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.
SEC Chair Urges Greater Transparency in Enforcement Processes
- On October 7, SEC Chairman Paul Atkins delivered a speech in which he emphasized the Wells process as a valid due process mechanism, advocating for transparency, early engagement, and meaningful dialogue between SEC staff and potential respondents. He called for consistent timelines, allowing potential respondents the opportunity to review portions of the SEC staff’s investigative file, and a direct review of Wells submissions by SEC Commissioners.
- Chairman Atkins also announced a return to the policy of evaluating enforcement settlements alongside related waiver requests, reversing the prior administration’s approach. This aims to improve efficiency and clarity for settling parties. Finally, Chairman Atkins cautioned against incentivizing enforcement staff solely for bringing actions, urging a balanced approach that rewards sound judgment, quality work, and appropriate restraint.
SIFMA Calls on SEC to Amend Broker-Dealer and Investment Adviser Recordkeeping Rules
- On October 15, SIFMA sent a letter to the SEC requesting amendments to Exchange Act Rule 17a-4 and Advisers Act Rule 204-2(a)(7) to better address today’s digital communications platforms. In general, SIFMA is proposing that the SEC’s communications retention rules be reformulated to apply in a consistent and easily understood manner to a discrete, defined universe of communications.
- The letter outlined several recommended changes, including eliminating the “business as such” requirement from Rule 17a-4. Additionally, SIFMA proposed excluding categories of communications that offer no investor protection benefits – such as emojis, unsolicited inbound messages, and purely ministerial messages – from recordkeeping obligations. SIFMA also suggested refining requirements for AI-generated content by excluding materials like meeting transcripts and collaborative platform inputs from mandatory retention, aiming to align regulatory obligations with the realities of modern communication and technology use.
Vermont Proposes New Rule Regarding Privacy
- On October 22, Vermont’s Department of Financial Regulation (the Department) proposed adding into Vermont’s Securities Regulations a provision governing the privacy of client financial information held by broker-dealers and state-registered investment advisers. Among other things, the regulation would (1) require broker-dealers and state-registered investment advisers to provide notice to individuals about their privacy policies and practices; (2) describe the conditions under which a broker-dealer and/or state-registered investment adviser could disclose nonpublic personal information about individuals to nonaffiliated third parties; and (3) require broker-dealers and state-registered investment advisers to obtain consumer consent prior to disclosing that nonpublic personal information.
- A hearing will be held on the proposal on December 1, and the Department is accepting public comment through December 8.
FINRA Publishes Blog Post Explaining Its Mission with AI
- On October 28, FINRA President and CEO Robert Cook published a blog post noting that FINRA is working to build “expertise, infrastructure and capabilities in GenAI” to better perform its self-regulatory functions. Cook noted that FINRA is actively incorporating GenAI into its regulatory operations through tools like FILLIP, an internal LLM-based assistant that helps staff with tasks such as document analysis, risk reviews, and investor complaint processing.
- FINRA’s use of AI is supported by an internal AI Governance Committee that oversees the responsible deployment of AI tools, ensuring data privacy and security. FINRA has also invested in staff training, with over 900 employees completing GenAI-focused programs to foster effective AI use.
- Finally, Cook noted that FINRA maintains a feedback loop with member firms to share insights and understand their GenAI adoptions. It plans to support firms through outreach, roundtables, and regulatory guidance.
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