Whether you are an executive, chief compliance officer or financial advisor, you see every day how regulatory compliance has evolved into a defining measure of operational excellence within the wealth management and financial sector.
As the regulatory landscape continues to intensify, institutions ranging from broker-dealers to RIAs are under growing pressure to implement comprehensive supervisory and governance systems, maintain meticulously documented procedures and records and demonstrate unwavering transparency in every aspect of their business.
No longer just a procedural obligation, a robust and effective regulatory compliance program now signals a firm’s commitment to integrity and accountability, not to mention long-term viability.
But how well do you and your regtech partners know the key obligations of the highly regulated wealth management industry? In this article, we will walk through three foundational elements of SEC regulations.
Accurate Books And Records – Section17(a) And SEC Rules 17a-3 And 17a-4
Section 17(a) of the Securities Exchange Act of 1934 allows the SEC to require broker-dealers to create and retain comprehensive records of their business transactions. This mandate serves as a foundation for investor protection and market transparency, ensuring firms document every critical aspect of their operations for regulatory oversight.
Rule 17a-3 specifies the exact records firms must create, including trade blotters, order tickets, customer account information and internal memos related to transactions. It outlines the documentation expectations that form the backbone of any compliant broker-dealer's internal record-keeping system.
Rule 17a-4 governs the retention and storage of required records. It dictates how long records must be kept, requires secure and tamper-evident storage, and mandates detailed system logging, audit trails and access controls to demonstrate records integrity and immutability. Firms must be able to promptly produce records and related logs during regulatory inspections.
Written Compliance Programs – Rule 206(4)-7 And Rule 3110
Rule 206(4)-7 of the Investment Advisers Act of 1940 requires SEC-registered investment advisers to establish and maintain a written compliance program designed to prevent violations of securities laws.
The rule requires designation of a chief compliance officer with authority to administer the program, conduct and document at least an annual review and provide written certification or attestation that the compliance program is reasonably designed and operating effectively. This obligation reinforces a firm’s responsibility to maintain effective internal controls, demonstrate regulatory compliance and uphold fiduciary duties.
For broker-dealer firms, the parallel requirement is in FINRA Rule 3110, which mandates the creation and maintenance of supervisory systems and written procedures to ensure compliance with applicable securities laws and regulations.
Together, these rules illustrate a consistent regulatory expectation across advisory and broker-dealer firms.
Together, these rules illustrate a consistent regulatory expectation across advisory and broker-dealer firms. Wealth management organizations must implement structured compliance frameworks, designate accountable leadership and conduct ongoing reviews. For compliance professionals, this alignment provides clarity and reinforces the importance of proactive oversight in safeguarding both regulatory integrity and client trust.
Fiduciary Duty And Disclosure – Section 206(2)
Section 206(2) of the Investment Advisers Act of 1940 imposes a broad fiduciary duty on investment advisers, prohibiting them from engaging in any act, practice or course of business that is fraudulent, deceptive or manipulative. This provision requires advisers to act in their clients’ best interests at all times, fully disclose all material conflicts of interest and maintain transparency regarding fees, risks and other pertinent information.
Non-conformance to compliance may result in significant regulatory penalties and reputational harm, underscoring the critical importance of trust, integrity and full disclosure in adviser-client relationships.
These are just a few of the regulatory hoops you have to jump through every day. And they are in a constant state of flux. Compliance is not an assignable task or activity; it is a continuous process commitment. You need to ensure your team has the right tools to assist with document management and support regulatory compliance processes.
Compliance is not an assignable task or activity; it is a continuous process commitment.
AI tools and platforms designed to assist compliance processes are becoming indispensable. However, while there are many use cases, be careful that the AI tools you use do not replace experienced compliance professionals, legal expertise, judgment or established regulatory protocols. Users should be aware of the technological limitations and potential variations in AI tool data processing and capabilities.
For wealth management firms, broker-dealers and RIAs, maintaining strict compliance with current regulatory requirements is crucial. Understanding your obligations and finding the best partners to help you meet them is essential to the success of your compliance program.
Sid Yenamandra is the Founder and CEO of SurgeONE.ai, a compliance, cybersecurity and data services platform for wealth management that unifies the offerings of RegVerse, Kovair, Security Snapshot and MGL Consulting.
