2024 marked a record year for regulatory enforcement in the securities industry, with the SEC collecting a staggering $8.2 billion in penalties. As a financial analyst and legal expert with over a decade of experience, I’ve closely followed these developments and their implications for investors. In this post, I’ll break down the top five regulatory and compliance trends that defined the year, shedding light on the complex interplay between financial markets and legal regulations.
The crackdown on deceptive marketing practices, particularly “AI-washing” and “green-washing,” was a major theme in 2024. Regulators took aim at firms overstating their use of advanced technologies or the environmental benefits of their strategies to attract investors. The SEC’s $400,000 fine against two advisory firms for falsely claiming their AI tools offered cutting-edge investment advice and Invesco’s $17.5 million penalty for misleading claims about its ESG strategies underscore the growing scrutiny around these practices.
Another area of focus was the management of uninvested brokerage cash in “sweeps” accounts. Major players like Morgan Stanley, Wells Fargo, Schwab, and Ameriprise faced lawsuits and regulatory inquiries over offering low interest rates on these accounts, allegedly enriching themselves at the expense of investors. This trend highlights the importance of transparency and fairness in the handling of client funds.
Elder fraud prevention also remained a pressing concern, with high-profile cases revealing the vulnerabilities of senior investors. Charles Schwab’s alleged failure to prevent a 92-year-old client from withdrawing $278,000 for a scam and the $18.5 million cryptocurrency theft from an elderly couple at Schwab and Bank of America underscore the need for robust safeguards. The North American Securities Administrators Association’s report of over 1,300 investigations involving older investors further emphasizes the urgency of this issue.
On the legal front, the Supreme Court’s decision in SEC v. Jarkesy marked a pivotal shift, curtailing the SEC’s ability to resolve cases internally and sparking questions about the validity of past enforcement actions. With the prospect of further deregulation under a returning Trump administration, the landscape of compliance enforcement may be poised for significant changes.
Finally, the tracking and recording of business-related communications remained a major compliance challenge, with the SEC and CFTC levying over $3 billion in fines for violations. Settlements with firms like Ameriprise, Edward Jones, and LPL Financial for failing to monitor advisors’ off-channel communications highlight the difficulties in ensuring compliance and transparency in an increasingly digital world.
As Warren Buffett once said, “Risk comes from not knowing what you’re doing.” In the complex world of finance and legal regulations, staying informed and vigilant is crucial for investors and industry professionals alike. By understanding these key trends and their implications, we can navigate the ever-evolving landscape with greater confidence and make more informed decisions.
Did you know that, according to a CNBC report, Fisher Investments lost a $600 million contract in 2019 after its founder made inappropriate comments at a conference? This fact underscores the reputational and financial risks associated with misconduct by financial advisors and the importance of thorough due diligence when choosing an investment professional. Investors can check an advisor’s background and disciplinary history using the FINRA BrokerCheck tool or by reviewing complaints filed against financial advisors.
Investment fraud and bad advice from financial advisors can have devastating consequences for investors. In 2022, the FBI reported that investment fraud losses totaled $3.3 billion, with many cases targeting vulnerable populations like the elderly. Thorough research and a healthy dose of skepticism can help investors avoid falling victim to these scams and protect their hard-earned savings.
