Regulatory Round Up - April 2024

In this month's edition of True West's Regulatory Round-Up, we highlight essential components for SEC-registered firms to maintain robust compliance programs.

A thorough risk assessment is crucial for identifying, assessing, and mitigating risks. This process involves regular reviews, particularly when there are changes in business lines or new regulatory developments. Typically, the Chief Compliance Officer leads this effort, often with the help of compliance consultants or a senior committee.

Artificial Intelligence (AI) is increasingly integrated into compliance processes, aiding in data processing and risk reduction. However, accurate and transparent disclosures regarding AI use are vital to avoid SEC penalties. Misrepresenting AI capabilities, known as "AI washing," is a significant concern for the SEC.

The new Marketing Rule is a major focus, with the SEC emphasizing the importance of accurate and complete disclosures in marketing materials, testimonials, and endorsements. Recent enforcement actions include substantial fines for misleading statements about AI use and improper marketing practices.

This month's roundup also provides a comprehensive monthly checklist for Chief Compliance Officers. Key tasks include updating client lists, reviewing marketing materials, ensuring there are no cyber breaches, and confirming compliance with personal account reporting requirements.

Recent SEC enforcement actions underline the necessity of truthful AI claims and adherence to marketing rules. Notable cases involve fines for false AI claims and improper marketing disclosures, highlighting the importance of compliance in these areas.

By following these guidelines and regularly updating their compliance practices, SEC-registered firms can better protect their clients and operations in a dynamic regulatory environment.