As time goes on, the rules around digital regulation are tightening up. As technology becomes more embedded in our work lives, there’s more pressure to be accountable. This isn’t exactly groundbreaking, but lately, some global organizations have ramped up their regulatory actions more than anyone expected. In the U.S., the Securities Exchange Commission (SEC) and the Financial Regulation Authority (FINRA) are being quite assertive in ramping up requirements for the companies they oversee. Meanwhile, over in the UK, the Financial Conduct Authority (FCA) has notably increased its regulatory efforts after a period of relative ease.
FINRA’s 2024 Regulatory Oversight Report lays out new compliance requirements for businesses. Companies now have to track business communication that happens through unofficial channels and be on the lookout for new communication platforms advisors might use. FINRA is urging firms to monitor whether official communication channels are being underutilized, suggesting people might be using unsanctioned alternatives. Companies are also being prompted to keep an eye out for any signs of conversations happening outside approved channels. These changes show a shift: trusting employees to follow the rules isn’t enough anymore. Compliance teams have to actively investigate to understand regulatory changes and ensure appropriate conduct, putting a heavier burden on organizations and making it tough for leaders to ignore responsibility.
The SEC has been similarly focused on ensuring cross-industry compliance, especially regarding "off-channel" communication, like WhatsApp conversation fines that have been in the news. On April 3, 2024, the SEC took its first action against a registered investment adviser not connected to a broker-dealer. This marks a significant point, showing the SEC’s commitment to apply rules broadly across the industry, beyond the big names, indicating a broader culture of proactive compliance rather than just ticking off checklists. Furthermore, the SEC has been rebutting claims that penalties for off-channel communication are arbitrary, stating that a company’s willingness to self-report violations significantly impacts the consequences they face. Encouraging self-reporting on past issues is part of their strategy to quicken the move towards a culture change in compliance.
When the marketing rule was introduced in late 2022, it marked a change in regulation, focusing on consumer protection. It took some time for enforcement to catch up, but now companies are answering for misleading advertisements. In April, the SEC fined companies $200,000 over marketing rule breaches, with GeaSphere LLC receiving the largest fine of $100,000 for misleading consumers. They were penalized for making unfounded claims and using deceptive marketing tactics, which highlighted issues in the transparency and accuracy of information presented to investors.
In the UK, the FCA has historically been seen as less stringent compared to U.S. regulators. However, a report from the National Audit Office in December 2023 highlighted the need for improvement to meet UK government goals, and the FCA has responded. In November 2023, they pushed for action due to lapses in Consumer Duty compliance, such as promoting risky products without clarity on fees or consumer understanding. They’ve also taken a more active role, directly engaging with firms and conducting on-site reviews. By March 2024, following a review of retirement income advice, the FCA urged financial firm CEOs to reassess their procedures and hinted that more rigorous enforcement is on the horizon. Plans to publicly name firms under investigation, despite industry backlash, highlight how significant the FCA’s strategy change could be.
It’s clear there’s a greater emphasis on compliance as we move through 2024. With ever-changing regulations and increased enforcement, there’s a pressing need for companies to remain vigilant. Ignoring clear directives would be unwise, and the financial stakes are high for companies not complying with regulations. Transparency is also a key factor, as global financial regulators are becoming more explicit about their expectations. Even if these requirements are new and might feel cumbersome, at least businesses know what’s expected of them, making it imprudent to overlook such clear instructions.
