We wrapped up Q2 and are now into July with an update. My team and I are always scanning the regulatory landscape to understand where we are, and therefore, where we might be headed, emphasis on the “might.” Yes, it is quite a challenge and often frustrating because while we can opine on recent, notable enforcements to get a sense of some of the priorities, we can’t predict what will happen.
As we look back at Q2, there have been some familiar regulatory themes in play, such as off-channel communications, social media influencers, lack of procedures, and misleading disclosures. There has also been a recent proposal to amend Rule 2210 to allow broker-dealers to allow certain performance projections, which is with the SEC for approval. Let’s review.
Here are some enforcements from the last quarter whose themes are pretty familiar.
FINRA continued its focus on financial influencers. This should serve to remind firms to perform their due diligence and comply with regulations when it comes to using influencers for marketing and promotion. A financial firm was censured and fined $750,000 for findings that its influencer communications were not fair and balanced or made claims that were promissory or misleading. The firm paid influencers based on the number of posts or new clients created through an internal referral link. Findings showed that these influencers failed to disclose possible fees and made false promises about investment risk, among other issues.
A recently proposed FINRA 2210 (Communication with the Public) Amendment is focused on clarifying performance guidance for investment projections made by broker/dealers and IAs. The amendments would create an exception to the general prohibition on projections and permit the presentation of projected performance and targeted returns when members meet specified conditions. They include adopting policies and procedures, having a reasonable basis for the criteria and assumptions made in calculating the projections or targeted returns, and providing specified information. The amendments have been filed with the SEC for approval.
So given the recent event enforcements and rulemaking, I hope that the Fall brings a bit more clarity around any new priorities. I also look forward to regulators possibly providing more resources and guidance on how firms can ultimately prepare.
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