Displaying items by tag: SEC

The cryptocurrency industry stands on the precipice of a potentially pivotal moment, with several applications for crypto-based ETFs awaiting approval by the US Securities and Exchange Commission (SEC). Recent activities suggest the SEC is actively preparing to issue its decisions, potentially within the next few months.

 

The world's largest asset manager, including BlackRock, has expressed increasing confidence in the SEC's approval of their spot Bitcoin ETF applications, possibly as early as January 2024. While the outcome remains uncertain, the SEC's recent engagements with applicants and its compressed 21-day public comment window indicate a focused and potentially accelerated decision-making process.

 

These developments have fueled speculation in the market, with some attributing the recent rise in Bitcoin prices to the anticipated SEC decision. Others cite the upcoming Bitcoin halving event in 2024 as a contributing factor.

 

Regardless of the specific drivers, the next few months will likely greatly impact the cryptocurrency landscape. The SEC's decisions on these ETF applications could have significant implications for investor access, market liquidity, and the overall development of the crypto asset class.


Finsum: Anticipation for SEC's decision on crypto ETFs grows, hinting at major shifts in market access to crypto-based investment vehicles.

 

Published in Wealth Management
Wednesday, 15 November 2023 03:11

SEC’s Gensler Comments on AI Proposal

Over the summer, the SEC made a proposal that advisors and brokers would have to address conflicts that emerge through investors interacting with artificial intelligence, an algorithm, or similar technology. At the Securities Industry and Financial Markets Association annual conference, there was some discussion over this proposal with SEC Chair Gary Gensler challenging the audience of financial professionals in his remarks.

 

Essentially, many believe that this is a way to expand Reg BI to make it apply to all sorts of interactions that happen between an advisor and client. SEC Chair Gary Gensler pushed back on this when he remarked, “We’re not trying to change Reg BI or change the fiduciary guidance.” He clarified that instead the SEC is looking to crack down on the use of predictive analytics to ‘micro target’ investors.

 

According to Gensler, there is an inherent conflict between current standards and this new technology if it’s built to help an advisor or broker increase their earnings as it would lead to unsuitable recommendations. He wants to see these algorithms modified so that the advisors’ interests are eliminated or neutralized. However, he didn’t have a strong opinion on how this should be achieved, citing that there are multiple paths to achieving this goal.  


Finsum: The SEC is proposing a new rule for use of AI and predictive data analysis. At a recent conference, SEC Chair Gary Gensler provided some more details about the proposal. 

Published in Wealth Management
Friday, 29 September 2023 13:09

Brokerages Still Struggling With Reg BI Compliance

A little more than 3 years ago, the SEC strengthened fiduciary rules with the passage of Reg BI, and this was also adopted by FINRA. According to a recent report from state regulators, brokerages are still struggling to comply with these new regulations.

In essence, Reg BI ensures that any recommendations made by a broker have to be offered impartially along with an explanation of any alternatives. The purpose of these rules is to ensure that there is no conflict between a broker and the client without necessarily imposing the full fiduciary obligation of RIAs. 

The North American Securities Administrators Association (NASAA) reviewed broker compliance efforts and found middling results especially given that 3 years have passed. Additionally, the SEC and FINRA have stepped up enforcement efforts this year.  According to the group, there remains room for improvement especially as many brokers remain uncertain about the rule and its application to products like annuities, leveraged products, private placements, or other alternative investment products. 

Many firms are creating their own protocols regarding compliance and spending more time on understanding their clients’ risk tolerance and goals before providing recommendations. However, the group also found that many brokerages are too lax especially when it comes to providing disclosures and alternative recommendations. 


FinSum: The North American Securities Administrators Association conducted an audit of brokerage to see how Reg BI compliance efforts are going. 

 

Published in Wealth Management

Regulation Best Interest (Reg BI) was approved in 2019, although enforcement has only picked up this year. The law requires brokers to only recommend products to customers that are in their best interest. Brokers also have to be transparent with customers about any potential conflicts of interest and financial benefits to recommendations they make. 

For Investment Executive, James Langston covers Monmouth Capital Management’s multiple violations of Reg BI which has led to expulsion from the industry from FINRA. Monmouth is being charged with excessive trading of 110 client accounts between August 2020 and February 2023 by 6 company reps, leading to losses of $3.9 million. 

Unfortunately, many of the victims included ‘Gold Star’ families with their investment proceeds coming from death benefits from a family member passing away while serving in the military. 

 In addition to FINRA taking action against the brokerage, the Department of Justice and SEC charged Caz Craffy, a former US Army financial counselor and Monmouth broker, for defrauding clients through excessive trading and risky investing. He also had a blatant conflict of interest given his dual roles as a broker and financial counselor. Overall, he earned $1.4 million in commision from clients with losses of $3.4 million due to bad trades. 


Finsum: FINRA, the SEC, and Department of Justice are pursuing action against Monmouth Capital Management due to violations of REG BI and mismanagement of clients’ funds.

 

Published in Wealth Management
Wednesday, 05 July 2023 01:15

Questions Remain About Reg BI Implementation

In an article for InvestmentNews, Mark Schoeff Jr. covers the latest developments in the SEC and FINRA’s implementation of Regulation Best Interest (Reg BI). Reg BI was passed in 2019 and implemented in 2020. It requires brokers to only recommend products to customers that are in their best interests, while also informing clients of any potential conflicts of interest and financial benefits to them. 

There were some questions about how Reg BI would fit in along with ‘fiduciary duty’ which is another standard that brokers must abide by. Based on recent SEC comments, it seems as if the Reg BI and fiduciary duty are working in tandem to ensure that brokers are placing their clients’ interests above their own. They also stress that although both may be triggered at different times, they are having a similar impact in terms of promoting better behavior from brokers.

In recent months, enforcement of Reg BI and the fiduciary standard have increased. In part, it’s due to greater clarity around the topic and a change in SEC leadership to Chair Gary Gensler and control of the body by Democrats. Until Gensler’s tenure, Republicans see Reg BI as the primary tool for oversight, while Democrats traditionally favor the fiduciary standard.


Finsum: One area of confusion has been the implementation of Reg BI which overlaps with the fiduciary standard for broker-dealers. Recently, the SEC has been saying that both are effective tools that are resulting in better behavior for brokers.

 

Published in Wealth Management
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