Forces Shaping the Regulatory Landscape

It’s been a decade since the global financial crisis, and the industry remains in the midst of a changing regulatory environment. NICSA members heard a panel of experts discuss the future of these regulations during NICSA’s 2018 Strategic Leadership Forum. The panel, moderated by Don Andrews, Partner & Global Practice Leader for Risk and Compliance at Reed Smith, featured leaders from the U.S. Securities and Exchange Commission, SIFMA and Hughes Hubbard & Reed LLP.

“There’s been a change in administration, there’s been a change in focus and there’s a lot of talk about doing away with regulations,” Andrews said, addressing Sarah ten Siethoff, Deputy Associate Director at the SEC. “From your vantage point, is there any change in approach at the SEC?”

“A lot of the SEC’s day-to-day work doesn’t really change from chairman to chairman or administration,” ten Siethoff said, not representing the view of the SEC but rather her own personal experience. “If you look at our compliance and inspection division’s 2018 exam priorities, if you go through them and compare them to the last couple of years, you’ll see there’s really a lot of continuity there.”

Topics like retail investor fraud, senior investors and cybersecurity are essentially timeless. “People often tend to focus on particular points where there is a change, but really what we see a lot of is continuity,” she said.

Will Leahey, Vice President & Assistant General Counsel at SIFMA, discussed his organization’s concerns going into 2018 and beyond. “We’re really focused on how coordination between the SEC and the DOL is going to shake out,” he said. “There’s some focus on whether those two regulatory agencies can cooperate in a way that gives consistency for the underlying customers and investors.”

Panelist Roel Campos, Partner at Hughes Hubbard & Reed LLP, previously served as Commissioner SEC. He was sworn in on August 22, 2002, and served under three different chairs until 2017. “[SEC Chairman] Jay Clayton stating that his concern is retail investors is really kind of phenomenal,” Campos said. “His very clear, stake-in-the-ground, ‘I don’t want scandals, I don’t want problems,’ is really a major statement.”

Protecting Our Seniors
Andrews asked the panel what specifically is being done to protect retail investors, including seniors.

“The flavors of fraud change over time,” ten Siethoff said. “You might see some change in the particular way that people are trying to take someone’s money, but there’s always someone out there, unfortunately, who’s trying. Focusing on fees and expenses, that people are being properly charged what they’re told their charged, that people [are] aware of what they’re getting into — that’s a very bread-and-butter issue and something that our examiners are constantly looking at.”

Leahey said financial advisors are on the front line of identifying cognitive decline in clients. “SIFMA has had a deep focus on this with the close collaboration of the SEC, particularly FINRA and the state regulators, which recently provided flexibility to stop money transfers if they’re concerned about a senior experiencing cognitive decline or unwittingly participating in fraud by one of the people who has control over them,” he said.

The Rise of Cryptocurrency
The panelists also discussed investor protection in the context of cryptocurrency. “There’s a division to be drawn between Tier 1 cryptocurrencies – like Bitcoin, Ethereum and Ripple – and initial coin offerings, which appear a lot like securities and are based upon the technology of more popular crypto assets,” Leahey said. “But there’s no way to fit these currently into the custody environment.”

Campos said cryptocurrency is just one of many applications of blockchain. “All of this begins with blockchain, which are distributed ledgers,” he said. “It might be a disruptive and transformative technology, and some think it will be more impactful than the invention of the Internet.”

The beauty of blockchain is that it’s immutable and transparent, Campos said. “Anyone with the right program can look and see the historical chain of blocks and what the transactions are — therefore, it’s self-regulating,” he said. “The challenge is for the regulators to nurture a new technology, which could be game-changing, and at the same time keep scam artists from running amuck and hurting investors.”

Note: Although the observations contained in this work represent the best thoughts of the individuals comprising the NICSA event panel, they do not necessarily reflect the views of NICSA or any of its member organizations. Matters addressed in this work may touch upon legal or regulatory matters, however nothing herein is intended to be or should be construed as legal advice. You should contact your own counsel in order to obtain legal advice regarding these or any other matters.

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