Welcome to the September 15, 2025 edition of On The Docket, which includes the following content:
- Document Version Control, Often Slept On
- On the SEC’s agenda: Amendments to the Custody Rule & Customer Identification Programs
- A Recipe for SEC Enforcement Action
- Reminder: Assess personnel’s comp structure & disclose conflicts of interest accordingly
- Custody Trigger Reminder
- SEC Creates an AI Task Force
- Why not also raise the Form 13F reporting threshold?
- Outdated SEC Recordkeeping Rule still references “microfilm” and “microfiche”
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Happy reading.
– Chris
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Document Version Control, Often Slept On
One of the most underrated compliance organization skills? Document version control.
Many of the documents requested during an SEC exam will require that an adviser submit “each version effective during the examination period.” This expectation of version control typically applies to:
– Standard form advisory agreement(s)
– Compliance policies/procedures
– Code of ethics
– Form ADV
Though decidedly unsexy, having a consistent system to track and save all historical versions of these documents goes a long way in streamlining an adviser’s response to an SEC exam request list.
This is especially important for advisers that iterate and improve these documents multiple times during the year due to changes in services, fees, conflicts of interest, affiliations, improvements identified during the annual compliance review, or even simple syntax clarifications. Since an SEC examination period can often be multiple years in length, there may be multiple versions to account for.
Bonus points if you are able to save a “tracked changes” or “redline” version of these documents that makes it easier to identify changes between versions. Google Docs (of which we at Beach Street Legal are big fans) tracks this automatically through the File > Version history > See version history menu option.
On the SEC’s agenda: Amendments to the Custody Rule & Customer Identification Programs
The recently-published SEC regulatory/deregulatory agenda includes two items of note:
– Amendments to the Custody Rule
– Customer Identification Programs for RIAs and ERAs
TBD whether the Custody Rule amendments will just address custody of crypto assets or the custody of funds/securities more broadly, but IMO the Custody Rule is ripe for an overall refresh.
The Customer Identification Program (CIP) rule traces its roots all the way back to the 2001 USA PATRIOT Act and is the counterpart to the AML/CFT rule that was recently punted to 2028. The AML/CFT rule and CIP rule should effectively be a package deal, so I’d be surprised if one was ultimately passed w/out the other.
—–Resources—–
🔖 SEC regulatory/deregulatory agenda
🔖 SEC Chairman Paul Atkins statement
A Recipe for an SEC Enforcement Action
A variety of compliance issues in isolation may not result in an SEC enforcement action, but a combination of the same compliance issues can… as was the case for the administrative proceeding linked below.
The adviser in this matter:
– Claimed that it “refused all conflicts of interest”
– Failed to maintain historical website content that constituted advertisements
– Failed to follow its own compliance policies/procedures re: reliance on third-party vendors for recordkeeping
– Failed to perform more than a cursory annual compliance review
If an SEC exam uncovered just one or two issues above, *maybe* the findings would not have been referred to enforcement. But taken together, the outcome was obviously different.
🫵🏻 Takeaways: Don’t make any “conflict free” or similar claims, confirm website content and other advertisements are maintained for the requisite duration under the Recordkeeping Rule, follow your own compliance manual, and don’t blow off the annual compliance review.
—– Resources —–
Reminder: Assess personnel’s comp structure & disclose conflicts of interest accordingly
Add this to the ever-growing “failure to disclose conflicts of interest” SEC administrative proceeding file.
If advisory personnel are financially incentivized (via bonus, salary increase, promotion, or other carrots) to recommend a particular advisory product or service, there should be specific and consistent disclosure in the adviser’s brochure, brochure supplement, and relationship summary.
“During the Relevant Period, Respondent’s website described PAS Advisors as salaried advisors that do not work on commissions and “have no financial incentives to recommend certain products.” Additionally, Respondent’s website stated that PAS Advisors had “no outside incentives, so they’ll always put your interests first.” These statements were misleading because PAS Advisors were incentivized through their performance reviews’ potential impact on compensation and, in some cases, promotions, to recommend that clients enroll and remain in PAS.”
🫵🏻 Takeaway: assess personnel’s comp structure. If an incentive exists to direct clients to one product/service over another, disclose transparently and consistently in the brochure, brochure supplement, and [if SEC registered] relationship summary.
—– Resources —–
Custody Trigger Reminder
Reminder: personnel of an RIA that serve as a trustee (or co-trustee) of a client’s trust will generally cause the firm to have custody of the trust’s assets.
Unless the client is also a family member of the adviser’s personnel or has a personal relationship with the adviser’s personnel, the adviser will have to comply with the full brunt of the custody rule (including the annual surprise custody exam).
Failure to recognize this custody trigger? An SEC administrative proceeding, apparently.
—– Resources —–
🔖 SEC administrative proceeding
SEC Creates an AI Task Force
Even the SEC itself is on a mission to integrate AI into its own internal operations, and created an AI Task Force to boot:
“The AI Task Force will empower staff across the SEC with AI-enabled tools and systems to responsibly augment the staff’s capacity, accelerate innovation, and enhance efficiency and accuracy”
I have to imagine the SEC will avail itself of AI tools in the course of ingesting/analyzing the information submitted by advisers to SEC staff during exams.
Since examiners and their AI tools will presumably be able to ingest/analyze a larger volume of information submitted by advisers in a more efficient manner, I see this playing out in one of three ways:
🤖 The volume of information to be submitted by advisers during an exam increases (more work for advisers being examined);
🤖 The number of advisers examined per year increases (higher likelihood of being examined, or being examined more frequently; better exam stats for the SEC); or
🤖 Some combination of the above.
Very curious to see how this will unfold.
—– Resources —–
Why not also raise the Form 13F reporting threshold?
Since the SEC is considering whether to raise the $100 million registration threshold, I propose that it should also revisit the 2020 proposal to raise the Form 13F reporting threshold from $100 million as well.
At the time, the SEC proposed to raise the Form 13F reporting threshold from $100 million to $3.5 billion “to reflect the change in size and structure of the U.S. equities market since 1975, when Congress adopted the requirement for [“institutional investment managers”] to file holdings reports with the Commission.”
It’s hard to imagine a sensible regulatory environment in which a state-registered RIA is categorized as an “institutional investment manager”. The same can likely be said for many SEC-registered RIAs as well.
—– Resources —–
🔖 2020 SEC proposal to raise the Form 13F filing threshold
Outdated SEC Recordkeeping Rule still references “microfilm” and “microfiche”
I still can’t get over that the current SEC Recordkeeping Rule references “microfilm” and “microfiche” as examples of how RIAs can electronically store their files. Microfilm was invented in the 1800s.
Regulation will always lag behind emerging tech, but I don’t know if the gap has ever been wider.
Then again, the need to fit the square peg of modern tech into the round hole of archaic regulation is part of the reason why us compliance attorneys have a job.
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