Broker Dealer Regulatory Digest

Editor's Note

We would like to introduce you to a new initiative from our firm to provide a regular report of key financial services developments for distribution to our clients. There would be no charge for this service and we would email every two weeks. Also, if you have any feedback we'd be happy to incorporate it! Finally, if you have any questions regarding the developments detailed below, please feel free to reach out to your relationship contact and we'd be happy to assist. Thank you!

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 (securities, commodities, capital markets, etc.), and (3) the general issue covered.

Regulatory Developments

• Securities and Exchange Commission. Cybersecurity. SEC adopted a final rule (see fact sheet) requiring registrants to disclose material cybersecurity incidents they experience and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance. The deadline for comments is September 5, 2023. For a deeper analysis on this rule, please see our blog post on this topic.
• Securities and Exchange Commission. Conflicts of Interest & Artificial Intelligence (AI). SEC proposed a rule (see fact sheet) to eliminate certain conflicts of interest associated with broker-dealers' or investment advisers' interactions with investors through these firms' use of technologies such as predictive data analytics ("PDA") by broker-dealers and investment advisers, which includes "digital engagement practices" or "DEPs" that optimize for, predict, guide, forecast, or direct investment-related behaviors or outcomes. The deadline for comments is 60 days after publication in the Federal Register.
• Securities and Exchange Commission. Investment Advisors Registration. SEC released proposed amendments (see fact sheet) to the rule under the Investment Advisers Act of 1940 that exempts certain investment advisers who provide advisory services over the internet from the prohibition on agency registration, as well as related amendments to Form ADV. The deadline for comments is October 2, 2023.
• Securities and Exchange Commission. Cryptocurrency & Accounting. SEC Chief Accountant Munter issued a statement on "The potential pitfalls of purposed crypto 'assurance' work."
• Securities and Exchange Commission. Anti-Money Laundering (AML) & Broker Dealer. SEC published a risk alert on observations from AML compliance examinations of broker-dealers.
• Commodity Futures Trading Commission. Derivatives Clearing Organizations (DCOs). CFTC announced a final rule amending certain reporting and information regulations applicable to derivatives clearing organizations. The deadline for comments is September 7, 2023, and DCOs must comply with the amendments to § 39.19 and Appendix C by February 10, 2025.
• Commodity Futures Trading Commission. Swaps. CFTC unanimously voted for a proposed rule to amend its swap execution facility (SEF) regulations related to uncleared swap confirmations, as well as associated conforming and technical changes. The deadline for comments is October 10, 2023.
• Commodity Futures Trading Commission. Commodities. CFTC approved a proposed rule to amend Part 40 of the agency's regulation, which governs how registered entities submit self-certifications and requests for approval of their rules, rule amendments, and new products for trading and clearing, as well as the Commission's review and processing of such submissions. The deadline for comments is 60 days after publication in the Federal Register.
• Commodity Futures Trading Commission. Swaps. CFTC issued a proposed rule to amend the margin requirements for uncleared swaps applicable to swap dealers (SDs) and major swap participants (MSPs) for which there is no prudential regulator. The deadline for comments is 60 days after publication in the Federal Register.

Enforcement and Litigation

• Federal Court. Cryptocurrency. A New York federal court rejected a motion to dismiss an SEC lawsuit against a blockchain protocol and payment platform, contrary to the logic used in another recent ruling.
• Commodity Futures Trading Commission. Spoofing & Futures. CFTC issued an order filing and settling charges against an individual for allegedly engaging in multiple instances of spoofing in WTI light sweet crude oil futures contracts traded on New York Mercantile Exchange, Inc. (NYMEX) from approximately December 16, 2021, through at least January 14, 2022.
• California Department of Financial Protection and Innovation. Commodities & Bankruptcy. CA DFPI announced that it joined a multistate group to recoup alleged overcharges from investors as part of a commodity firm's bankruptcy plan.

Research and Analysis

• Financial Stability Oversight Council. Climate Financial Risk. FSOC's Climate-related Financial Risk Committee issued a staff progress report on a range of actions underway to support capacity building and disclosure, address data gaps, and assess climate-related financial risks. Separately, the SEC Chair spoke at a meeting on the issue.

Michael Buckalew is a regulatory analyst with Davis Wright Tremaine LLP.