Securities Regulatory Outlook for 2017

Securities Regulatory Outlook for 2017

With 868 enforcement actions brought by the SEC, 2016 was a year of increased regulations and record enforcement actions against Investment Advisors/Investment Companies and Broker Dealers. More than $4 billion in disgorgement and penalties were assessed by the SEC and $145 million in fines and $41 million in restitution by FINRA. Promises of deregulation and a new administration in the White House raises the question: What will 2017 bring?

From the Regulators


On January 5, 2017, FINRA released its Regulatory and Examination Priorities letter highlighting areas FINRA will focus on in 2017. The focus areas are:

  1. High-Risk and Recidivist Brokers
    FINRA will devote particular attention to firms’ hiring and monitoring of high-risk and recidivist brokers. FINRA will identify high-risk brokers and examine their customer interactions and compliance with relevant regulations. They will assess whether firms develop and implement a “supervisory plan reasonably tailored to detect and prevent future misconduct by a particular broker based on prior misconduct and regulatory disclosure.”
  2. Sales Practices
    FINRA will assess firms’ controls to protect senior investors from fraud, abuse, and improper advice. In addition, FINRA will continue to focus on product suitability and concentration as well as short-term trading of long-term products.
  3. Financial Risks
    FINRA will review firms’ funding and liquidity plans and assess whether firms adequately evaluate their liquidity needs related to market stresses and develop contingency plans so that they have sufficient liquidity to handle those stresses.
  4. Operational Risks
    Cybersecurity threats remain one of the most significant risks many firms face. FINRA will be assessing firms’ programs to mitigate those risks.
  5. Market Integrity
    FINRA will continue its focus on detecting and deterring market manipulation through an expanded surveillance program that will detect changes in market participants’ behavior. Additionally, FINRA developed a cross-product surveillance system that will detect layering in an underlying equity to influence options prices.

The SEC has not released their official priorities as of this post; however, Deputy Director of the Division of Enforcement, Stephanie Avakian, offered some predictions in November 2016 during the Securities Industry and Financial Markets Association C&L New York Regional Seminar. Ms. Avakian, highlighted the following five areas, among others, that the SEC might focus on in 2017:

  1. The use of data analytics to analyze complex products and embedded derivatives (emphasizing that firm representatives must understand the risks of complex products and explain them to customers and adequate disclosure must be provided)
  2. Insider trading
  3. Conflicts of interest with respect to investment advisors
  4. Accounting issues
  5. Cybersecurity, including cyber-related disclosure failures and information theft for purposes of gaining a competitive advantage (emphasizing the need to control access and protect information)

From the Administration

During his campaign, Trump promised to “get rid of” Dodd-Frank — the sweeping legislation passed in 2010 to address problems underlying the 2008-2009 financial crisis. In an interview with Fox News last October, Trump said:

We have to get rid of Dodd-Frank. The banks are not loaning [sic] money to people that need it. The banks will give me all the money I need, because I don’t need the money. Anybody that doesn’t need money is a great candidate to get money. But if you need money to create jobs or build something, whether it’s buildings or a company, the banks aren’t there. The regulators are running the banks, and that is why people can’t borrow money in our country today.

In what looks like a step to fulfill that promise, President-elect Trump announced the nomination of Jay Clayton, a mergers and acquisition lawyer, to replace Mary Jo White as SEC chair. The nomination of Clayton signals a major shift in policy, as experts say the M&A attorney is likely to turn the agency’s focus from enforcement, both domestically and internationally, to cutting the rules companies find most irksome.

Department of Labor (DOL) Fiduciary Rule

One of the biggest regulations that was finalized in 2016 and expected to take effect in 2017 is the DOL’s Fiduciary Rule. The Rule requires financial advisors to act in the best interest of their clients with respect to their retirement accounts. It is unclear whether a Trump administration would seek to block or delay the Rule. It has not been directly addressed by the campaign, but an advisor to President-elect Trump has indicated that there would be efforts to reverse it and Republicans in Congress have previously indicated a desire to do so.

It is worth noting that in assessing what the new president and Republican Congress can or will do to implement financial deregulation in 2017, the Senate will have 52 Republicans and 60 votes are needed to defeat a filibuster. Republicans will need at least 8 Senate Democrats to join them in enacting their agenda. Thus, what exactly will be deregulated in 2017 and the years to come is still to be seen. For now, advisors and firms should update and fine-tune their compliance programs to become compliant with current and upcoming regulations and rules.

Whatever 2017 brings, ICSGroup is here to help you prepare and navigate the ever changing legal and compliance requirements facing your firm or organization.