The Friday deadline to comply with the Securities and Exchange Commission's new marketing rule is here, and "questions abound" from firms as they assess where they are in their compliance, according to Ken Joseph, managing director and head of the Financial Services Compliance and Regulation practice for the Americas at Kroll.
The "lack of credible guidance" from the SEC is also becoming more apparent, Joseph said.
In the last few weeks, Joseph said, more and more questions have surfaced regarding several compliance-related issues:
- the presentation of net performance at the transaction or deal level;
- what types of client communications are carved out from the definition of advertisement;
- the obligations of third-party marketers who are not registered broker-dealers; and
- how historical marketing documents that may still be available to investors should be treated.
We caught up with Joseph to gauge where he sees firms in their last-minute efforts to comply with the new rule and what's next for the SEC.
THINKADVISOR: Where are firms in their compliance?
KEN JOSEPH: I expect that most RIAs will have at least updated and enhanced their policies and procedures to address the requirements of the new rule by Nov. 4. Some may have elected to use off-the-shelf templates to meet that timeline and are now focused on tailoring those policies to their firm's circumstances, as well as training applicable personnel on the new requirements.
There are a few early adopters and others that are much further along at this stage, but I expect that there will be some firms that will be burning the midnight oil to fully assess the impact of the rule on their fundraising and marketing practices and to comply with the requirements.
What will the SEC do if firms are noncompliant by Nov. 4?
While there is no grace period for final compliance with the new rule, I expect that the regulatory response will depend on the SEC staff's view of the severity of the actual or potential violations.
As is typical with other new rules such as Regulation Best Interest, I expect that both examinations and enforcement will have this as a priority item on their agenda.
Registrants should not be surprised by this scrutiny because the regulator has telegraphed its intent to do so.
