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Compliance

Voices: My predictions for 2019's regulatory agenda

By Todd Cipperman
January 7, 2019 1:00 AM

The SEC has named cybersecurity and cryptocurrencies as the hot topics for broker-dealer and financial advisor examinations this year, according to the commission's end-of-year announcement.

But apart from exams, what else is on the regulatory agenda? Here are my top 10 predictions for 2019:

The SEC will expand the whistleblower program

I predict that the SEC will expand the program to include criminal actions prosecuted by the Department of Justice as well as state enforcement actions.

Supreme Court will decide on digital tokens and ICOs

I believe that the Supreme Court will decide that digital tokens are not securities and that an ICO is not a securities offering. This issue is roiling the lower courts and the industry. Eventually, the court will have to end the uncertainty.

Although I think there are good arguments on both sides, I predict that this Supreme Court will rule against SEC regulation.

Approved: A registered crypto fund

I won't try predict which fund, or the conditions imposed, but I believe the SEC will greenlight at least one crypto-based registered fund. I suspect it will be sponsored by a (very) large firm.

Securities fraud allegations for secondary market private equity transactions

Both private equity sponsors and third parties have expanded the secondary market for private equity investments.

Because of the information imbalance between buyers and sellers, I expect that the SEC will seek to even the playing field by bringing securities fraud cases.

Independent fund directors in the hotseat

Both the OCIE and the SEC's enforcement division have increased scrutiny of registered funds and their management.

I foresee that the enforcement division will go beyond the fund sponsors and look to hold independent directors accountable for regulatory failures.

OCIE will examine at least 20% of advisors

Chairman Clayton committed to increasing advisor reviews to respond to media and Congressional criticism that the SEC needs to enhance industry supervision.

The SEC reviewed 15% of advisors last year. This will be the year that the SEC hits the 20% mark.

SEC to liberalize the private offering rules

Look for the SEC to raise the accredited investor definition, change offering exemptions or seek new private offering categories.

Expect cases alleging violations of the solicitor rule

I expect the year to bring several significant cases alleging violations of the solicitor rule.

The OCIE has already cited widespread noncompliance with the solicitation rule (206(4)-3), which limits how advisors can pay solicitors for recommending their services.

I anticipate the SEC's enforcement division to follow up with litigation.

The SEC will re-propose its Best Interest standard

Responding to industry comments, the SEC will re-propose the rule, making it more closely resemble an advisor fiduciary standard — stopping just short of reconciling the two.
The SEC is one of several regulators charged with the first phase of a joint rulemaking for the Financial Data Transparency Act.
The SEC is one of several regulators charged with the first phase of a joint rulemaking for the Financial Data Transparency Act.Photographer: Al Drago/Bloomberg
Bloomberg News

The SEC will propose a comprehensive advisor marketing/advertising rule

Last year, we (accurately) predicted that the SEC's enforcement division would focus on marketing and advertising cases. This year, I forecast that the Division of Investment Management will use these cases to justify a proposal for a new rule that will address advisor marketing practices.
Todd Cipperman
Managing Principal, Cipperman Compliance Services
Compliance Regtech Regulation Best Interest SEC SCOTUS Cryptocurrency
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