:20 – “Does the level of scrutiny need to be the same for, you know, someone that, you know, provides you maybe some training and content for your employees as it does for someone who, you know, maybe executes trades or who, you know, performs sort of risk analytics, maybe a fact set or someone or, you know, right? You know, I'm not here to say it does or doesn't, but to be able to do all of those people and provide the same sort of level of rigor, I think, is rather would be rather difficult for firms.” – Kevin Gleason   25:43 – “I mean, that is sort of the next step, I think, in the process, which is working on developing a questionnaire. With regards to sub-advisors, at least in my mind, right, they provide a similar service. It may be in regard to different asset types or asset classes. It may be taking different risks but really, they manage assets on behalf of your clients or on behalf of a fund or account. Where, I think, it’s more challenging is, now you have lots of other service providers outside of that same sort of function, in terms of a sub-advisor. You have...

Welcome back to the Compliance In Context podcast! On today’s show, we review one of the most important topics impacting broker-dealers this year, namely the issue of remote supervision and how to address the new Residential Supervisory Location Designation and the Remote Inspections Pilot Program. In our Headlines section, we review the recent Supreme Court decision impacting 10b-5 disclosures and a recent FinCEN report tracking new information and trends surrounding elder financial exploitation. And finally, we’ll wrap up today’s show with another installment of Outtakes, where we look at the recent risk alert from the Division of Examinations focusing on new SEC Marketing Rule violations. Headlines Supreme Court decision impacting 10b-5 disclosures FinCEN Issues Analysis on Elder Financial Exploitation Show Interview with Ben Marzouk and Andrew Mount Reviewing the history of remote work and related compliance monitoring and supervision What does FINRA consider an office? What are the implications of how that’s defined? How FINRA is managing remote work in general? What is Regulatory Notice 24-02? Discussing the impact of FINRA Rule 3110.19 (Residential Supervisory Location) and FINRA Rule 3110.18 (Remote Inspections Pilot Program) What are the practical applications of these new rules? How do you see the issue or remote work evolving throughout the course 2024? Outtakes SEC Risk Alert: Initial Observations Regarding Advisers Act Marketing Rule Compliance Quotes 14:50 – “People soon realized that no one was really going back to the way things used to be five days a week in a set physical office location. To some extent, people were going to continue to work from home for some period of time, even at the pandemic subsided. So with that in mind, FINRA reminded firms that, ‘hey, if you’re going to continue to allow people to operate their home and do brokerage business from their homes, you’re going to need to supervise that location.’ And that supervision would mean inspection on some regular set schedule. It would also mean, and we can get into it later, thinking about your membership agreement.” – Ben Marzouk 20:13 – “If an associated person works two days a week from home and three days from the office, FINRA’s staff has said that that would mean towards being a regularly working at home arrangement, and you’d have to count that residential location and as a person. office. I would say that that’s not to say that just because someone’s one day at home and four days in the office during the week you don’t need to count the one day at home, you need to look at the locations where your associated persons work on a routine and predictable schedule with a firm’s knowledge and some sort of formalized arrangement and, you know, make that determination. by case basis. It’s a really a facts and circumstances analysis. You know, that FINRA, as staff has said recently, at least, that of locations that you use on an ad hoc basis, so I’m thinking locations where you work from the office five days a week, but you stay at home on Friday because you have a contractor coming or your kids are coming.” – Ben Marzouk 28:10 – “The one area where FINRA’s managemen...

Welcome back to the Compliance In Context podcast! On today’s show, we feature a Lessons From The Front Lines episode with renowned retirement plan fiduciary expert, Mr. Fred Reish, to help us through another groundbreaking DOL Fiduciary Rule and unpacking where and how it will affect investment adviser and broker-dealer firms across the country. This is an episode you won’t want to miss!   Show Interview with Fred Reish Reviewing the evolving standards of care (Reg BI, RIA, DOL, NAIC) How have disclosures evolved to comply with the differentiated standards of care? What does the new DOL Fiduciary Rule say and what’s changing? Who is going to be impacted by the changes to this new rule? What are the impartial conduct standards? Are there disclosures and other exemptions out there to help mitigate the conflicts noted in the new rule and how can firms comply with them? What triggers an investment recommendation under the new rule? Is there a wholesaler exception? What is the compliance date for the new rule? What kinds of information does an individual need to review in order to effectively perform a comparative analysis between for an IRA recommendation?   Quotes 7:54 – “If you look at both of those, I think Reg BI for broker dealers is actually a tougher standard. I know that’s going to surprise some investment advisers to hear, that but, and part of that’s because the interpretation for investment advisors is really principles, truly principles-based. And, you know, the SEC said the duty of care and the duty of loyalty for investment advisors together is a best-interest standard of care, but very principles-based. If you get into Reg BI, the standard of care is principles-based, but then there are a bunch of rules-based parts to Reg BI, so for no other reason other than just the volume of rules alone under Reg BI make it a more complicated and more demanding set of requirements.” – Fred Reish 21:32 – “Number one, the advisor has to satisfy the impartial conduct standards. Well, what are impartial conduct standards? That's a label from the Department of Labor. It has meaning, though. You have to act with a duty of care, sort of thing of a fiduciary duty, and a duty of loyalty. Similarly, a fiduciary duty. You can't put your interest ahead of the investors. No more than reasonable compensation relative to the services provided, no materially misleading statements. There is a group of things like that that are called the impartial conduct standards.” – Fred Reish

Welcome back to the Compliance In Context podcast! On today’s show, I am thrilled to welcome back to the show, Mr. Rob Tull, who talks us through what’s in the complete toolkit every CCO needs to build an effective compliance program. In our Headlines section, we review recent comments from the SEC’s Enforcement Division responding to criticisms from the crypto industry. And finally, we’ll wrap up today’s show with another installment of Outtakes, we look at the first-of-its-kind enforcement action against investment advisers for misleading statements about their use of artificial intelligence.   Show Headlines SEC Division of Enforcement Director Gurbir S. Grewal responded to criticisms by the crypto industry challenging the agency’s authority and motivations regarding the treatment of cryptoassets.   Interview with Rob Tull What’s the complete CCO toolkit needed to build an effective compliance program? What skills help make a great CCO? Simple steps CCOs can take to improve detection of issues How can you enhance your ability to communicate and process information? What can I do to help ensure my firm empowers me in my role as CCO? What are some best practices to maximize the resources I have available? How understanding the firm’s strategic plan can significantly help your compliance program and your role as CCO.   Final Segment – Outtakes SEC settled charges against two investment advisers for making false and misleading statements about their use of artificial intelligence in a first-of-its-kind enforcement action   Quotes 11:58 – “So if I had to stack these things in priority, the first thing is, do I know the rules? Am I knowledgeable? So is a compliance officer knowledgeable? That’s kind of, it’s rough. There are layers to that. The first thing is, do you know the regs that apply to your business? And that’s where, you know, that’s where there’s a ton of content from NSCP, from law firms, from consulting firms—like, we get that, we get the knowledge. But then there’s two layers on top of that. Then there’s also, do you know the industry you’re in? Like, it’s one thing to know the rules, but do you know what’s going on in the industry? What’s happening for investment managers and broker-dealers in aggregate? And then what’s happening in your business? Like you need to know your business. And that’s kind of like the foundation, like that knowledge piece.” – Rob Tull 20:29 – “The beauty about empowerment is we tend to think, once I’m the named CCO, I am, by default, empowered. That’s the way we tend to get because the rules are title-focused, we get title-focused. But what we forget is that title has nothing to do other than who gets to wear the target. What it really talks to in our ability to be empowered is our ability to demonstrate–it’s how well we demonstrate our competence and our knowledge. And it’s not an ivory tower task. It is a ‘what do you bring to the business as a value-add, to take compliance from a checklist to make it something that is additive to the business. And that is the most important thing. And it’s not just–and this is beyond the concept of profitability, beyond that concept–it is how do you make the organization better top to bottom.” – Rob Tull

Welcome back to the Compliance In Context podcast! On today’s show, we have with us two very special guests in the investment management space, Karen Barr from the Investment Adviser Association and Lisa Crossley from the National Society of Compliance Professionals, to discuss the current state of the Investment Adviser industry, what new regulations impacting investment advisers are on the horizon for 2024, and other priorities both organizations are focusing on in 2024. In our Headlines section, we look at a new FinCEN proposal to include “investment adviser” in the definition of “financial institution” under the Bank Secrecy Act (“BSA”) and a new FAQ for registered investment advisers relating to the SEC Marketing Rule. And finally, we’ll wrap up today’s show with another installment of History Has Your Back, where we revisit a famous quote from a tennis legend provides us some inspirational words heading into a busy regulatory filing season.   Show Headlines FinCEN proposed to include “investment adviser” in the definition of “financial institution” under the Bank Secrecy Act (“BSA”) SEC”) issued an updated FAQ for investment advisers relating to SEC Rule 206(4)-1 (the “Marketing Rule”), and the reporting of gross and net performance within advertisements   Interview with Karen Barr and Lisa Crossley General overview of the IAA and the NSCP What is the state of the investment adviser industry? What were some of the key metrics from the Investment Adviser Industry Snapshot 2023? What are some of the current policy initiatives coming out of the SEC and where do these proposals stand now? What are some of the sleeper policy initiatives you anticipate hearing about in 2024? What are 2024 organizational initiatives for the NSCP? What are 2024 organizational initiatives for the IAA?   Final Segment – History Has Your Back Understanding what Billie Jean King meant when she said “Pressure is a Privilege” and what it can teach all compliance officers heading into a busy 2024   Quotes 11:18 - “I think one of the things that I heard in both of your quick responses there and thinking about both organizations that I personally love, being someone who’s obviously very involved in the space, is this idea of community. With the IAA, it is the community of those that are providing services in that trade. On the NSCP side, it’s those that are kind of practicing the specific trade inside of the firms doing compliance. You build these fantastic communities that really help lift each other up in a lot of different ways.” – Patrick Hayes  23:52 - “It’s very important to let folks know that they need to advocate on this issue. And I just want to say we appreciate that advocacy. It’s your advocacy that inherently helps NSCP members, especially on that issue and so I just wanted to add one thing that we did a little bit differently than this year. It was always–When I was a CCO, I never understood why there was an educational bridge between the SEC and the compliance professionals. And I was fortunate this year to get the ear of Marshall Gandy, who is the Associate Director of the Division of Examinations and to discuss that, and I said ‘How about if your staff came to our conference to sort of get an inside look...

Welcome back to the Compliance in Context Podcast! On today’s show, we welcome in David Scalzetti, Senior Director of Regulatory Products and Strategy at ICE, as part one of a two-part program looking at the impact of data on compliance. In the first part of our interview, David will look at how data can support your firm’s compliance program in any number of areas including portfolio management, liquidity, valuation, fund reporting. In our Headlines section, we look at Commissioner Uyeda’s second term and a recent challenge from SIFMA regarding the Department of Labor’s new “Retirement Security Rule” proposal. And finally, we’ll wrap up today’s show with another installment of What’s On My Mind, where we look at an interesting characteristic of the American bison and what it can teach us about the upcoming busy season for compliance officers.   Show Headlines Mark T. Uyeda was recently sworn in for his second term as SEC Commissioner SIFMA comment letter requesting DOL to withdraw “Retirement Security Rule” proposal   Interview with David Scalzetti How has the topic of valuation continued to evolve in the compliance space and how can data be used with valuation to enhance a firm’s compliance program? What are the compliance obligations associated with SEC Rule 2a-5 of the Investment Company Act? How can data support compliance with good faith determinations of fair value in compliance with 2a-5? How can data support compliance with valuation methodologies across investment strategies? Best practices when thinking about and establishing a valuation process The impact of data on liquidity and portfolio management Establishing a liquidity risk management program in compliance with SEC Rule 22e-4 under the Investment Company Act How can firms use data on liquidity to manage through volatile markets? How can portfolio management and liquidity data be used to substantiate compliance with the SEC Marketing Rule?   What’s On My Mind Understanding the American bison and how it faces adversity   Quotes 11:28 – “We’ve been a major consumer of underlying input data and analytics information. So collecting bids, and quotes, and tree data, and other information that is very useful to understanding the valuation. Historically, most clients just want the answer key. Like, you know, ‘I don’t care what the inputs are, just tell me what your good faith estimate of that fair value price is.’ But as we’ve evolved over time as an industry and the regulators have evolved, you’ve seen more and more requests from the regulators to better understand what went into that valuation and how they get comfortable using a particular valuation. When, in a lot of cases, the underlying input data could lead to a range of good faith estimates. So what we’ve noticed and what we’ve been focusing on is repurposing a lot of that input data into metadata that is useful for whether it’s an IPV team or a compliance officer or someone in regulation or reporting to better understand how that evaluation works.” – David Scalzetti 20:17 – “So backtesting is a huge piece…Being as large of a provider as we are and [with the] number of clients we have, we get a lot of challenges on our price, and more often than not the challenges are a function of being concerned about a particular valuation, but just getting some trigger ev...

Welcome back to the Compliance in Context Podcast! On today’s show, we welcome in Brian Rubin to discuss the current state of CCO liability and revisit the NSCP Firm and CCO Liability Framework and review its impact on the investment management industry nearly two years after its original publication. In our Headlines section, we look at recent data collected on the growth of the accredited investor population and review the SEC’s denial of a Coinbase petition for digital asset rulemaking. And finally, we’ll wrap up today’s show with another installment of What’s On My Mind, where we review how a recent Supreme Court hearing could signal the end of SEC administrative proceedings as we know it.   Show Headlines Review of the accredited investor definition SEC denial of Coinbase petition   Interview with Brian Rubin When does the Commission typically bring enforcement actions against compliance personnel? Are compliance officers on the front line? Are compliance officers responsible for implementing and executing policies and procedures? Do compliance officers need to become experts of everything? What is a wholesale failure? Did Grewal cite any examples of CCOs being charged for purely compliance-related failures? Are there other instructive examples of CCO liability cases? What was the SEC’s approach to determining CCO liability in the Hamilton case? How could the SEC have applied the NSCP Framework in the Hamilton case? How do you see the issue of CCO liability evolving in the future?   What’s On My Mind US Supreme Court case on SEC could have wide impact on agency enforcement.   Quotes 11:42 – “I would tend, I think, to slightly take a different perspective than Mr. Grewal and agree with you that I think traditionally, the way most of the time I think about compliance, it's not that it's the front-line supervision. I do think that compliance, just in as much as they are another person at the firm who should engage in practice compliance. Compliance as a functional area inside a firm may have dedicated professionals that live within it, but everybody at the firm should practice compliance.” – Patrick Hayes  22:54 – “So, unfortunately, I don't think the phrase wholesale failure helps anybody. a...

Welcome back to the Compliance in Context Podcast! On today’s show, we feature a Lessons From The Front Lines episode we welcome back to the show a very special guest, namely SEC Division of Examinations Senior Counsel Christopher Mulligan to review how the Division of Exams is approaching the SEC Marketing Rule one year after the compliance date, best practices the SEC has seen firms implement, and some of the challenges or issues examiners have seen firms dealing with as it relates to the Marketing Rule.   Show Interview with Christopher Mulligan How is the Division of Examinations approaching the new SEC Marketing Rule one year after the compliance date? What are some of the best practices you’ve seen successful firms implement into their compliance programs? How can firms best substantiate the statements and claims they make in their marketing? What are some of the challenges you’ve seen firms struggle with during examinations of the new Marketing Rule? What are some of the issues you’re seeing with regard to testimonials and endorsements? What are some of the issues you’re seeing with regard to performance marketing? How can firms avoid the traps associated with marketing templates and stale information? How do you see SEC examinations continuing to evolve in the marketing and advertising space?   Quotes 09:11 – “So in exams, what we have tried to do is train our staff and be as prepared as possible. We know registrants are doing that, right? So we want to work as hard as they are in terms of understanding the new rule and being able to analyze the compliance with it. But we also want to communicate as clearly as possible what we're looking for and what we're analyzing to help registrants who are trying their best to comply with the new rule to understand how, what we're going to be looking for so they can spend the time to be prepared.” – Christopher Mulligan 21:17 – “We've also seen examples of policies that just weren't tailored. And this is where off the shelf can be very dangerous. So policies and procedures that either reference activities that they don't do and have no intention of doing or worse, they don't address testimonials or endorsements even in their engaged in those activities. Or they share on top in the policy procedure, they're still talking about the Cash Solicitation Rule, and they haven't been replaced with the endorsement and testimonial section.” – Christopher Mulligan 31:03 – “I don't want to be scary, but we have seen deficiencies across most of the elements of the new marketing rule, while also seeing great work. So I hope that this is balanced and that this is motivation to make sure you don't have any of these issues, but also for those advisors that are, that have done a great job, to keep up.” – Christopher Mulligan 32:15 – “People will put together templates or have a stable of pre-approved materials and stuff like that. That's great. That's a good thing that you can have pre-approved materials, but the one thing you've got to be conscious of and one of the things you talked about is don't just let it sit there and get stale and grow moss on it over time. You've got to go back and look at that because sometimes some of the services that are provided in that pre-approved template or those other types of offerings, those persons may no longer be at the firm.” – Patrick Hayes

Welcome back to the Compliance in Context Podcast! on today’s show, we do a deep dive on the recent rule proposal from the SEC on predictive data analytics technologies and some of the significant compliance challenges associated with that rule proposal and the push back we’ve seen from the industry. In our Headlines section, and in record-breaking time this year, we’ll review the 2024 SEC Examination Priorities pushed out by the Division of Examinations. And finally, we’ll wrap up today’s show with another installment of History Has Your Back, where a famous story involving the renowned anthropologist Margaret Mead gives us a little insight into the mark of where civilization begins, and perhaps a little insight into the mark of a good compliance program.   Show  Headlines The SEC Division of Examinations releases its 2024 Examination Priorities. Interview with Dalia Blass What does the SEC rule proposal say? What are some of the issues or challenges with the rule proposal and what are some of the key issues involved? What “covered technologies” are included in the rule proposal? What constitutes an “investor interaction”? How is conflict of interest defined in the rule proposal? What does “neutralization” of a conflict really mean? How does the definition in the rule proposal reconcile with the standards of conduct used by the Commission in other contexts? Does the proposal contemplate the impact to other rule proposals? Does the proposal provide details regarding the cost of complying with the rules as proposed? For those firms using predictive data analytics, does the proposal discuss who should be conducting the relevant assessments and testing or supervising this activity? Have there been any additional developments since the rule was proposed and what can firms do now? History Has Your Back Developing an appreciation for the mark of civilization and how to approach issues inside your firm’s compliance program.   Quotes 09:19 - “It actually tracks some of these statements that we had heard from Chair Gensler. He has spoken previously several times about the use of technology by broker-dealers and investment advisors, and the potential for conflict to be embedded in the use of that technology when it comes to interactions with investors. So what this rule proposal does–the target of this rule proposal is to look at the conflicts of interest that could be associated with the use of predictive data analytics and find ways to make sure that these conflicts are being addressed by the brokers or the advisors. So that, you know, at its core, it is about understanding the conflicts and managing these conflicts with respect to these technologies.” - Dalia Blass   20:08 - “It's really important to, first of all, appreciate the power of technology in our space and what it has delivered to the American main street investor, American investor in general.” - Dalia Blass    22:52 - “So yes, there could be issues, but let's understand what the issues are (and if they're addressed) and do a cost benefit. Because the last thing we want is something that, frankly, would raise the cost so much, would be so onerous, would be so complex that, you know, it will not enable, you know, smaller broker dealers and advisors to compete and also become a significant barrier to entry for anybody wanting to come into this space.” - Dalia Blass    39:11 - “Every rule, Patrick, regardless of how fantastically written it is, will...

Welcome back to the Compliance in Context Podcast! on today’s show, we take a look at one of the most-talked about subjects over the last twelve months, namely artificial intelligence, and expert Marc Gilman will help us further examine the benefits and impact of AI on your firm’s compliance program. In our Headlines section, we’ll review the recent final rule from the SEC detailing new requirements on private fund advisers. And finally, we’ll wrap up today’s show with another installment of History Has Your Back, where an ancient Japanese artistic practice and related philosophy can perhaps teach us a new way on how to deal with the private fund rulemaking.   Show Headlines The SEC adopted significant new regulation of private fund advisers under the Advisers Act, as well as other requirements that apply to all SEC-registered investment advisers   Interview with Marc Gilman How has your AI experience evolved over the course of your career? The shifts of information management and how to think about information management wholistically? How do firms that are using AI approach compliance? How does AI find a different way to capture relevant compliance information? What are the benefits of AI on the firm’s compliance program? In addition to compliance, what are some of the benefits to the business side as well? What advice would you would give compliance officers out there that may have heard of AI, but don’t quite know what to make of it or how to use it in their compliance programs? Can compliance use machine-learning to help identify items for testing? What are some of the other practical uses for AI when it comes to testing or other key areas like cybersecurity?   History Has Your Back Understanding how the ancient Japanese artistic practice known as kintsugi and the Japanese philosophy of wabi-sabi can give us perspective on the new SEC private fund rules   Quotes 13:48 - “I think that's a really great, great way to frame it. There's really been a maturation in that space from, you know, kind of thinking about information in kind of silos, whether that's in business units or in, you know, structured versus unstructured types of data. And I think what organizations have realized over time is they really need a holistic approach to that data. Obviously, at Theta Lake we're very concerned with kind of communications data and how that maps into that fabric.” - Marc Gilman  21:12 - “So just yesterday, big SEC and CFTC announcements of $555 million fines adds to the $2 billion that's already been refined by them. So it is a very critical area of compliance focus right now. And I think the recent enforcement actions often get labeled as the WhatsApp fines, just because that was one of the platforms that the regulators had mentioned in some of the earlier enforcements. But I think the way that I look at them is really more as like the capture fines, right? Because pursuant to SEC rule 17a4, those communications related to your business as such, it doesn't matter what platform they're taking place on, if they are relevant to your business, you're going to have to capture them.” - Marc Gilman  32:11 - “The value of having really good compliance where compliance is so often and wall gets this to other other functionalities get this too, but you know, you're seen as a cost center solely, right? But in some areas like this one than the ones that you're describing, that's such a perfect example of how having a really great compliance program and building it out in the right...

Welcome back to the Compliance in Context Podcast! On today’s show, we dive back into the Cryptocurrency conversation with one of our favorite FinTech experts, Chuck Senatore, to discuss the current state of cryptocurrency in the financial markets and how certain timeless principles could be helpful for the future of this asset class. In our Headlines section, we review a recent rule proposal from the SEC regarding the use of predicative data analytic technologies. And finally, we’ll wrap up today’s show with another installment of What’s On My Mind, where following up on Chuck’s interview, we review the recent decision in the Ripple case and its future impact on the investment management industry.   Show Headlines The SEC proposed a rulemaking that would require broker-dealers and investment advisers to eliminate conflicts of interest associated with the use of predicative data analytic (“PDA”) technologies   Interview with Chuck Senatore How would you describe the current state of cryptocurrency in our financial markets? The merits of certain coins and why some question their necessity What is the concept of “Timeless Principles” in the investment management space? What challenges does the SEC have in this space? What additional regulatory uncertainty currently exists? Have any solutions been proposed by the industry? How do you see the state of cryptocurrency evolving in the near future?   What’s On My Mind Reviewing the impact of the Ripple decision   Quotes 10:25 – “There's been a lot of bumpiness, growing pains, some actors that were less than responsible, which are part of where we are now in terms of what would it mean in terms of how we can get to a place where the responsible parties are able to step in and be in a position to where these lessons that are being learned painfully can actually be a foundation of future growth.” – Chuck Senatore 13:07 – “So I guess the question about whether we need the coins, I guess my answer would be maybe a little bit facile. But at the end of the day, I think that to make a decision about whether these things are needed would really be unfair to the innovation process. And if when we think about a lot of other things, I mean, let's say like there are government-based payment protocols, Fedwire, there's a bunch of things that are involved with that. But there are other payment use cases that have evolved. And the marketplace is deciding whether they have value. I mean PayPal, there's a bunch of as an example of sort of like a non-government based payment system and there are tons of others. And the good part about this is that these new offerings, these other offerings are actually promoting better outcomes and I think we should let things play out and let's see how things work out in terms of whether something is desirable, something is making sense or not.” – Chuck Senatore 15:55 – “When I think about timeless principles, it really is a function of how a player in the marketplace, regardless of whatever the laws might be, there's an element of business ethics, there's an element of what I again, or some of these timeless principles are actually highly grounded in things I think that are an element of common sense in the human experience.” – Chuck Senatore

Welcome back to the Compliance in Context Podcast! On today’s show, we take a comprehensive look at the ever-important topic of valuation, why it’s such a key topic for firms and regulators, and the role that compliance can play in the process. In our Headlines section, we review a recent risk alert from the Division of Exams on the New Marketing Rule. And finally, we’ll wrap up today’s show with another installment of Outtakes, where a recent enforcement action and settlement highlights the importance of valuation and having the right policies and procedures in place.   Show Headlines SEC Division of Examinations issued a Risk Alert discussing the new Marketing Rule   Interview with Tracy Abbott and Ted McCutcheon What is valuation? Why is valuation such a key issue in the investment management space? What are some best practices that firms can use in this space? How does the role of compliance fit into valuation? What should and shouldn’t be included in the CCO’s purview? What is the impact of bad data on valuation? How can firms build proper governance around valuation? The importance of making sure employees understand the rules around valuation   Outtakes SEC settlement with investment fund to resolve claims that the fund failed to adopt and implement necessary written policies and procedures related to the valuation of fund portfolio investments. Having the right process and policies and procedures in place can be just as important as avoiding violative conduct   Quotes 12:09 - “To get a little more specific, the improper valuation or valuation impacts directly the calculation of fees—what investors pay for the services. Valuation impacts performance advertising and reporting, which is a huge selling point for advisors. You know, valuation impacts the funds share sale price. Misvaluation or valuation problems…can result in private or regulatory liability for fraud, negligence, breach of fiduciary duty.” – Ted McCutcheon 14:14 – “The first thing you need to look at is, what kind of assets does your firm trade in, right? So is it level one assets, which is just stocks and bonds? Is it level two assets, which are difficult to valuate but there are still pricing services? Or are they level three assets which are entirely illiquid and very difficult to process? So, I think, from a risk-based approach, it’s really important to just dig right in. First, what is your firm’s business?” – Tracy Abbott 24:40 – “It really is absolutely critical. Even though, sometimes if your policies and procedures are too specific, you’re a little bit limited so it is really difficult to juggle. It really is a balancing act. Especially with some of those level three assets and illiquidity.” – Tracy Abbott

Welcome back to the Compliance in Context Podcast! On today’s show, we do a double-feature Lessons From The Front Lines episode on the SEC Cybersecurity Rule Proposal (Rule 206(4)-9) with an esteemed panel of experts from ACA Aponix and Fairview Cyber, including Carlo di Florio, Christine Tetherly-Lewis, Mike Pappacena, and Amber Allen. Given the increased focus from the SEC and the fact that many elements of the rule proposal represent challenges already facing SEC-registered firms, this is an episode you won’t want to miss!!    Show Interview with Carlo di Florio (Co-Host), Christine Tetherly-Lewis (ACA Aponix), and Mike Pappacena (ACA Aponix) and Amber Allen (Fairview Cyber) Historical look at the SEC’s focus on Cybersecurity Formalization of cybersecurity protocols and Rule Proposal 206(4)-9 Overview of the Cybersecurity Risk Management Rules and Amendments for Registered Investment Advisers and Funds What is Rule 10, how does it relate to 206(4)-9, and what are some of the key differences and similarities? When has a cybersecurity incident occurred? How can firms provide proper oversight and staffing of its cybersecurity program? What are the incident disclosure periods for 206(4)-9 and Rule 10 When does a firm actually “know” an incident has occurred that requires reporting to the SEC or disclosure to its clients? How does Cybersecurity Rule Proposal reconcile with Rule 206(4)-11 and the rule proposal on outsourced service providers? What are the components of the Cybersecurity Rule Proposal and what is the impact of each? When it comes to potential adoption, what are some major challenges that firms face with regard to these rule proposals?   Quotes 10:14 – “You really see the growth and focus by the SEC and FINRA and other regulators starting in 2010 and forward timeframe. You mention a number of risk alerts there and I would observe that the exam division has published more risk alerts, special reports, exam priorities specifically focused on cyber than any other subject. And the same thing at FINRA with some really excellent reports.” – Carlo di Florio 12:20 – “So under the proposed rule 206(4)-9, the SEC has set forth this proposal that would require advisors to adopt specific and fairly prescriptive requirements to address cybersecurity at a firm level. It would require comprehensive programs to address things like cybersecurity risk assessments which would be conducted annually and potentially more frequently depending on changes in firm risks and also even just industry risks.” – Amber Allen 31:44 – “You don’t know what you don’t know is sort of a cliché when it comes to cyber, but making sure that you have appropriate tools in place that can help you detect an incident or a potential incident. I think that what firm’s need to do with respect to understanding if there is a significant incident is really—when they look at their incident response plans and how they receive alerts, notifications, and monitoring—is really set some guidelines and some boundaries around what that all means.” – Mike Pappacena 33:28 – “I think it’s really critical for firms to have thorough monitoring programs in place so they can keep an eye on potential breaches. And under the proposed rule, the SEC did note that firms should be reporting once they have a reasonable basis for concluding that an incident is occurring or has occurred. And it’s interesting that it also noted specifically that, that does not mean that they know that the incident has occurred.” – Amber Allen 35:24 – “Testing of all of these practices is really, really important. The best way...

Welcome back to the Compliance in Context Podcast! On today’s show, we do a deep dive on the 2023 Report on FINRA’s Examination and Risk Monitoring Program and the role of the Membership Application Program as part of FINRA’s larger governance structure. In our Headlines section, we review recent testimony from Chair Gensler before the House Financial Services Committee and a new Risk Alert from the SEC Division of Examinations identifying compliance deficiencies of newly registered investment advisers. And finally, we’ll wrap up today’s show with another installment of What’s On My Mind, we honor Mr. Irrelevant from last year’s NFL draft and the insight it can tell us about the role of compliance inside our respective firms. Show   Headlines SEC Chair Gensler Testifies before House Financial Services Committee highlighting regulatory initiatives on equity markets and private funds, artificial intelligence and predictive data analytics, crypto assets, and climate change disclosure. SEC Division of Examinations Risk Alert identifies compliance deficiencies of newly registered investment advisers.   Interview with Ed Wegener and Lisa Robinson Reviewing the 2023 Report on FINRA’s Examination and Risk Monitoring Program What is rationale behind the new “Financial Crimes” section What stood out to from the Related Considerations in “Cyber” and where do you see the FINRA staff focusing in on during examinations? What’s the impact of SEC rulemaking on the “Cyber” area and what can firms do now? Where is FINRA staff focusing in the AML space? Why do you think FINRA called out “Manipulative Trading” specifically? What are successful firms doing to help mitigate the risk related to off-channel business communications? What are some key questions you could expect from FINRA staff conducting an examination in the area of Trusted Contacts? How is FINRA conducting exams on Reg BI? How are firms that use mobile apps having to enhance their policies and procedures in sales and marketing and what are some best practices you’ve seen from successful firms in this area? What is the purpose of the MAP and how has this group evolved over time? Lessons learned during the transition from regulator to industry   What’s On My Mind Brock Purdy as Mr. Irrelevant from the 2022 NFL Draft Compliance as the unsung hero   Quotes 13:55 - “There is a significant focus on firms’ controls over access to sensitive information. So they’re going to be reviewing policies, procedures, and controls with respect to how firms manage and control access to sensitive information. So that’s both the initial determination of who would have access to what but then also making sure that there’s periodic regular reviews with respect to who has access to what, to make sure that it continues to be current and appropriate.” - Ed Wegener 17:34 - “You know one of the things about cyber security is not only does it have a regulatory component (you need to make sure you have controls in place to have a good, compliant program), but also there’s a tremendous amount of reputational damage that can happen if there’s some sort of breech or if you’re involved in some sort of imposter website or something like that.” - Ed Wegener 29:05 - “What we find for firms that has been successful is havi...

Welcome back to the Compliance in Context Podcast! On today’s show, we take an in-depth look at the SEC’s new Custody rule proposal and the impact of these new requirements on investment advisers, broker-dealers, and custodians. In our Headlines section, we examine the new Cybersecurity rule proposal (also known as Rule 10) and the new proposed amendments to Reg S-P. And finally, we’ll wrap up today’s show with another installment of History Has Your Back, where in honor of Women’s History month, we look at a legendary Greek physician who helps show us how women have been breaking down barriers across the centuries.   Show  Headlines SEC Proposes New Cybersecurity Requirements SEC Proposes Amendments to Reg S-P SEC Proposes Expanded Application of Reg SCI   Interview with Issa Hanna and Genna Garver History and background of the Custody Rule and recent developments What are the specifics of the rulemaking? Review of the scope of assets covered under the rule proposal How are real estate assets treated? What is the scope of activities covered? What is the impact on managers that have discretionary authority? Review of the written agreement and attestation requirements What is the real cost of compliance here? What does this rule tell us from a policy perspective about the focus of the SEC in this area?   History Has Your Back The legend of the Greek physician Agnodice Celebrating women in the investment management space   Quotes 17:20 – “I think one of the major things that they’re doing here as a part of this rule–or this rule proposal–is to bring the guidance that’s been scattered all over the place, within the text of the rule. So everyone knows where to find everything. It’s all accessible. That is something that everybody should welcome, right? Regulators should make the rules and make the guidance as accessible to everyone as possible.” – Issa Hanna 44:21 – “I just think that there is this misconception that the assets we’re talking about have to be the assets that they’re providing investment advice on. And it’s much broader than that, even under the current rule, so I think that’s something to look out for.” – Genna Garver

Welcome back to the Compliance in Context Podcast! On today’s show, we do a deep dive into the wellspring of legal and compliance issues surrounding the topic of ESG, including an analysis of all the recent rulemaking in this space and what the practical application of these rules could mean for firms and their respective compliance programs. In our Headlines section, we examine the SEC examination priorities for 2023, and finally, we’ll wrap up today’s show with another installment of What’s On My Mind, where an old subway incident can teach us about seeing the extraordinary in the everyday and showing a little appreciation for our compliance officer family.   Show  Headlines 2023 Examination Priorities from the SEC Division of Examinations   Interview with Sara Donaldson and Adam Aderton Introduction to ESG What is the recent impact of ESG on the broader markets? What is the rule proposal regarding Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices? What is the Names Rule proposal discussing rule changes to prevent misleading or deceptive fund names? What are the final amendments to Form N-PX and additional proxy voting disclosures? What does the active rulemaking in this space tell us about the state of the SEC broadly? What are we seeing from the SEC in the ESG enforcement space? In applying ESG, how are issues getting visibility, disclosures being drafted, and policies and procedures being written and tested?   What’s On My Mind Joshua Bell plays violin in the DC Metro subway Finding the extraordinary in the everyday   Quotes 16:34 – “Even if you don’t consider yourself an ESG manager, but you’ve told investors that you consider ESG factors in making investment decisions (perhaps from a financial materiality standpoint), these rules could affect you and scope you in to being an integrational fund manager, depending on how the final rule is adopted.” - Adam Aderton 41: 58 – “Yes, it is helpful because it makes a clearer roadmap in terms of what we need to do and the data needed and the expectations that the SCC has. I think it is onerous, but on the other hand, because it is so detailed, you can just get tripped up on not following one step or not doing a step that you said you were going to do cause it’s in your compliance policy. So it’s a balance, and I can respect the SCC trying to take care of the investors. But on the other hand, it’s putting a lot of work and risk on the investment advisors that are running and managing those firms.” - Sara Donaldson    

Welcome back to the Compliance in Context Podcast! Today’s show is a historic one as we officially launch Season 4!!  To help us celebrate such a momentous occasion, we welcome in Ranah Esmaili to do a deep dive on recent trends in the SEC examination space and kickoff the next iteration of our Lessons From The Front Lines series.  An SEC alum herself, Ranah shares some invaluable insights in many critical areas affecting a firm’s compliance program including disclosures, cybersecurity and information security, off-channel business communications, private funds, mutual funds, the new Marketing Rule, and much more.    Show Interview with Ranah Esmaili What are some of the general examination practices you’re seeing right now? What are some of the key areas where you’re seeing this play out in examinations today?  In the areas of cyber and information security, where do you see exam teams focusing their efforts? Is the SEC focusing on the issue of off channel communications during examinations and what are they looking at? How can firms enhance their electronic communications policies, procedures and practices in anticipation for an exam? What is the focus in examinations in the private fund space? What is the focus in examinations in the mutual fund space? Now that the compliance date for the new Marketing Rule has passed, what’s the SEC doing on the exam front? What are some things firms can be doing post-Compliance date to ensure good marketing rule hygiene? Tips for firms that looking to prepare for exams   Quotes 10:07 - “We’re talking about environmental, social and government investing, so ESG. The SEC has been scrutinizing ESG investing out of a concern for green washing. And that term ‘green washing’ is basically the practice of making investments look more E, S, and G friendly than they really might be.”- Ranah Esmaili  13:00 - “Compliance failures alone can really carry serious consequences. So when the SEC is focused on ESG compliance, policies, and procedures, that’s really not just an academic exercise. It can carry really serious consequences.”- Ranah Esmaili  24:04 - “Firms can send out periodic compliance reminders, just so that the issue is always at the top of employees’ minds. They can conduct training. They can require employees to certify compliance with the firm’s policies and procedures. And they can conduct electronic surveillance, looking for indicators of unauthorized communications. To the extent that the firms are identifying employee violations of their [recordkeeping] policies, they should have a thoughtful approach for dealing with those violations, particularly where they find employees that have repeat violations.” - Ranah Esmaili 

Welcome back to the Compliance In Context podcast! Today’s show features two very special guests in the investment management space, Karen Barr from the Investment Adviser Association and Lisa Crossley from the National Society of Compliance Professionals, to talk to us about what’s happening in the investment adviser space, discuss the rich history of both organizations and more recent DE&I efforts, in the industry and what has helped these women become the fantastic leaders they are today. In our Headlines section, we examine the recent criminal indictment of FTX founder Samuel Bankman-Fried and some recent comments from Commissioner Peirce on ESG. And finally, we’ll wrap up today’s show with another installment of History Has Your Back, where we examine an old Navajo tradition that might help us polish the experiences over the last year and provide us with some perspective as we look toward 2023.   Show Headlines DOJ, SEC and CFTC Charge FTX and Founder with Fraud (criminal indictment, SEC Complaint, CFTC Complaint) SEC Commissioner Peirce Criticizes SEC's Climate Disclosure Proposal   Interview with Karen Barr and Lisa Crossley What is the mission and purpose of the IAA? What is the mission and purpose of the NSCP? Discuss the state of the registered investment adviser industry and the Investment Adviser Industry Snapshot 2022 Review key metrics from the survey and how the investment adviser industry has grown significantly over the past few years Given some of these trends, how do you see the investment adviser industry evolving in the future? Review the impact and focus of DEI initiatives within each organization and within the industry How did you get to the position you’re in now? What is some advice you would give to other women in our industry looking to take on leadership roles within their own organizations?   Final Segment – History Has Your Back Examining the old Navajo tradition of polishing turquoise and how it can impact the way we view our past experiences and lead us toward a brighter tomorrow   Quotes 11:00 - “The Investment Advisor Association is the leading association, advancing the interests of fiduciary investment advisory firms. And I do say ‘firms’ because we’re a trade administration. Our members represent the broader universe, both asset managers and RIAs, and they range in size from some of the largest asset managers in the world to the smaller five- and ten-person shop that really make up the core of our industry, and everything–everything–in between.” – Karen Barr 15:58 - “The mission of NSCP is to create a diverse professional community for compliance, by compliance. And I’m often asked, ‘What does that motto for compliance by compliance mean?’ NSCP is a 501C6 organization. It’s a membership organization versus the IAA, which is a trade organization…The ‘For compliance, by compliance’ comes from the fact that [the NSCP] is offering resources to compliance...