The business landscape for independent broker-dealers continues to be challenging, and it’s helpful to understand some of the headwinds that firms will be facing in 2022 and beyond. Knowing and understanding these issues can help broker-dealers plan ahead, be proactive, and avoid having to play catch up.
Heightened regulatory expectations
- Greater scrutiny of financial regulatory compliance and reporting. Broker-dealers will continue to experience heightened regulatory expectations for documentation, data transparency, and process consistency in the coming months and years. This involves ensuring firms have adequate control testing, proper data quality and governance, and sufficient reporting training for upstream data providers. The issue will continue to be data quality, and broker-dealers will need to invest in new technologies to ensure a healthy and controlled process that includes end-to-end automation and completeness of source data.
- Digital engagement will receive increased attention. The SEC has been reviewing broker-dealers’ use of digital engagement practices (DEPs) and other technology tools, such as artificial intelligence, that are designed to influence client behavior and provide investment advice. This scrutiny may translate into new regulations designed to make certain DEPs are consistent with acting in clients’ best interests and potentially even require compliance as part of Reg BI.
- FINRA is implementing its new bad broker initiative. FINRA is planning to issue a “score” for each broker-dealer based on the number of risk-related disclosures it receives. Firms with low scores relative to their peers will receive a “restricted” status and will be required to deposit a pre-determined amount in cash or qualified securities into a restricted account to cover future arbitration awards. Firms will be able to improve their score by terminating “bad” brokers or challenging FINRA’s designation at a hearing.
- Closer attention given will be given to anti-money laundering programs. Regulators will continue to focus renewed attention on broker-dealers’ anti-money laundering (AML) programs to ensure compliance. Firms will be required to focus on red flags and implement adequate surveillance technology to improve their ability to monitor and investigate suspicious activity.
The need for greater technology investment
- Data and privacy protection are increasingly vital. Cybersecurity has become a progressively more important initiative, and keeping clients’ financial information secure will continue to get more difficult. This essential safeguard will require new investments in the relevant technology. To protect the firm, broker-dealers will need the most up-to-date technology but also a rapid and workable contingency plan in place in case a breach does occur.
- An increasing need to keep up with sophisticated technology requirements. Broker-dealers will be pressured to continue to move to all-electronic, automated solutions to drive productivity and cost-efficiency. To successfully recruit new advisors, broker-dealers need to ensure their platforms keep pace with current technology. This technology should be centered on improving both the client and the advisor experience. This may include technology for single sign-on, e-signature, mobile apps, and built-in features like account aggregation, account reporting, and fee billing.
Your partner for success
At Axos Clearing, we help turn business challenges into opportunities for growth. We provide broker-dealer firms with the technology and support to enhance their businesses and achieve higher and higher levels of success. Axos Clearing provides customized technology to fit your business’ needs, helping you scale, increase operational efficiencies, and manage costs.
Contact us today to learn more about our technology resources and how we can support your business.