March 4, 2024


A consultants industry group said it would take at least five years for companies to comply with a series of new regulations requiring The SEC maintains that Meet in less than three minutes.

The Investment Advisers Association, which represents more than 600 advisory firms, issued a a letter from last week The financial planning industry will struggle to gain a foothold if Wall Street regulators continue with a series of regulatory plans it has proposed in recent years, warns.According to the association’s calculations, businesses may find themselves having to comply with Part of at least 13 new regulations In a little over two years.

The association argues that companies have not had enough time to make the many internal changes needed to meet the myriad demands of the new rules. For example, the IAA noted that some of the SEC’s proposals would call for companies to renegotiate contracts with outside service providers.

A statute for consideration – the so-called Outsourcing rules first proposed in October – Have advisors draft new written agreements with third-party providers on everything from cybersecurity and investment guidance to regulatory compliance and securities valuation. These contracts must give companies the right to periodically inspect third-party books and procedures to ensure they comply with securities laws.

Meanwhile, the SEC has made a separate proposal Firms are called upon to enter into contracts with third-party custodians, usually banks or brokerage firms, to safeguard client assets. Among other things, the written deal will commit the custodian to provide records upon request showing which investor assets are being held and stating how much power the advisor has over those assets.

The result, according to the IAA letter, is that businesses may find themselves having to “negotiate or renegotiate the required terms four times with the same parties, but with different deadlines, within a relatively short period of time.”

“The consultants had to renegotiate four times with similar parties, each with slightly different requirements, and those requirements were very stringent,” said Gail Bernstein, the IAA’s general counsel.

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Bernstein said she was skeptical that small companies would be able to dictate the terms of their contracts to large service providers, who might find it easier to do business with someone else.

The IAA’s letter calls on the SEC to consider not how much time it would take companies to comply with each proposed rule individually, but all rules simultaneously. The industry should have at least five years, the association wrote.

Institute of Investment Advisers

The IAA acknowledges that some of the proposals cited in its letter may only have an insignificant impact on most advisers. But four of them — dealing with cybersecurity, data privacy, third-party service providers and protecting investor assets — will fall on nearly every company. For these far-reaching proposals, the SEC’s current timeline gives the industry only about 16 months to comply.

Bernstein said she has not seen enough evidence that the SEC regulator has considered how the rules will interact in the short term after they are adopted. She and her colleagues pointed out many redundancies and inconsistencies in the proposal and tried to bring those findings to the attention of the SEC, she said.

“Even assuming that each of these proposals is reasonable in a vacuum, when you have two, three, four or five of them at the same time, say the industry is going,” Bernstein said. The development is not without reason.” It takes a lot of time to respond. “

A spokesperson for the SEC said: “The SEC benefits from active public participation and will review all comments submitted during the public comment period. respond to comments, rather than responding in advance.”

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Amy Lynch, founder and president of FrontLine Compliance consulting firm, said she applauds SEC Chairman Gary Gensler’s candor and subsequent execution of his ambitious regulatory plan. But she said she shared the concern of many advisers that trying to do so many things at once would do more harm than good.

“I’m talking to clients and trying to calm their fears, and some feel that the timing of the staggered rollout is a saving grace,” Lynch said. “However, there are still about four or five final rules that could come out at the same time. Right now, they’re working on Talk about October or so.”

The prospect of so many regulatory changes dooms almost any attempt to predict likely outcomes, said Michael Canning, head of public policy adviser LXR Group and former policy director of the North American Securities Administrators Association.

“If you compare the current reality (i.e. the baseline) to your projections, if the proposed rule is adopted but there are three, four or five major rule proposals going on at the same time, then the baseline is pretty much meaningless,” Canning said. explain.

In addition to worrying that the SEC is trying to do too much too quickly, the IAA also wants the SEC to do more research into the possible costs of these proposals and further research into how they will affect small companies in particular. It also proposes several amendments to each individual SEC proposal.

According to Bernstein, although Cybersecurity remains a top priority for the industry, there are concerns that the U.S. Securities and Exchange Commission’s latest proposal to prevent hacking and data breaches could backfire. For example, one of the regulations requires broker-dealers to submit a report on their annual cybersecurity review and any vulnerabilities they find. Some of the resulting information will eventually appear in the SEC’s public databases and records.

The IAA’s letter warned that the disclosures could provide hackers with a “roadmap for further attacks.”

Meanwhile, the only thing the IAA sees as entirely unnecessary in the SEC’s proposal is the outsourcing rule. The association said consultancies already had an obligation to fulfill their fiduciary duty to ensure that any third-party service providers they recruited put the interests of their clients first.

While the other SEC proposals may eventually be accepted in a revised form, they offer little urgency, Bernstein said. For example, cybersecurity and custody of client assets will remain industry priorities, whether or not they are the subject of new regulations.

“Effective regulation is critical, and rightfully so,” Bernstein said. “But if there is going to be massive disruption in this industry, then that disruption has to be justified. In this case, there really isn’t.” What urgency.”

Here are some specifics on the four proposed rules of greatest concern to the IAA: