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Day: December 28, 2018

A Review of My 2018 Predictions

(Nostradamus, famous 16th Century soothsayer)

Every year, I offer my predictions on what will happen in the investment management regulatory world.  (I will publish my 2019 predictions next Friday.)  For 2018, I went 8-2, a record that suggests that I spend way too much time thinking about regulatory issues.   For comparison, I went 4-6 in 2017, 4-3-3 in 2016 and 6-4 in 2015.  Overall, this is not a bad record.  Below are the predictions I made last December and what happened:

A Review of My 2018 Predictions

More states will adopt fiduciary rulesMaryland and New York both adopted fiduciary rules, and it appears New Jersey is moving that direction. (1-0)

The SEC will propose a uniform fiduciary rule for retail advisers and broker-dealers.   The SEC did in fact propose a best interest standard for brokers.  I am especially proud of this prediction as I did not foresee that the Fifth Circuit would completely vacate the DoL fiduciary rule.  (2-0)

The SEC will commence significant cybersecurity enforcement actionsThe SEC fined a large internet company $35 Million for failing to disclose a third-party hack into personal customer information.  It also fined a BD/IA $1 Million for failing to prevent third parties from accessing customer information.  (3-0)

There will be cases alleging C-suite wrongdoing in private equity.  Among other actions, the SEC censured and fined the principal of a PE firm for offering below-market purchase offers to LPs and barred a managing partner for failing to disclose conflicts of interest. (4-0)

FINRA will bring actions against firms for hiring bad brokers.  There were several FINRA cases, but the most significant was an action where the SEC fined a broker-dealer $3.6 Million for failing to stop a broker from stealing from clients.  (5-0)

SEC and/or FINRA will bring cases alleging inadequate branch office supervision.  There were cases for failing to stop misleading disclosures about disciplinary histories, neglecting to implement proper AML procedures, and selling away.  (6-0)

The SEC will commence significant marketing/advertising cases.  There were several actions involving bad marketing practices including the misuse of hypothetical backtested performance, mis-representing black box quant models, and violating the testimonial prohibition. (7-0)

The SEC will propose a re-write of the custody rule.  This did not happen, although, as we said last December, it may have been wishful thinking. (7-1)

The SEC will propose cryptocurrency regulations.  The SEC has not yet proposed specific regulations, although the Division of Investment Management has asked the industry to consider valuation, liquidity, custody, and marketing of cryptocurrencies. (7-2)

The SEC will re-propose the ETF rule.  In June, the SEC proposed new rule 6c-11 would allow ETFs structured as open-end funds to operate so long as they provide daily portfolio transparency on their websites, disclose historical premium, discount and bid-ask spread information, and adopt policies and procedures about the use of custom baskets.  (8-2)