2023 Regulatory Trends, Reading Between the Fines

Dec 21st '23

The complex regulatory landscape continues to shift for financial services firms. Evolving enforcement trends, new regulatory expectations, and emerging legal challenges dominated discussions in the recent “2023 Regulatory Trends: Reading Between the Lines” webinar presented by industry experts Brian Rubin and Andrew Mount of Eversheds Sutherland and Tiffany Magri of Smarsh.


2023 regulatory roundup social wide on demand


Examining key metrics across SEC and FINRA activity this past year provides crucial insights into what may be in store for 2024. Enforcement numbers reveal some surprising declines amid concentrated and consistent discipline expansion across:


  • Communications deficiencies
  • Reporting failures
  • AML breakdowns
  • Suitability actions


Constitutional courtroom battles brew as the industry tracks implications. With stabilizing fines but plunging restitutions, ongoing transparency and accountability pressures, and continued regulatory unpredictability, firms must strategically navigate fluid challenges.


This webinar recap explores developments through an enforcement data lens while contextualizing potential trajectories.


SEC enforcement actions

The Securities and Exchange Commission (SEC) witnessed significant shifts in its enforcement landscape, signaling notable increases and decreases in various key metrics. The SEC filed a total of 784 enforcement actions during fiscal year 2023. This represented a 3% increase compared to the preceding year.


A noteworthy trend emerged in the commission’s actions against broker-dealers, with 140 cases brought forward. This marked a substantial 6% uptick from the previous fiscal year’s 132 cases. Broker-dealer actions constituted 18% of the SEC’s overall enforcement efforts.


The SEC reported a 20% decrease in combined enforcement actions against investment advisers and investment companies. The 139 cases brought in fiscal year 2023 reflected a notable decline from the 174 cases in the prior year. Additionally, the percentage of overall cases attributed to investment advisers and investment companies in 2023 declined to 18% from 23% in 2022. This was surprising given the SEC’s statement that they wanted to increase examinations in this area.


The numbers are in for the SEC in 2023. The SEC’s approach to financial remedies decreased in fiscal year 2023. The commission assessed over $4.949 billion in financial remedies, encompassing penalties and disgorgement. This figure represented a significant 34% reduction from the $6.4 billion in financial remedies ordered in the previous fiscal year.


SEC enforcement highlights and regulatory actions

The SEC highlighted key enforcement actions, particularly addressing off-channel communications. Across 23 cases involving broker-dealers, investment advisors, and dual registrants, the SEC addressed the persistent failure to preserve work-related text communications sent by employees on personal devices.


Firms collectively paid $400 million in penalties in 2023, ranging from $2.5 million to $125 million. Notably, SEC orders included admissions of wrongdoing and undertakings, mandating the retention of independent compliance consultants to review policies and procedures, training, and measures preventing off-channel communications.


In September, the SEC enforced the updated Marketing Rule, penalizing nine Registered Investment Advisers (RIAs) for advertising hypothetical performance without mandated policies. The resultant civil penalties amounted to $850,000. Ongoing scrutiny and investigations signal an expectation of further cases related to Marketing Rule violations.



The Financial Industry Regulatory Authority (FINRA) also had some significant shifts this last year. FINRA filed 287 enforcement cases, representing a significant 35% decrease from the 407 cases reported during the same period in 2022. It’s important to note that year-end reporting often results in the inclusion of additional cases.


However, the overarching trend points to a decline in enforcement actions for 2023. Extrapolating the 2023 figures until the end of the year suggests an estimated 329 filed enforcement actions, reflecting a significant decrease compared to the recorded 465 cases in 2022.


Year-to-date 2023 has seen $47 million in fines imposed by FINRA, showcasing a 4% increase from the total fines of $45 million in 2022. The 2023 fine numbers suggest a potential $54 million in fines for the year, indicating a possible upward trend. However, this projection is subject to change with additional year-end reporting. Approximately $9 million has been paid in restitution disgorgement year-to-date in 2023, marking a significant 200% decrease from the $27 million paid in 2022. The reduction in restitution disgorgement is unexpected, considering FINRA’s longstanding emphasis on prioritizing this aspect of enforcement.


FINRA enforcement highlights and regulatory actions

A November case saw FINRA impose a $600,000 fine for electronic communications deficiencies spanning 2013-2022. This enforcement action spotlights the imperative diligence around correspondence reviews and internal communications oversight, especially regarding email procedures for onboarding and offboarding employees. Failure to swiftly incorporate new employee accounts and deficiencies in Written Supervisory Procedures (WSPs) were cited. Financial firms should maintain vigilance here to meet expectations and mitigate enforcement risks.


Additional 2023 enforcement themes

Trade reporting trendspotting ran the gamut from CAT non-compliance to mismarking transactions and failure to report options positions. Anti-money laundering cases targeted Suspicious Activity Report (SAR) failures stemming from a lack of policies, procedures, account vetting, and cyber event detection programs.


Suitability actions homed in on the inadequate due diligence and surveillance of complex products. Conversion and theft instances primarily involved individual representatives exploiting lax transmittal and signature monitoring. Note potential double counting across categories.


Key enforcement themes in 2023

The key themes for 2023 centered on Chief Compliance Officer (CCO) accountability, self-reporting, and self-remediation. There are growing industry concerns over potential regulatory overreach, especially regarding the definition of off-channel communications for RIAs. As regulators seek to expand the types of communications required to be retained, RIAs face uncertainties in interpreting recordkeeping obligations.


CCO accountability: The scrutiny of CCO accountability is increasing. While regulators state they are not targeting purely compliance roles, some cases have provoked questions around CCO liability. The industry is witnessing more focus on CCOs’ roles, responsibilities, and potential accountability, making diligent documentation imperative.


Self-reporting and remediation: These remain significant considerations. Firms should self-report material violations as required, but determining when to self-report is complicated by unclear benefits. While extraordinary cooperation is acknowledged, fine reductions from self-reporting remain opaque. Firms weigh potential discovery likelihood against self-reporting upsides. Meanwhile, although credited remediation responses have received positive treatment, better guidelines are still needed.


Constitutional challenges: In the 2023 legal landscape, constitutional challenges to SEC and FINRA enforcement proceedings have taken center stage. A notable SEC case reached the Supreme Court, disputing the constitutionality of the SEC’s administrative court. With the Fifth Circuit Court finding constitutional violations and a pivotal Supreme Court decision expected in May, outcomes could reshape where such cases are brought.


Similarly, a July 2023 DC Circuit Court decision temporarily blocked a FINRA enforcement action against a firm contesting FINRA’s adjudicatory structure, presenting additional implications. As potentially momentous developments unfold, firms should closely track outcomes and adapt strategies accordingly.


Regulatory shifts: The regulatory horizon suggests expanding interpretations of business communications, particularly regarding off-channel retention for RIAs. While RIAs have traditionally faced narrower obligations, SEC scrutiny hints at broader retention requirements. Firms may encounter challenges navigating fluid definitions, requiring proactive approaches to meet emerging expectations around recordkeeping and strategic communications oversight.


Predictions for 2024

Anticipating another surge in enforcement actions related to off-channel communications, financial firms should be proactive in self-reporting, remediating, and collaborating with regulators. Evolving 2024 regulatory spotlights on communications and more enforcement underscore the need for cohesive stances on personal devices and compliance-centric cultures. Compliance officers must remain vigilant, adapt measures, and ensure their firms are well-prepared for pivotal regulatory developments.


The SEC’s proposed AI conflicts rules and information sweeps signify escalating pressures. As rapid developments unfold, strong advisories push financial firms to align practices with marketed capabilities and reliability expectations. The SEC’s focus on transparency and accountability highlights responsible and accurate AI integration as crucial.


Longstanding Regulation Best Interest (RegBI) challenges also persist around transparent fee disclosures, exploring all reasonable recommendation alternatives, and guaranteeing individual recommendation alignments.


Key navigational tools include:


  • Robust training
  • Regular assessments
  • Automation solutions
  • Industry awareness
  • Client-centric cultures


Proactive engagements enable effective compliance evolution. The latest data demonstrates the relentless enforcement efforts of the SEC and FINRA, highlighting disciplinary actions and the extensive scope of threats despite a momentary decrease in aggregate fines. Financial services firms must prioritize proactive monitoring in the face of potential enforcement surges and increased communications oversight requirements.


FEATURED BLOG: Predictions: A Close Look Back at 2023 and What’s on the Horizon for 2024


Source: Smarsh. Author: Tiffany Magri Regulatory Advisor at Smarsh


About the author: 

As a Regulatory Advisor at Smarsh, Tiffany monitors, evaluates and consults on the financial services regulatory landscape. Tiffany has more than 10 years of experience facilitating compliance with laws and regulations, policies, and risk management. Prior to joining Smarsh, Tiffany was a Senior Associate at Benefit Street Partners and a Compliance Analyst at Broadstone and Manning & Napier Advisors.


About Smarsh

Smarsh® is the recognized global leader in electronic communications archiving solutions for regulated organizations. Smarsh provides innovative capture, archiving, e-discovery, and supervision solutions across the industry’s widest breadth of communication channels.


Scalable for organizations of all sizes, the Smarsh platform provides customers with compliance built on confidence. It enables them to strategically future-proof as new communication channels are adopted, and to realize more insight and value from the data in their archive. Customers strengthen their compliance and e-discovery initiatives and benefit from the productive use of email, social media, mobile/text messaging, instant messaging and collaboration, web, and voice channels.


Smarsh serves a global client base that spans the top banks in North America and Europe, along with leading brokerage firms, insurers, and registered investment advisors. Smarsh also enables state and local government agencies to meet their public records and e-discovery requirements. For more information, visit www.smarsh.com.


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