2018 Investment Adviser Compliance Conference – Discussions with the SEC

The Core Compliance team recently returned from the IAA National Conference, which took place in Washington, DC, on March 15 & 16.


We had the pleasure of attending two packed days full of discussions, which were kicked off by an engaging discussion between Karen Barr, President & CEO of IAA, and the Honorable Hester M. Peirce, Commissioner. Commissioner Peirce was a captivating speaker, discussing new rules and focus areas coming up for investment advisers and broker-dealers alike.

When asked what she viewed as the three biggest challenges for the SEC, she said:

1: Cybersecurity

It has been and continues to be an increasingly important focus for the SEC, both for registrants and for the agency itself. At the breakneck pace that technology is moving, it’s essential to be aware of what data is being collected, why, and the associated risks posed.

2: Initial coin offerings, cryptocurrency, and everything involved with that technology

It’s increasingly important for the SEC to understand and embrace these bleeding-edge technologies, and determine how they fit into the existing legal framework. Commissioner Peirce emphasized the need to balance new technology with regulations, allowing for growth without stifling it entirely through stringent regulations. She acknowledged the difficulty the SEC has faced in seeming approachable over concerns with technology and spoke on the efforts the agency has been making to improve in that area.

3: Returning to the “bread and butter” of what the agency does

A lot of routine examinations, rulemaking, and reviewing of the less exciting areas of regulation have been passed over to allow for a focus on the pressing needs. She wrapped up her discussion of the SEC’s challenges by saying the agency would be returning some focus to the “unglamorous” topics in the regulatory space.

Roundtable with the SEC Directors

After that, the directors of SEC Examinations along with Enforcement had an engaging and insightful discussion on the way the departments work together, as well as how they view their interactions with registrants.

Above all, the Directors emphasized the level of collaboration and coordination between the two departments, allowing for an “iterative approach” to the examination process. Peter Driscoll, Director of the Office of Compliance Inspections and Examinations (“OCIE”), mentioned that his referral rate was decreasing in the number of exams he is referring to enforcement.

That being said, it was brought up that many firms are seeing the enforcement division accompanying the examination teams, and the panel was asked why that happens. Stephanie Avakian, Co-Director of the Division of Enforcement, said the reason for this was, almost always, that the enforcement division learns more about “what’s really going on for firms” by being present for examinations.

The panel repeatedly emphasized the increase in integration between the divisions, allowing for both sides to be more informed.

Several minutes were spent discussing the Kokesh[1] case, and the implications of that ruling on how quickly the SEC is bringing cases to court. Gail Bernstein, the General Counsel for IAA, acting as moderator, asked pointed questions on how Kokesh impacted and continues to impact the SEC’s process for examinations and enforcement. The bottom line was that Kokesh hasn’t impacted the average instance of an enforcement action being brought, but for those who have a long period of fraud going on, the Kokesh ruling means that they’re heavily focusing on processing those cases much faster to ensure maximum disgorgement.

A particularly hot topic was the concept of Robo-advisers and how the SEC is viewing them, especially as technology is growing and a larger demographic of investors are turning to Robo-advisers to manage their accounts. Director Driscoll described the way he viewed the Robo-adviser risk as two distinct categories:

  • Tech companies getting into a regulated space for the first time
  • Large, established firms that have been in the regulated space for a long time

He sees them as distinct and separate, as the tech companies have often been operating in areas that haven’t been heavily regulated, and are significantly more prone to mistakes and violations. Often, tech companies have the most issues with advertising, primarily because they often don’t know what they don’t know.

Contrasting is the large, established firms, where a Robo-adviser is often just a new business line, and as such, follows the rules and regulations pretty much as a matter of course. They’re used to the disclosures they need to provide and Director Driscoll viewed them as much less of a risk.

Did you attend the conference, or are these topics particularly relevant for your firm? Talk to the team here at Core Compliance? for help – click the button below to request time with our team.

[1] https://www.supremecourt.gov/opinions/16pdf/16-529_i426.pdf

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