Welcome back to the Compliance In Context podcast! On today’s show, we discuss the FINRA Forward initiative and review some of the recent FINRA rulemaking activity in areas like outside business activities, personal securities transactions, gifts and gratuities, and performance advertising. In our Headlines section, the DOL reinstates the prior fiduciary standard under ERISA and Senator Warren Questions SEC Chair on alleged political interference in enforcement, and finally, we close up today with another installment of Outtakes, where a recent lawsuit filed by a former client against an RIA raises important considerations around appropriate disclosures and applicable standards of care.

Show

Headlines

• The U.S. Department of Labor (“DOL”) restored its prior five-part test for determining “fiduciary” status under the Employee Retirement Income Security Act (“ERISA”)
• Senate Banking Committee Member Elizabeth Warren pressed SEC Chair Paul Atkins to address allegations of political interference in enforcement matters before the agency

Interview with Ed Wegener

• What is FINRA Forward?
• What does FINRA hope to achieve with the FINRA Forward Initiatives?
• What have we seen to-date?
• What are the potential benefits?
• What are some potential challenges?
• What are the key changes in proposed Rule 3290?
• What are the key changes for Rule 3220 related to Gifts and Gratuities?
• What are the key changes Proposed for Advertising (Performance)?

Outtakes

• SEC-registered investment advisor allegedly assured a client that a $10 million bond investment was “guaranteed” before the underlying project collapsed entirely

Quotes

10:55 – “It’s clear that things don’t stay the same. Things change. The way we do business, technology, all of that changes, and it’s important for the rules to keep up with that. As well as show regulators enforce those rules. And so, from time to time, it’s really important to take a look and say, ‘What’s changed?’ and ‘Do we need to realign the rules with those changes?” – Ed Wegener

22:00 – “What you’re going to see is not just much more efficient regulators, which is always good, but more effective regulators. And so it’s important for firms to keep up because what you don’t want is regulators coming in with all this information and data and things that you don’t know about.” – Ed Wegener

22:37 – “There’s an opportunity for a great partnership there, between compliance departments and regulators, and this could be a really good way to do that. And the other thing, too, is all of these things are great. It only takes one big scandal to happen for things to just snap back into a much more reactive mode. So that’s one of the things the industry’s got to keep their eye on the ball, just make sure we’re keeping things in check, because we want to continue the momentum of all these changes and don’t want to have to take a step back.” – Ed Wegener

26:44 – “Probably the most important change in the proposal is that it would only apply to investment-related outside activities. So non-investment-related outside activities (such as being employed at a ride share company or working in a retai...

Welcome back to the Compliance In Context podcast! On today’s show, we will be diving into the SEC Enforcement Manual, and more specifically, to some of the recent amendments that were made and what it tells us about the state of SEC Enforcement right now. To help guide us through the conversation, we are very pleased to welcome in Brian Rubin and Ellen Connell. In our Headlines section, SEC and CFTC begin to clarify application of federal securities laws to cryptocurrency, and finally, we close up today with another installment of Outtakes, where we try to help spread the word about an active phishing campaign targeting FINRA and SEC-registered financial services firms and advisers and how to make sure to avoid getting caught flat-footed.

Show

Headlines

• SEC and CFTC jointly issued an interpretive release regarding the application of federal securities laws and federal commodities laws to certain crypto assets and transactions

Interview with Brian Rubin and Ellen Connell

• What is the SEC Enforcement Manual and what is its purpose?
• The SEC recently announced a broad set of revisions to its Enforcement Manual. At a high level, what was the rationale for the update and what does it tell us about the current state of the Division of Enforcement?
• What is the new process for obtaining cooperation credit?
• What are some of other factors the SEC weighs when determining whether to apply cooperation credit?
• Were there any other noteworthy changes to the manual that firms and individuals should be aware of as they are going through an investigation?
• The staff indicated greater access to the investigative file, evaluating whether providing access would help the recipient respond meaningfully and help both sides assess the strength of the evidence. Does this really mean greater access to the file? Are we talking full open jacket?
• Overall, what is your reaction to the SEC Enforcement Manual updates?
• What is the longest lasting impact?
• Regardless of the increase or decrease in numbers, where do you expect most of the enforcement cases to come from—exams or elsewhere?
• Keeping in mind the new changes to the SEC Enforcement Manual, do you think firms should take a harder look at self-reporting?

Outtakes

• Active phishing campaign targeting FINRA and SEC-registered financial services firms and advisers

Quotes

11:20 – “So the enforcement manual is basically an internal playbook guiding the staff on how to conduct investigations and recommend enforcement actions. When I was there, and I don’t know if this is still the case, it was in a red plastic binder, and we referred to it as the Red Book. It’s to help ensure fairness and consistency, and transparency for the process. And it covers everything from opening investigation to collecting evidence, engaging with companies and individuals, the Wells process, negotiations, cooperation, as we’ll talk about.” – Brian Rubin

13:11 – “This is the first set of updates since 2017, so it’s been quite a while. And the then SEC enforcement director (who just as we’re recording, announced her resignation just yesterday)she was quoted, Judge Margaret Ryan, in the press release explaining the relevance, saying that these updates to the enforcement manual are intended to ensure greater uniformity, to reflect the division’s best practices, to improve the staff’s ability to carry out the SEC’s mission of work on behalf of investors.” – E...

Welcome back to the Compliance In Context podcast! On today’s show, we will be taking an in-depth look at two of the hottest areas in the investment management space, namely—tokenization and crypto. To help guide us through the conversation, we are very pleased to welcome in two fantastic experts in the space, Louis Froelich and Fizza Khan. In our Headlines section, the SEC is taking a hard look at an electronic delivery rule and the SEC Enforcement Director share details on the Divisions current enforcement approach, and finally, we close up today with another installment of History Has Your Back, where some old quotes from a Stoic philosopher might just give us the push we need to navigate the regulatory filing season.

Show

Headlines

• SEC Working on Off-Channel Communications, E-Delivery Rules
• SEC Enforcement Director Ryan Details Back-to-Basics Approach

Interview with Fizza Khan and Louis Froelich

• What is tokenization?
• How is it different from crypto?
• What are some examples of things people are tokenizing?
• What is the hope with tokenization and also importantly what does tokenization not do?
• Who can actually invest in tokens?
• How does tokenization impact compliance?
• Is this a threat to compliance?
• How does AI impact tokenization?
• How does the SEC view this type of innovation?
• What is one of the biggest things that folks listening to this podcast should keep in mind regarding tokenization?

History Has Your Back

• Using the wisdom of Stoic philosopher Seneca to help compliance officers survive the regulatory filing season

Quotes

09:26 – “I think a good way to start to think about tokenization is to focus on what it does, not what it is, right? Tokenization is itself a very technical process. Just like sending an email to someone else is actually very technical, how that all works, right? But everyone knows what it’s like to send and receive an email. Tokenization is not unlike sending and receiving email for digital assets, and digital assets here are legally, and that’s the goal tied to something in the real world. So you can create a tokenized version of something, which is really a digital version of something. It could be a cup, it could be a tape roller…And it could be, or it could be something like a stock, right? You create something that could be transacted digitally. And, as long as we’re going to talk about this today, as long as you take the proper steps, when you create the digital version of it, then what you get is a legally enforceable, standardized version of the thing that can be more easily transferred.” – Louis Froelich

11:55 – “I think the biggest differentiator between crypto and tokenization is crypto is this catch-all term. It’s a catch-all term to define digitalized or digitized assets. And it’s also a catch-all term that these assets, these digital assets, are then transacted on a blockchain. So that in and of itself is something that we can use kind of synonymously when referring to digital assets. I think that’s kind of like the nomenclature people are just reverting back to is saying crypto. And more importantly, I think crypto is, interestingly, the systems on which you transact. So I mentioned the blockchain, but they, you know, everything’s governed by a code as, as what Louis had alluded to with the tokenization process, and it’s all on this blockchain network. Tokenization is...