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In Case You Missed It: Broker-Dealer Regulation & Litigation Digest – Winter 2023

The Broker-Dealer Regulation & Litigation Digest is a periodic compilation of the most read blog posts published on the Broker-Dealer Law Blog during the last few months. Here you can catch up on what you missed or re-read these popular posts.

The DOL’s New Fiduciary Rule: What We Can Expect

By Fred Reish and Joan M. Neri
The current Department of Labor fiduciary rule says that a broker-dealer and its registered representatives (advisors) are fiduciaries to a plan under ERISA if a functional five-part test is satisfied. This same five-part test applies to determining whether an advisor is a fiduciary to an IRA under the Internal Revenue Code.

You Might Want to Write Down Why You Recommended That Rollover

By Sandra D. Grannum, Jamie L. Helman and Emmanuel Brown
The Division of Examinations of the Securities and Exchange Commissions (the Division) has been busy implementing examinations of broker-dealers to assess compliance with the regulation. The Division is planning to include Reg BI compliance into future examinations of broker-dealers. Therefore, the Division issued a Risk Alert on January 30, 2023, calling attention to deficiencies found during broker-dealer compliance examinations, as well as certain inadequate practices that might lead to deficiencies. Broker-dealers should pay attention to the issues identified by the SEC so that they do not expose themselves to regulatory trouble later down the line.

Managing IRAs: Charging Different Fees for Different Investments

By Fred Reish and Joan M. Neri
Registered investment advisers, including dual registrant broker-dealers, who provide discretionary investment management services to individual retirement accounts (IRAs), are fiduciaries under the Internal Revenue Code (the Code). While the Code does not have a fiduciary standard of care, it does have a duty of loyalty in the sense that most conflicts of interest are prohibited.

SIFMA C&L March 2023 Annual Conference – A Focus on Crypto

The 2023 Securities Industry and Financial Markets Association’s (SIFMA) Compliance & Legal Annual Seminar, as usual, was well attended by compliance and legal professionals, including FINRA executives and SEC directors. The three-day event held, where outside San Diego skies were overcast and grey, also coincided with the run on SVB, and gloomy forecasts for Signature Bank and First Republic. Inside, industry leaders, and regulators discussed legal trends on the horizon. Not surprisingly there was a focus on crypto at this year’s conference. While Reg BI, ESG, off-channel communications, cybersecurity and the foreboding banking issues (among others) were also hot topics being discussed by industry insiders, here we focus on crypto. Below are some key takeaways.

Expect More SEC Enforcement Actions with a Focus on Crypto

SEC Director Gurbir Grewal noted the Commission’s general intent to focus on enforcement actions and swiftly bringing those actions to resolution as a way to rebuild public trust in the markets, financial institutions and the Agencies. He also urged firms to self-report and stressed the need for robust compliance programs, especially as new rules and regulations continue to be issued. He took time to speak about crypto investments and noted that traditional firms generally “do not and cannot” participate in this space due to the lack of compliance and clear rules around these investments. He also noted that the SEC is doubling the size of its Crypto Assets and Cyber Unit in order to focus on crypto’s harm to investors; indeed the SEC has already brought more than 100 enforcement actions related to crypto. A fact which is reflected on the “SEC Crypto Assets and Cyber Enforcement Actions” website.

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