Change is the Theme at SIFMA Compliance & Law 2023

A consistent theme across sessions at the 2023 SIFMA Compliance and Law Annual Seminar was change. Change is constant in the financial services industry. And when you're dealing with constant change, there’s no time for complacency

The Seminar debrief prepared by SIFMA Insights highlights common perspectives and key themes from the compliance and legal professionals who spoke on session panels and attended the show. 

Speakers noted that firms must be constantly learning and adapting to keep up with the rapidly changing environment. When faced with change, firms must also make sure that their culture keeps up and that core values are maintained. Firm culture should create an environment of doing the right thing for employees, clients, the firm and the industry. To achieve this, firms should focus on

•  Hiring people with the right skills for the right roles and providing training and professional development
• Technology to help staff in doing their job, enhance skills and encourage collaboration
• Processes that help staff use technology in an optimal and compliant way

The Regulatory Environment Tops List of Attendee Concerns

A pre-conference survey found that the top two member-identified compliance and legal priorities for the year were the regulatory environment and compliance/supervision.

Speaking of change, the current pace of change in the regulatory environment is unprecedented. The number of regulations in the U.S. and across the globe creates many challenges for firms. This includes resource – budget, staffing – challenges when regulations come into place this fast. Panelists recommended maintaining flexibility and having a clear risk escalation path for highlighting emerging risks.

- SIFMA Insight's 2023 Compliance and Law Seminar Debrief

The laundry list of concerns about the regulatory environment noted from attendees in the debrief include:

• The SEC’s aggressive agenda and enforcement practices
• Regulation by enforcement
• Rapidly changing regulatory landscape/activity/processes
• Being abreast of and implementing regulatory change
• Budget and resources to match the expanding regulatory environment
• Horizon scanning for regulatory updates
• Ongoing education to sales
• Regulation change management
• Reporting obligations and recordkeeping requirements.

Priorities around Compliance and Supervision include:

• Books and records
• Disclosure management
• Compliance program management
• Technology enhancements
• Mitigating risk when working with third party suppliers
• Risk assessments

Watch the on-demand webinar Books and Records in the Regulatory Spotlight

Digital Assets and Emerging Technologies Remain in the Forefront

When polled during a panel, 100% of respondents replied the industry needs more regulatory clarity around digital assets. Crypto was also identified as a continuing area of potential risk. 

During the one-on-one conversation that kicked off the conference, Gurbir S. Grewal, Director, Division of Enforcement, U.S. Securities and Exchange Commission, pointed out that traditional firms “do not and cannot” play in this space – that securities exchanges do not list digital assets because they are not traditional securities. He also noted that broker-dealers are wary of this space given compliance concerns around it. According to Grewal, until compliance is more fully implemented, it will be difficult for traditional financial service firms to enter the market, even though the interest is there. To keep pace, the SEC is doubling the size of its Crypto Assets and Cyber Unit and has brought over 100 enforcement actions in the area.

Watch the on-demand webinar Behind the Headlines: Crypto and Digital Asset Compliance

Seeking Regulatory Clarity

Another panel polled the audience to assess how comfortable attendees felt about explaining the digital assets regulatory landscape. Almost two-thirds of the audience responded not comfortable at all.

First, panelists noted that not all digital assets are crypto. The SEC has the Howey and Reeves tests to determine if a product is a security and therefore under their purview. SEC Chair Gary Gensler believes all digital assets are securities under this test and Grewal commented during his session that he thinks digital assets are securities as well.

Attendees were reminded not to forget about the CFTC, who regulates and holds anti-fraud jurisdiction over derivatives, which already exist in the digital assets space as well.

Expect Continued Enforcement

SEC Director Grewal said that the role of the SEC is to maintain and enhance public trust. For the SEC, a way they reinforce trust is through robust enforcement and the urgency to act on cases, viewing that large fines do have a deterrent effect. For market participants to enhance public trust, he noted the importance of not just having policies on paper but also implementing them rigorously. Compliance should be updated with training – particularly as new regulations come into play – and instilled in the firm’s culture. He also urged firms to value self-reporting, noting the importance of escalating risk issues up the chain in their firms and to regulators when relevant.