Page 33 - Investment Advisor June 2023

THe PlAYInG FIelD

By Melanie Waddell

seC Marketing-rule enforcement Actions

Could Be Coming soon, experts say

Recent Securities and exchange Commission exams have found “serious”

marketing rule-related deficiencies, according to the general counsel of the
Investment Adviser Association.

ecurities and Exchange Comm- the National Society of Compliance
ission exams of compliance with Professionals, Amy Lynch, president and
Sthe agency’s new marketing founder of FrontLine Compliance, stat-
rule are in full swing, and enforcement ed that firms that have “done nothing” to
actions related to firms’ lax compliance comply with the new marketing rule are
could be in the pipeline. at risk of facing an enforcement action.
The SEC’s 2023 exam priorities reflect These include firms that have no updat-
“a huge focus” on compliance with the ed policy, firms that have “not touched”
marketing rule, notes Sanjay Lamba, asso- their marketing materials, and firms that
ciate general counsel for the Investment are “out there doing testimonials and
Adviser Association in Washington. endorsements without the proper disclo-
The good news is that results of initial sures,” Lynch said. “That’s the kind of firm
SEC exams conducted during the first or activity that’s going to be a ‘gotcha,’ and
four months of the rule’s Nov. 4 compli- the SEC will be likely taking enforcement
ance date “apparently revealed that the against that type of an entity.”
“[The SEC] just majority of advisors have fully updated expects firms to have updated writ-
Right now, Lynch said, the SEC
their policies and procedures to reflect
wants to see that the new rule,” Lamba said. ten policies and procedures and to also
The bad news, however, is that IAA
firms are making a has “very recently learned that the [SEC] “have conducted [an] analysis of their
current marketing materials to see what
best effort approach exam staff has found serious [marketing need[s] to be changed/updated to be in
and they’ve got those rule-related] deficiencies on a large num- compliance with the new rule.”
Because the new rule is in it’s early
ber of exams — with some being referred
policies in place, to the SEC enforcement staff,” Lamba said. days, the SEC “just wants to see that
firms are making a best effort approach
“It would be very unfair if these
they are updating deficiencies and referrals” relate to the and they’ve got those policies in place,
those [marketing] agency’s updated FAQ guidance issued they are updating those [marketing]
in January, Lamba said.
materials and are going through the
materials and are IAA hopes that the SEC exam staff process of being in full compliance,”
going through the “is not referring cases where advisors in Lynch continued.
“As long as that best effort can be
general have made good faith efforts to
process of being in implement” the new rule. proven, in the early stages of a new rule
While the SEC has begun issuing
typically the SEC is not going to go out
full compliance.” deficiency letters to firms that relate to and do a ‘gotcha’ enforcement action
the updated FAQ, IAA said that it does against a firm,” Lynch said.
—Amy Lynch not know “the subject of any deficiency
that’s been referred” to the agency’s ‘lIttle PAtIenCe’
enforcement division. The SEC has signaled a likely heavy
During a recent webcast held by hand on marketing rule compliance.

June 2023 Investment AdvIsor 31