Compliance is always tough for advisors. However, Michelle L. Jacko, managing partner and CEO of Jacko Law Group, PC feels that there are a number of common mistakes that advisors make – and that they can easily fix.
One of the areas she believes advisors fall short is their failure to recognize the importance of documentation in regulatory compliance.
“Advisors are generally doing a lot of the things they need to be doing from a regulatory standpoint, but they’re not documenting it,” she says.
This gap in documentation can lead to significant issues, she believes, as the current environment demands a “trust but verify” approach. Jacko says that advisors and broker-dealers must ensure they can substantiate their compliance efforts, mitigating risks associated with regulatory scrutiny.
One of the most pressing regulatory challenges is risk mitigation. “Every facet of the business is regulated, and that means there are consequences for what we’re doing,” adds Jacko.
Jacko goes on to highlight the 2024 SEC and FINRA exam priorities, which include complex products, sales to seniors and retirees, cybersecurity, and new tech.
“As a business owner, I’m sure they appreciate that every facet of the business is regulated,” she says. “For example, sales to seniors and retirees – in that segment of the population, there is so much fraud that is occurring. It is important to be ahead of the curve and to be aware of the warning signs so that advisors can fulfil their fiduciary obligations. What’s not going away is regulation.”
To help make sense of the compliance chaos, Jacko’s organization leverages various platforms to help clients stay ahead of regulatory changes.
“We use social media like LinkedIn to share weekly regulatory tips on how firms can stay ahead of the curve,” she adds.
Additionally, the firm offers blogs, monthly newsletters, webinars, and live engagements to disseminate risk mitigation strategies. But we’d be remiss to talk about compliance handling without mentioning the rise of AI. According to research from Future Data Stats, the global AI market in the financial sector was valued at $10.5 billion in 2022 and is projected to grow at a rate of 23.2 percent – reaching a value of $55.72 billion by 2030.
“If you can imagine having a dashboard that can reflect what you’re doing, when you’re doing it, and it has all those books and records to substantiate your compliance controls, that’s seen as a big plus from the regulators,” says Jacko.
These tools help detect trends or patterns of problematic behaviour, enhancing firms’ ability to maintain robust compliance programs, making the integration of AI into compliance essential.
“AI has so many powerful tools behind it; it’s here to stay,” Jacko explains. However, she cautions that the human element remains crucial in interpreting data outputs and ensuring intelligent surveillance of compliance programs.
“You need the human being behind that data. It’s not going to be taking over the day jobs of compliance personnel.”
And, looking ahead, Jacko anticipates that the regulatory environment will continue to evolve, addressing new complexities in the marketplace.
“From the new cyber and AI evolutions that we're speaking about, those are going to require firms to hire and outsource an aspect of compliance to professionals who specialize in those particular areas,” she predicts.
Automation will play a significant role in risk mitigation, but the demand for compliance professionals to interpret and oversee data will persist. Jacko also foresees continued M&A activity as the industry consolidates, and an increase in enforcement cases, often related to books and records violations, off-channel communications, and cybersecurity intrusions.
“We're seeing big dollars that are being paid in enforcement cases for books and records violations, particularly in the area of off-channel communications,” she adds.
To stay ahead of regulatory changes, Jacko Law Group is deeply involved in industry events and maintains close communication with regulatory bodies.
“I speak at various national conferences throughout the year where I have an opportunity to interface with the SEC staff,” Jacko explains.
By continuously monitoring regulatory updates and educating clients, the firm helps businesses prepare for and adapt to new compliance requirements. Jacko underscores the financial implications of regulatory changes, noting that “usually with change, it also requires some budget because advisors have to implement change internally at their organizations.”
By equipping clients with the necessary knowledge and tools, Jacko Law Group aims to enhance their risk mitigation strategies and ensure their long-term success. A win-win in today’s increasingly complex regulatory environment.
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