What We Learned at the National Society of Compliance Professionals’ (NSCP) National Conference

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Michael Freeman


There were 4 primary themes that ran throughout the compliance conference.

I recently attended the National Society of Compliance Professionals (NSCP) in Washington DC. The room was filled with some of the finest compliance minds along with speakers from the SEC, FINRA and the DOL. A few consistent themes were apparent from the many sessions and the focus areas across IAs and BDs.

Top 4 Themes 

  1. PTE 2020-02 (ERISA Rollovers)
  2. Reg BI’s Reasonably Available Alternatives
  3. Ongoing Due Diligence (on partners and products) 
  4. Cyber Security

DOL Shifts from Compliance to Enforcement

The DOL talked about moving from rule-making to compliance to enforcement on several of their initiatives. Currently, for initiatives such as PTE 2020-02, they are in the compliance phase and expect to move to the enforcement phase in the not-too-distant future. This means the DOL will shift from “How can we help you understand what compliance looks like?” (The Compliance Phase) to “You didn’t follow the rule so here’s your fine.” (The Enforcement Phase). We discussed some of the data's limitations and automated systems supporting this rule. While no process or system is foolproof, it is certainly expected that a consistent effort to comply and efforts to improve compliance are ongoing. 

SEC's Reasonable Available Alternatives Rule Focuses on Documentation 

The SEC's Reasonably Available Alternatives (RAA), one of the key parts of Reg BI, has already moved to the enforcement phase. This shift to enforcement is in sync with what we are starting to see in their public statements. The conversation consistently pivoted around a “demonstrated process” and “documentation” of that process to show the Financial Professional has looked at the market of reasonable products and made the best choice for the client. This can be done at the Advisor level or directed by the BD. The difference between the Advisor-led approach and the BD-supported approach presents different risks for the BD. It’s important to understand the benefits and risks of each approach. 

FINRA Finds Risk in Inadequate “Ongoing Due Diligence”

FINRA focused on several areas throughout their comments but consistently reinforced firms’ requirement to provide Initial and “Ongoing Due Diligence” on their vendors, partners and products. “Ongoing Due Diligence” (which is everything that happens after you onboard a product, partner or vendor) appears to be where FINRA finds the most risk exposure among firms currently. FINRA is focusing on two areas of compliance: 1) Broker-Dealers’ lack of procedures around Ongoing Due Diligence and  2) lack of “execution” against a firm’s own policies. It’s a toss-up on which transgression is considered more egregious by FINRA but they seem to be particularly sensitive to firms which say they do “Ongoing Due Diligence” but really do not. Clearly stated, “Ongoing Due Diligence” is a living, breathing area that must be attended to consistently. 

Cyber Security Remains Front and Center

Lastly, Cyber Security within the BD or IA was front and center. This can be addressed in the Due Diligence Questionnaire you require of your partners and your internal policies and procedures. Cyber Security is usually a company-wide initiative that transcends the BD and the IA, and/or the Bank or Trust Company and/or the Parent Insurance Company. This company-wide policy should incorporate each line of business and take into consideration different risk levels and exposures. 

It's Time for Follow-Up Meetings

DDW has a follow-up meetings on these topics in the coming weeks to talk about the state of the industry regulations and where there are limitations and improvements to be made. If you have any specific questions or would like to talk through in more detail, you can schedule time with a me at michael.freeman@duediligenceworks.com

MikeFor more information about the author DDW's products and services, contact Mike Freeman, President of DDW.

917.328.7498 | michael.freeman@duediligenceworks.com

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