Welcome to the Regulatory Roundup. Each month, Eversheds Sutherland Investment Services attorneys review significant regulatory developments (including notable rulemakings and guidance from securities regulators) from the previous month that are of interest to retail broker-dealer and investment adviser firms.
NYSE Adopts FINRA’s Remote Inspections Pilot Program and Residential Supervisory Location Office Designation
- On October 15, the New York Stock Exchange (NYSE) filed a rule change for immediate effectiveness to harmonize NYSE Rule 3110 (Supervision) with FINRA Rule 3110 (Supervision). The rule change will allow eligible NYSE members to participate in FINRA’s Remote Inspections Pilot Program and adopt FINRA’s Residential Supervisory Location (RSL) office classification.
- In connection with the NYSE’s rule change, FINRA implemented certain Form BR functionality enhancements. FINRA has updated its Frequently Asked Question (FAQ) guidance about the RSL office designation.
The SEC Division of Exams Announces 2025 Priorities
- On October 21, the Securities and Exchange Commission (SEC) Division of Exams (Division) announced their 2025 Examination Priorities (Exam Priorities). The mid-October release of the Exam Priorities follows the schedule started by the Division last year, when it moved the release of its yearly priorities to October (the start of the SEC’s fiscal year), with the objective of providing further transparency to registrants.
- The Division noted a continuing interest in examining broker-dealers and investment advisers on their adherence to their respective standards of conduct. More specifically, and among other things, the Division will focus on products that are “complex, illiquid, or present higher risk to investors,” including “highly leveraged or inverse products, crypto assets, structured products, alternative investments, products that are not registered with the Commission (and are therefore less transparent), products with complex fee structures or return calculations, products based on exotic benchmarks, or products that may represent a growth area for retail investment.”
- Other areas of focus include firms’ (1) practices to prevent interruptions to mission-critical services and to protect investor information, records and assets; (2) compliance with Reg S-ID and Reg S-P, including how firms are preventing account intrusions and safeguarding customer records and information, (3) use of automated investment tools and artificial intelligence, and (4) anti-money laundering procedures.
FINRA Highlights Metaverse’s Impact on the Securities Industry
- On October 24, FINRA published a report about the metaverse, seeking to inform FINRA member firms and the wider securities industry about how advancements in the metaverse could influence business models and operations. The report analyzes potential applications, use cases and challenges for member firms and notes certain regulatory considerations.
- The report notes that a segment of financial institutions, including broker-dealers, are actively experimenting with incorporating the metaverse into various aspects of their operations. More specifically, the report notes that firms are considering using the metaverse for data visualization, virtual trading, investor education, payments, training and collaboration. It also highlights certain challenges, including data privacy and protection and cybersecurity. Finally, the report reminds firms that FINRA’s rules are designed to be technology-neutral and that firms should ensure that their use of the metaverse complies with all regulatory obligations.
- FINRA has requested comment on the report on or before March 14, 2025.
NASAA Releases its 2024 Enforcement Report
- On October 22, the North American Securities Administrators Association (NASAA) released its 2024 Enforcement Report (the Report), which reports on 2023 enforcement data gathered from securities regulators in 49 US states and territories.
- The Report notes that, in 2023, state securities regulators opened 8,768 investigations (up from 8.538 in 2022) and initiated 1,186 enforcement actions (up from 1,163 in 2022), which resulted in $208 million in restitution and $124 million in fines. The most commonly charged violations included (1) the offer or sale of securities and/or investment advice by unlicensed parties, (2) the offer or sale of unregistered securities, and (3) securities fraud.
- With regard to broader market trends, the Report notes that state enforcement activity was heavily tied to technology and digital assets.
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