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

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 contra

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 mak

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

Welcome back to the Compliance in Context Podcast! On today’s show, we welcome back in welcome in David Scalzetti, Senior Director of Regulatory Products and Strategy at ICE, for Part II of a part of a two-part program looking at the impact of data on compliance. In this program, David will focus on how data can dramatically help firms trying to navigate new regulations, especially in areas affecting mutual funds and broker dealers. In our Headlines section, we review two recently adopted rules from the SEC that expand the definition of “broker-dealer” under the SEA. And finally, we’ll wrap up today’s show with another installment of Outtakes, where we review another significant enforcement action relating to text messaging and related messaging applications.   Show Headlines The SEC adopted two new rules under the Securities Exchange Act (Rule 3a5-4 and 3a44-2) to further define the term “as a part of a regular business.” The new rules expand the scope of firms that are required to register as broker-dealers and as government securities broker-dealers.   Interview with David Scalzetti Background on the SEC Names Rule requiring registered investment companies whose names suggest a focus in a particular type of investment to adopt a policy to invest at least 80 percent of the value of their assets in those investments (an “80 percent investment policy”). What specifically do managers of a mutual fund need to do to comply with the Names Rule? What are some of the ways firms can do to better manage the data to ensure compliance with the Names Rule? How can data assist in the portfolio management process to benchmark against how other firms are evaluating their growth, value, or sustainable investment strategies? What are some best practices firms can utilize to comply with the Names Rule or enhance its own internal controls? Background on SEC Rule 15c2-11 (Broker Dealer Quotations over a quotation medium) What can firms do to ensure compliance in difficult areas like fixed income that carry new requirements under SEC Rule 15c2-11? How can data assist in determining which fixed income securities may be eligible for the relief provided in the SEC Staff’s December 16 No-Action Letter?   Outtakes SEC Fines 16 Firms More Than $81 Million for Off-Channel Communications   Quotes 11:24 - “So the names rule dates back to the dot.com era. Really when the SEC was finding some nefarious actors were marketing themselves as technology funds because everyone was getting in on technology. Although, they may not have been investing in true technology funds. So they introduced the requirement to have an 80 percent investment policy requirement for the use of thematic or even industry-specific or even location-specific terms implied in the fund’s name, that at least 80 percent of investments need to align with that. That rule was recently amended to add two things. Explicitly add strategy terms like value and growth which were considered exempt from the 80 percent policy.” – Da

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 o

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 ar

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.&rdq