2022’s Regulatory Roundup highlights how the SEC and FINRA cracked down on a record number of regulatory violations. And what can regulated industries expect and prepare for 2023?
2022 SEC Record-Breaking Enforcement
The SEC’s enforcement results, announced on November 15, 2022, were record-breaking in terms of both the number of enforcements issued and the size of fines assessed. The agency announced the following figures:
- 6.5% Increased total number of enforcement actions
- 20% Increase in litigation against broker-dealers in 2022
- 9% Increase in deals for investment advisors and investment companies
The SEC has assessed fines of more than $4.194 billion for fiscal 2022. This is a 200% increase from the previous year.
SEC enforcement expected in two key areas
The 2022 SEC enforcement actions were significant, targeted high-profile defendants, and imposed severe penalties. While collecting a record number of fines this year, the SEC also made an assessment: Maximum Fines for Audit Firms. In 2023 we expect additional enforcement in two key areas: Admissions and Individuals.
Admission
The SEC has requested numerous approvals and actions in 2022. For example, her $1.235 billion fine, paid by 16 companies or broker-dealers, is broad and lengthy for storing and maintaining work-related text message communications sent by employees’ personal emails. There was suspicion of failure. device. The SEC is also seeking admissions of wrongdoing in several cases involving high-profile companies.
Individual
Personal accountability is a pillar of the SEC’s and FINRA’s enforcement programs. In 2022, more than two-thirds of the SEC’s sole enforcement actions involved at least one defendant or defendants. These individuals included senior executives of publicly traded companies and senior officials in the financial industry. FINRA found that about 261 of the 342 actions taken in 2022, or about 76% of the actions, were violated by individuals.
FINRA Midyear Executive Review
FINRA’s enforcement actions this year have been less aggressive. His FINRA, which analyzed data from January to September 2022, resulted in 342 enforcement cases. This is about 15% less than the previous year.
The number for 2022 is 456, a lower number than is usually estimated. The number of infected people in 2022 could exceed 456.
In total, FINRA has assessed approximately $30 million in fines from this year to date. In 2021, this figure will bring him to $77 million, down about 60.5% year-over-year. Also, the estimated fines collected in 2022 are $40.5 million for him, down more than 50% from his $91 million in 2021.
FINRA TRENDS – TOP CATEGORIES FOR BOOKS AND RECORDS
Books and records were the top category of FINRA enforcement cases based on total fines through September. FINRA filed one major lawsuit over the books and records problem where he could not hold billions of records in WORM (write once, read many) format.
The flaw affected up to 36 different applications, including those related to accounts payable and receivable, fingerprint records, customer account records, general ledgers and trial balances, order and trade tickets, trade confirmations, and wire transfer instructions.
SEC Sweep Letter
The SEC continues to conduct additional sweeps on many of the same issues, including out-of-channel communications, unsanctioned devices, inadequate training, and lack of supervision and record keeping. For those of you who have not yet received these sweep letters, here is the information the SEC would like to know.
- Policies and Procedures: The SEC requests information about policies and procedures related to communication devices and platforms, including bring your own device (BYOD).
- Responsible: Also, ask the company to identify the responsible person(s) to oversee these policies and procedures. This includes who is helping enforce these policies and procedures, who is helping with compliance, etc.
- Administrative documents: Companies must provide documentation related to monitoring, testing and review
- Certification: They require access to documentation proving that employees are complying with these policies and procedures.
- Compliance training: SEC requests documentation on compliance-related training and reminders
- Violation document: Finally, we require documentation identifying the violation and the disciplinary action taken by the company.
- Self-reported: SEC warns broker-dealers and investment advisors to review policies and procedures and self-report violations
2023 Enforcement Forecast
There are four main predictions for enforcement action in 2023.
1. Off-channel communication
Regulators are not just looking at global financial services organizations, they are also looking at smaller companies. Lawsuits against large companies have received a lot of attention due to their high fines, but smaller companies and individuals are also being sanctioned. In the past year, off-channel communications have played a key role in many cases, and it’s clear that banning policies alone are not enough.
2. Regulatory Best Interests (Reg BI)
Preparing to strengthen Reg BI enforcement from the SEC and FINRA in the next year. The SEC’s first enforcement action marks the beginning of Reg BI enforcement, and FINRA filed its first Reg BI case this past October. In the future, the SEC and FINRA will introduce a broader set of new types of enforcement actions and consider reasonably available alternatives.
3. Disclosure and Conflicts
Over the past few years, there have been dozens of cases dealing with the receipt and disclosure of 12b-1 fees. You can also expect the SEC and FINRA to file other types of lawsuits that companies have had conflicts with but haven’t properly addressed.
4. Environmental, Social and Governance (ESG)
The SEC has increased its scrutiny of statements made about ESG issues. For example, the SEC sued the company for failures related to its policies and procedures regarding two mutual funds and one separately managed account strategy that were offered as ESG investments.
Stay up to date for 2023
The regulatory environment is changing and enforcement actions are becoming more stringent. Below is what every business should maintain.
- Stay up to date on our policies to address new rules and regulations
- Regular testing and auditing to ensure policy compliance
- Examine the effectiveness of technology for addressing data volume and diversity
DELTA Data Protection & Compliance, Inc. Academy & Consulting – The DELTA NEWS – info@delta-data-compliance.com
