In 2022, the SEC filed 760 enforcement actions, which was up 9% from 2021. They imposed a record-breaking $6.44 billion in monetary penalties, up 67% from 2021. These drastic increases are a result of the SEC ramping up enforcement efforts, charging steep penalties, and rewarding large sums to whistleblowers. As we all know, the consequences of compliance failures extend further than monetary penalties. These events can take a toll on your firm’s reputation and undermine employee morale.
The good news is that the SEC generally does provide notice for what they are planning, via proposed rules. Establishing a review process for those “proposals” and having a “what if” conversation with your technology team can help you plan a more automated way to respond, keeping down costs and stress.
New Rules for Private Funds
The new private funds rules were proposed February 9, 2022 and went into effect on August 23, 2023. The finalized rules require firms to provide disclosure and receive consent from investors before engaging in select restricted activities. They also require private funds to provide investors with annual audits and detailed quarterly reports disclosing their fees and expenses. These new rules may require some firms to make major changes to their reporting practices. On a positive note, with 1.5 years between the proposal and the passage of these rules, firms that took advantage of this window were able to better prepare for these changes.
This example suggests that maintaining compliance with current regulations is not always enough. The SEC’s Spring 2023 Agency Rule List features 37 rules in the final stage, aiming to enact these rules between October 2023 and April 2024. The list includes another 18 rules currently in the proposed stage. It can feel daunting trying to understand what each of these rules entails, and what they might mean for your firm. Reviewing these rules when they are first proposed and monitoring updates throughout the process can alleviate some of the pressure of figuring out how your firm will respond if they are passed. By brainstorming solutions along the way, your firm will be better prepared for when rules are enacted.
Leverage Technology
Implementing the right technology can alleviate the stress that comes along with new compliance rules. Leveraging technology can reduce the time, costs, and labor for compliance teams. One of the recently passed private fund rules requires firms to provide investors with annual audits and detailed quarterly reports disclosing their fees and expenses. When firms are unprepared for these changes, implementing these practices can be stressful and costly, especially when working within the 18-month deadline set by the SEC. Firms can reduce costs and stress by automating the time-consuming workflows required to produce these detailed reports. the key is to consider the impact of possible rule changes and to invest in this technology in advance, so that the technology is tested and in place when the rule is passed.
Technology can also make it easier for firms to keep track of compliance requirements and communicate any questions and issues. If your firm is seeking an organized platform to keep track of rules and requirements, log issues, and ensure team members stay connected, then IMP’s CLEAR Compliance® may be the solution for you.
While the idea of revamping your firm’s compliance systems can seem intimidating, increasing monetary penalties and ever-changing SEC regulations suggest this is an investment worth making. IMP is here to help you implement long-term compliance solutions, bridge the gaps in your OMS systems, and ensure your firm is ready to adapt to any regulatory changes.
Sources
https://www.forbes.com/sites/servicenow/2021/10/21/the-creeping-cost-of-compliance/?sh=69bb06aa56cc
https://www.wsj.com/articles/sec-had-a-record-year-for-enforcement-actions-11668553421