In a new episode of the Financial Planning Podcast, the former head of enforcement with FINRA explains some of the most complex regulatory issues facing wealth management.
Susan Schroeder is a partner with WilmerHale, where she’s the vice chair of the law firm’s securities and financial services department. She served as FINRA’s top enforcement officer from 2017 to 2019 and deputy head of enforcement for the prior six years, following her first tenure with WilmerHale. In her current role, Schroeder advises wealth managers and other clients in regulatory inquiries and internal investigations.
In the podcast, FP Chief Correspondent Tobias Salinger asks Schroeder five questions about the implementation of the SEC’s Regulation Best Interest, fraud detection and other industry compliance issues.
1. Last year was obviously one we’ll remember for a long time due to the coronavirus pandemic. However, it was also a big year in wealth management because the SEC’s Regulation Best Interest went into effect in June 2020, and we just saw the SEC release its first major wave of enforcement actions against firms that allegedly didn’t file the new Form CRS on time. What stood out to you about those cases and what are your expectations for enforcement under Reg BI moving forward, given many are expecting the Biden administration to change it?
WilmerHale
2. In 2020, FINRA enforcement cases ordered $25.2 million in restitution, barred 246 reps from the industry and suspended 375 others. FINRA also referred 970 fraud and insider trading cases for prosecution. The restitution was slightly down from the previous year and way down from 2017, when there was $66.8 million. The number of individuals barred and suspended were both five year lows as well. What accounts for the variation year-to-year in enforcement and what annual enforcement metrics are the most interesting or insightful to you for tracking purposes?
3. In July, the SEC’s Division of Examinations issued a risk alert about deficiencies it had found in exams of RIAs that participate in wrap fee programs. What were the main issues discussed by the SEC and how should firms prepare for their exams when it comes to these wrap advisory accounts used in much of the dual registered parts of the industry?
4. What are the main challenges of detecting and preventing fraud and efforts to stamp out bad actors from the industry?
5. Regulators often go on to careers in private industry representing or working for companies that were previously under their purview. How would you respond to concerns that this revolving door has an impact on regulatory and enforcement efforts?
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