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Financial Services

Broker Dealer Regulatory Digest

May 10 - May 23, 2024
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Regulatory Developments

  • Securities and Exchange Commission. Customer ID requirements. On May 13, 2024, SEC and FinCEN proposed a rule designed to make it more difficult for criminal actors to establish customer relationships with investment advisers. The rule would require certain investment and financial advisers to establish procedures to verify the identity of their customers. The procedures would help prevent illicit finance activities by strengthening the anti-money laundering framework of the investment advisor sector and countering terrorism financing (AML/CFT) within the sector, SEC said. The agencies will accept comments until July 22, 2024.

  • House of Representatives. Cryptocurrency regulation. On May 22, 2024, the House of Representatives passed a bill that would split the regulation of digital assets between CFTC and SEC. CFTC would oversee “digital commodities,” including digital assets associated with decentralized networks, and SEC would regulate “restricted digital assets,” or those that are not yet decentralized, according to the Financial Innovation and Technology for the 21st Century Act.

  • Securities and Exchange Commission. Ether trading. On May 23, 2024, SEC granted several securities exchanges permission to list products tied to the cryptocurrency ether. SEC called the proposals from Cboe BZX Exchange, NYSE Arca, and the Nasdaq Stock Market “consistent with the Exchange Act,” in a filing announcing the decision. The move marks a significant step on the path to the first ETFs that directly invest in ether. Still, before trading can begin, SEC must approve the S-1 filings of ether issuers.

Enforcement and Litigation

  • Securities and Exchange Commission. Compliance failures. On May 22, 2024, SEC announced a settlement with the parent company of the New York Stock Exchange for failing to alert SEC to a cyber intrusion in 2021 as required by Regulation Systems Compliance and Integrity (Regulation SCI). The Intercontinental Exchange Inc. (ICE) agreed to pay $10 million to settle claims that it failed to inform regulators or its nine subsidiaries that a threat actor had inserted malicious code into a virtual private network device used to remotely access ICE’s corporate network, according to the agency.

Rulemaking Updates

  • Commodities and Futures Trading Commission. Event contracts. On May 10, 2024, CFTC issued a proposal to further specify the kinds of event contracts that are contrary to the public interest and may not be listed for trading, including gaming, war, terrorism, assassination, and activity that is unlawful under any federal or state law. The agency said it began to consider the updated rule after seeing an increase in the volume and variety of event contracts for sale by CFTC-registered exchanges. CFTC will accept comments until July 9.

  • Securities and Exchange Commission. Customer data protection. On May 16, 2024, SEC adopted amendments to an existing rule that will require investment advisers and broker-dealers to develop methods to detect data breaches and inform consumers when their non-public personal information may have been accessed or used without authorization. The changes to Regulation S-P are designed to “address the expanded use of technology and corresponding risks that have emerged,” since SEC implemented Regulation S-P in 2000, the agency said.

  • Commodities and Futures Trading Commission. Carbon-credit regulation. On May 21, 2024, CFTC Commissioner Christy Goldsmith Romero said she anticipates the agency will issue a final rule on trading carbon credits between September and the end of the year, according to Bloomberg Law. CFTC issued draft guidance in December 2023 that could promote the standardization of voluntary carbon credit derivatives contracts.

  • Financial Industry Regulatory Authority. Rule clarification. On May 22, 2024, FINRA issued a statement clarifying that two new rules announced in January, the residential supervisory location rule and the remote inspections pilot program rule, are intended to give firms more, not less, flexibility to allow registered persons to work from home. FINRA pointed to statements from member firms claiming that the new FINRA rules would require employees to return to the office full-time, which it said was incorrect.

Orla McCaffrey is a regulatory analyst with Davis Wright Tremaine LLP.

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