During the webinar A Compliance Officer’s Crystal Ball – One Practitioner’s Predictions for 2021, Compliance Expert Mark A. Egert joined me for his take on what will be the most important compliance concerns of the upcoming year.
Mark also answered some excellent questions during the presentation, and there were a few more that we couldn’t get to because of time. I wanted to take a moment and recap of few of the questions and answers.
During the webinar, Mark provided an overview of the top areas of compliance concern for the year ahead, including:
- Impact of Covid-19 on Compliance Programs and Controls
- Technology Challenges Including Robo-Advisors, Crypto Assets, Digital Payments and More
- Cybersecurity, Privacy and Data Protection
- Evolving Standards of Care for Broker-Dealers and Investment Advisors
- Regulatory Examination and Enforcement Priorities
Did you miss the webinar? You can view the replay including all of the questions Mark answered here. The Q&A session after the presentation addressed some pressing concerns in the industry.
When will there be changes to the branch inspection rule to eliminate the need for inspection at certain low-risk locations?
In light of the COVID-19 pandemic FINRA proposed Temporary Amendments to FINRA Rules, including Rule 3110 on supervision of in-branch office inspections, to provide firms with the option to conduct remote exams.
It's still too logistically challenging to do these exams in person. And there's a bunch of technology developments, including what we’re doing right now on this webinar, dial-in video conferencing, and other technology surveillance that means we don't necessarily need on-site exams. So they proposed a rule change, that the SEC has blessed, to give firms the option to conduct your 2020 exams remotely up to March 31st, 2021, and to conduct your 2021 exams remotely up to up to March 31st, 2022.
How can a compliance department with no budget, resources or staff stay ahead of the curve?
I'm going to assume that's coming from a small firm and a CCO who wears multiple hats. It’s been an ongoing SEC issue that they look towards the big firms as their models. They expect that the large-firm model will cascade down to medium and small sized firms, and it just doesn't always work the same way. I do think that the SEC has done a better job recently in reaching out to small firms to understand the impact that a proposed rule would have on a small firm. And the SEC has often said that they don't expect a small firm to have all the technology, resources and expertise that a large firm has—but that doesn’t mean that you get a free ride. They're going to compare you to firms of comparable size, complexity of business model and clientele.
So how do you stay ahead? I'd say it's doing things like we're doing right now. Attend free webinars, get on mailing lists, follow subject matter experts, join groups like the LinkedIn Chief Compliance Officer Forum and be active on social media. Those are all low cost, easy ways to get involved.
I also participate in a lot of industry committees and working groups, because feel like I get a lot of benefit in both hearing what other firms are doing and having the regulators tell us directly what they see around the corner to know what’s coming up next.
What are your thoughts on Robo Advisers?
Robo Advisers are automated investment services that rely on algorithms that require little human intervention to make investment decisions. If they meet the definition of "investment advisor" under the '40 Act, they generally must register with the SEC the same as traditional advisors.
Regulatory concerns include suitability. How can investment objectives be determined with no actual contact other than an online questionnaire? Also, can Robo Advisors handle severe market downturns?
My prediction is that the 200 or so Robo Advisors already launched will double in 2021. Clients have shown that they like the low cost, low minimum balances and interactive tools offered.
Which CCO concerns keep you up at night?
One of the biggest and most pressing concerns for me is the increasing velocity of change. Part of this is "scope creep" and expectations for Compliance involvement in areas outside our comfort zone.
Part of it is how best to leverage technology that, itself, seems to keep evolving at a rapid pace. Part of it is knowing what we know, but not what else is out there that we haven't yet detected.
And part of it is simply keeping up with business changes, regulatory developments, the day-to-day matters and fire drills.
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