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The Friday List: 2016 Regulatory Trends

the list

Today, we offer our “Friday List,” an occasional feature summarizing a topic significant to investment management professionals interested in regulatory issues.  Our Friday Lists are an expanded “Our Take” on a particular subject, offering our unique (and sometimes controversial) perspective on an industry topic.

A few weeks back, we offered our predictions for 2017 (see https://cipperman.com/2016/12/02/friday-list-2017-predictions/) .  Today, we look back on the most significant investment management regulatory trends for 2016.  Of course, past performance is no guarantee of future results.  However, as any handicapper will tell you, past behavior often foretells future actions.


10 Most Significant Regulatory Trends for 2016


  1. Enforcement Actions – SEC Chair White continued her “broken windows” enforcement against even the smallest infractions.  The SEC reported a record number of enforcement actions, including 160 cases against investment advisers and investment companies.
  2. Personal Liability – According to the SEC’s outgoing Enforcement Chief, the Enforcement Division names an individual in over 80% of cases.  This past year, we have seen cases against senior executives, mid-level executives, Chief Compliance Officers, and everybody in between.
  3. Fiduciary Duty – The Department of Labor adopted the long-debated fiduciary rule, which will upend the advice industry.  Additionally, the SEC considered a fiduciary rule for retail brokers, while FINRA supported a fiduciary standard.
  4. Cybersecurity – Hackers forced senior executives to learn new terms such as “firewall,” “vulnerability assessment,” and “intrusion.”   Many firms faced liability for failing to monitor service providers.
  5. Private Equity – The SEC instituted several 7-8 figure cases against the biggest names in private equity, an industry un-regulated until Dodd-Frank.
  6. Whistleblowers –The SEC’s Whistleblower Office reported more than $100 Million in aggregate awards.   The SEC also brought several cases alleging retaliation and illegal confidentiality agreements.
  7. Retail Distribution – Both FINRA and the SEC attacked wrap sponsors for the wrong share class recommendations and trading away.  At least 15 firms were charged for failing to conduct sufficient due diligence on third party performance claims.  The Investment Management Division continues to analyze 12b-1 fees and other distribution-in-guise payments.
  8. Gatekeeper Liability – Service providers have suffered by association with miscreant clients.  This past year saw enforcement activity against administrators, lawyers, auditors, custodians, directors, and consultants.
  9. Robos – Massachusetts raised concerns about how robo platforms satisfy their fiduciary responsibilities.  Meanwhile, FINRA heightened supervision of robo providers.
  10. Compliance Outsourcing – The SEC has recognized compliance outsourcing as a growing trend.  That trend accelerated in 2016: nearly 20% of advisers outsource compliance and approximately 2/3 use an outside compliance consultant.  Chair White has announced that the SEC staff has completed a proposal requiring all advisers to undergo third party compliance reviews.

Top 20 Regulatory Alerts – 2016


It has been a busy regulatory year.  Over the course of 2016, we have sent nearly 200 Regulatory Alerts to the investment management community.  We have reviewed them all and present the following list of the most significant Regulatory Alerts of 2016.  Feel free to let us know if you (dis)agree.


  1. SEC Filed Record Number Of Enforcement Cases In Fiscal 2016 (10/13/16)
  2. SEC Exam Priorities Letter Focuses on ETFs, Retirement Advice and Private Funds (1/12/16)
  3. SEC’s New Form ADV Will Require Detailed Information on Separately Managed Accounts (8/31/16)
  4. SEC’s Enforcement Director Targets Private Equity (5/18/16)
  5. Massachusetts: Robos Do Not Meet Fiduciary Duties (4/13/16)
  6. Federal Court Rules that CCO Liable for AML Financial Penalties (1/19/16)
  7. SEC Fines 13 Advisers for Failing to Verify Third Party’s Performance (8/29/16)
  8. SEC Awards $700,000 Whistleblower Award to Company Outsider (1/26/16)
  9. Large BD/RIA Fined $1 Million for Cybersecurity Breach (6/9/16)
  10. Founder/CEO Resigns over Compliance Failures (2/22/16)
  11. Fund Administrator Charged/Fined for Causing Client’s Securities Fraud (6/20/16)
  12. Large Audit Firm Got Too Close With Its Clients (9/20/16)
  13. SEC Affirms Industry Bar and Financial Penalties against Chief Compliance Officer  (4/4/16)
  14. SEC Wallops Large Private Equity Firm with $52.7 Million in Penalties (8/24/16)
  15. SEC Chair Acknowledges Compliance Outsourcing (4/20/16)
  16. Supreme Court Expands Insider Trading Liability (12/8/16)
  17. GC/CCO Fined and Barred for Failing to Disclose Unauthorized Use of Funds (7/12/16)
  18. ETF Sponsor Will Pay $20 Million To Settle Charges It Overstated Performance (12/5/16)
  19. SEC Proposes Rule Requiring Advisers to Adopt Business Continuity Plans (6/29/16)
  20. SEC Chair Calls For “Zero Tolerance” Enforcement (11/28/16)