Displaying items by tag: SEC

Wednesday, 13 March 2024 11:48

No More Changes to Reg BI: Gensler

Gary Gensler, the chairman of the Securities and Exchange Commission (SEC), spoke recently at the Investment Adviser Association Compliance Conference. In a Q&A session with reporters, he remarked that there were no current plans to modify or update Reg BI. Instead, the agency’s focus is on ‘examining for and enforcing against’ Reg BI.

 

In later remarks, he addressed its approach towards predictive data analytics. He believes this is a gray area, and the SEC wants to ensure that there are no conflicts of interest within newer technology that utilize behavioral prompts and nudges. Of course, this topic is even more germane given the increasing use of artificial intelligence (AI) powered applications. 

 

Gensler wants to ensure that there are no loopholes to bypass the fiduciary rule. Many in the industry contend that this rule is a backdoor expansion of Reg BI and that current regulations were sufficient. 

 

Previously, Gensler had spoken that the new technology enables practices to micro-target consumers with products and content. While this can help advisors grow their business, he believes this communications channel needs to be regulated as well to ensure that these business interests are not placed above the clients’. 


Finsum: At a recent conference, SEC Chair Gary Gensler pushed back that there was a backdoor expansion of Reg BI due to the predictive analytics rule. The rule mandates that predictive technology that communicates with clients must also follow the fiduciary rule.

 

Published in Wealth Management
Friday, 02 February 2024 07:26

Regulators Stepping Up Reg BI Enforcement

FINRA and SEC regulators have increased enforcement and oversight of Regulation Best Interest (Reg BI). Recent focus has been on increasing compliance within the sales process. There have been several FINRA actions to punish firms for improper supervision to ensure the fiduciary standard is being followed.

 

The pace of these actions and enforcement has gradually picked up since the moratorium on enforcement ended. Further, regulators have also made public comments emphasizing the need for more aggressive action. 

 

In 2023, there were FINRA enforcements following only 8 in 2022. The agency has also started to impose personal fines for sales violations or requiring advisors to pay back a portion of losses. Prior, regulatory agencies would see compensation and damages from the firm rather than individuals. This change in strategy is a reflection that they are trying to deter violations of the fiduciary standard at the individual and firm level.

 

Looking ahead, comments from SEC and FINRA officials reveal that this is only the beginning. According to FINRA’s acting head of enforcement, Chris Kelly, ‘more and more’ cases involving all four pillars of Reg BI which includes disclosure, care, conflict of interest, and compliance are likely to be filed. 


Finsum: FINRA and SEC regulators are increasing Reg BI enforcement. They are targeting firms for improper sales supervision and punishing brokers for violations.

 

Published in Wealth Management
Tuesday, 02 January 2024 15:56

Are Single-Stock ETFs Here to Stay?

Single-stock ETFs were introduced in Europe in 2018 and last year in the US. Now, there are nearly 50 single-stock ETFs with the majority of them tracking mega cap tech stocks like Microsoft, Nvidia, Amazon, and Tesla. Collectively, they have $3.3 billion in assets. Providers include Direxion, AXS, GraniteShares, and YieldMax and strategies fall under option income, bull, or bear.

 

The largest one is the Direxion Daily TSLA Bull 1.5x Shares which has over $1 billion in assets and tracks the underlying stock with leverage by using swaps and other derivatives. The second-largest at $841 million in assets is the YieldMax TSLA Option Income Strategy ETF. This category of single-stock ETFs will sell call options on the underlying stock to generate monthly income. 

 

The recent success of these ETFs isn’t surprising given the strong performance of tech stocks this year with many hitting all-time highs. According to Rich Lee, the head of ETF trading at Robert W. Baird & Co., more single-stock ETFs will be hitting the market due to strong demand for these products, and he expects more innovation as well.

 

The current crop of single-stock ETFs are more suited for short-term speculation rather than long-term investing given higher costs. In August, the SEC issued a warning about these products, “Because leveraged single-stock ETFs in particular amplify the effect of price movements of the underlying individual stocks, investors holding these funds will experience even greater volatility and risk than investors who hold the underlying stock itself,” which encapsulates the risks. 


Finsum: Single-stock ETFs are a small but fast-growing category. While they’ve performed well due to the bull market in tech, they remain unsuitable for long-term investors. 

 

Published in Eq: Tech
Wednesday, 20 December 2023 03:06

Regulators Stepping Up Reg BI Enforcement

Over the last couple of months, there has been an increase in the enforcement of Regulation Best Interest (Reg BI). Over the last year, the number of actions taken by the SEC and FINRA have substantially increased. It’s consistent with warnings from regulators that there would be a ‘more substantive’ period of enforcement and that Reg BI will be enforced ‘to the letter’.

 

Regulators want to see a more robust process to ensure supervision of brokers. The ultimate goal of Reg BI is to ensure that all recommendations are made in the clients’ best interests.  So far this year, there have been 22 FINRA enforcement actions after just 8 in 2022. Penalties are also growing in size as evidenced by an SEC settlement with Laidlaw and Company for $800,000.

 

Recent enforcement has also seen advisors having to pay back a portion of customers’ losses. This is a departure from precedent when firms were typically on the hook for compensation and indicates a serious commitment to deterring misconduct. 

 

In 2024, even more enforcement is expected given public comments from SEC and FINRA officials. They see enforcement expanding across all 4 pillars of Reg BI which include disclosures, care obligation, conflicts of interest, and compliance. 


Finsum: The SEC and FINRA are increasing enforcement of Reg BI. They are also looking to fine individual advisors and brokers for misconduct.

 

Published in Wealth Management

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
Page 1 of 61

Contact Us

Newsletter

Subscribe

Subscribe to our daily newsletter

Top
We use cookies to improve our website. By continuing to use this website, you are giving consent to cookies being used. More details…