Broker Dealer Regulatory Digest

The following newsletter provides a roundup summarizing enforcement actions, guidance, rulemakings, and other public statements taken by a federal and/or state financial services regulatory agency, specifically focusing on: (1) the source of the development (regulator, legislative body, etc.), (2) the subject matter (consumer lending, money transmission, capital markets, etc.), and (3) the general issue covered.

Regulatory Developments

• Department of Treasury & Internal Revenue Service. Digital Assets & Taxation. Treasury and the IRS issued proposed regulations on the sale and exchange of digital assets by brokers, including digital asset trading platforms, digital asset payment processors, and certain digital asset hosted wallets. The deadline for comments is October 30, 2023. Additionally, public hearings will be held on November 7, 2023, and potentially November 8, 2023, subject to the number of speaker requests.
• Securities and Exchange Commission. Securities Association Membership. SEC adopted a final rule (see fact sheet) that narrows the proprietary trading exemption under Section 15(b)(8) of the Securities Exchange Act of 1934, which requires any broker or dealer registered with the Commission to become a member of a national securities association unless the broker or dealer effects transactions in securities solely on an exchange of which it is a member. The rule is effective 60 days after publication in the Federal Register (FR) and the compliance date is one year after FR publication. Separately, Chair Gensler and Commissioner Crenshaw provided statements in support of the action, while Commissioner Peirce and Commissioner Uyeda dissented.
• Securities and Exchange Commission. Private Fund Advisers. SEC issued a final rule (see fact sheet) under the Investment Advisors Act to enhance the regulation of private fund advisers and update the existing compliance rule applicable to all investment advisers. The rule is effective 60 days after publication in the Federal Register (FR) and compliance dates range from 12 to 18 months depending on the value of private funds assets under management. Separately, Chair Gensler, Commissioner Crenshaw and Commissioner Lizárraga gave statements in support of the action while Commissioner Peirce and Commissioner Uyeda dissented.
• Securities and Exchange Commission. Registered Investment Advisers. SEC reopened the comment period on its proposed rule (see fact sheet) that would redesignate and amend the current custody rule under the Investment Advisers Act of 1940 to enhance protection of customer assets managed by registered investment advisers. The deadline for comments is 60 days after publication in the Federal Register.
• Securities and Exchange Commission. Broker Dealer. SEC issued updates to the following compliance and disclosure interpretations: 1) Exchange Act Rules, 2) Exchange Act Section 16 and Related Rules and Forms, and 3) Regulation S-K. Additionally, the agency released an updated investor bulletin on leveraged and inverse exchange-traded funds.

Enforcement & Litigation

• Securities and Exchange Commission. Advertising & Cryptocurrency. SEC charged a New York-based fintech investment adviser for allegedly using hypothetical performance metrics in advertisements that were misleading.
• Securities and Exchange Commission. Advisors Act. SEC published an order instituting administrative and cease-and-desist proceedings against an online investment platform regarding allegations that the company violated Section 206(4) of the Advisors Act and Rules 206(4)-3 and -7 related to cash payments to a solicitor and internal compliance deficiencies.
• Securities and Exchange Commission. Anti-Money Laundering (AML). SEC charged a firm with allegedly failing to file hundreds of legally required Suspicious Activity Reports (SARs) relating to transactions that involved the use of the trading platform to facilitate fraudulent activity or that had no business or apparent lawful purpose between August 2012 and September 2020.
• Securities and Exchange Commission. Broker Dealer. SEC issued fines to several companies (#1, #2, #3, #4, and #5) regarding claims that they failed to mention plans to revise earlier financial statements when they filed other forms seeking extra time to file new reports.
• Securities and Exchange Commission. Non-Fungible Tokens (NFTs). SEC announced that it settled charges against a media and entertainment company with conducting an unregistered offering of crypto asset securities in the form of purported NFTs. Separately, Commissioner Peirce and Commissioner Uyeda issued a partially dissenting statement regarding the action.
• Commodity Futures Trading Commission. Commodities. CFTC announced that a federal court entered a consent order against a company and individual regarding allegations that they failed to register as commodity trading advisors with the agency. Separately, Commissioner Pham gave a dissenting statement on the ruling.
• DC Circuit Court of Appeals. Securities & Digital Assets. The DC Circuit reversed the SEC's denial of a firm's application to list a bitcoin exchange-traded fund (ETF).

Other News of Note

• Commodity Futures Trading Commission. Derivatives, Futures & Climate Risk. CFTC Commissioner Goldsmith Romero provided remarks at a conference on "A Roadmap for Action on Climate Resilience."