Enforcement patterns that emerged in previous quarters are now less certain
In the past few editions of our Enforcement Actions Trends e-book, several patterns emerged that pointed to the dovetailing of several big regulatory enforcement trends. However, recent Supreme Court of the United States (SCOTUS) rulings have thrown many of those patterns into question.
Before we discuss how enforcement trends may change in coming quarters, let’s first look at enforcement patterns that gained momentum throughout 2023 and into the first half of 2024. Three major patterns emerged over the previous eighteen months:
1. Enhancing Transparency and Accountability
Emphasizing transparency and accountability is a key global regulatory strategy, especially when it comes to safeguarding the integrity of financial markets and protecting investor interests. Transparency and accurate reporting form the bedrock of trust in financial markets, and regulatory bodies worldwide took actions in 2023 and H1 2024 to drive that point home.
The U.S. Securities and Exchange Commission (SEC), the UK Financial Conduct Authority (FCA), the Financial Industry Regulatory Authority (FINRA), the Consumer Financial Protection Bureau (CFPB), the European Securities and Markets Authority (ESMA), and the Financial Sector Conduct Authority of South Africa (FSCA), to name only a handful of examples, all stressed transparency and accountability throughout 2023 and in both Q1 and Q2 of 2024.
Representative examples include: the SEC fining Charter Communications, Inc. $25 million for violating internal accounting controls requirements relating to its stock buybacks; FINRA fining Interactive Brokers LLC $3.5 million for supervisory failures; and the FCA issuing a Final Notice to London Capital & Finance plc (LFC) over unfair and misleading promotions of minibonds.
2. Fighting Fraud
Agencies across the spectrum also focused on fighting fraud in 2023 and into 2024. For instance, in January 2024, the SEC charged investment banking giant Morgan Stanley & Co. LLC and the former head of its equity syndicate desk, Pawan Passi, with a multi-year fraud involving the disclosure of confidential information about the sale of large quantities of stock known as “block trades.” The SEC also charged Morgan Stanley with failing to enforce its policies concerning the misuse of material non-public information related to block trades. The firm agreed to pay more than $249 million to settle the charges.
Another representative example comes from the FSCA, which in March 2024, fined Markus Jooste, former Steinhoff chief executive, 475 million rand for accounting fraud. According to the FSCA, Jooste made or published statements about Steinhoff International Holdings that, he knew “or ought reasonably to have known were false, misleading, or deceptive.”
The FCA also brought a fraud-related case in late 2023. As noted above, in October 2023, the agency issued a Final Notice to London Capital & Finance plc (LFC) over unfair and misleading promotions of minibonds. In early 2019, LFC collapsed, wiping out the value of millions of pounds worth of unregulated minibonds. Since the firm is now insolvent, the regulatory watchdog did not issue a financial penalty.
3. Unifying Regulatory Approaches
Despite geographical and jurisdictional differences, there was a notable coherence in how regulatory bodies addressed issues such as transparency, fraud, and ensuring trustworthy market practices and investor protections throughout 2023 and H1 2024.
We expect that coherence to fracture in the latter half of 2024 and into 2024, as U.S. agencies adjust to the recent SCOTUS ruling in the consolidated cases of Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, which overturned the Chevron doctrine, shifting power away from regulatory agencies to the courts.
The fracturing of the global regulatory environment emphasizes the need for a modern approach to regulatory change management to meet the global scope of this challenge.
Even though the first two trends should continue along a relatively straight path, the scale of these challenges – ensuring transparency and accountability and fighting fraud – continues to grow as more and more business embrace digital transformation that, while necessary for competitiveness, also creates new cyber-security and non-compliance risks.
Again, for businesses in regulated industries, the only way to keep up with the pace and scale of change is to move away from workflows that force highly paid compliance specialists to spend the bulk of their time on manual, labor-intensive tasks.
Compliance AI is the only regulatory intelligence solution that uses AI, machine learning, and automation to free compliance officers from labor intensive tasks. Compliance AI mitigates the risk of non-compliance by automatically monitoring the regulatory environment for updates, organizing and interpreting regulatory content, ensuring change tasks are completed, and providing real-time insight on compliance status.
Compliance AI applies purpose-built machine learning models to automatically monitor the regulatory environment for relevant changes and map them to your internal policies, procedures, and controls. When monitoring regulatory updates from all sources, the platform’s software filters out content so that you receive only the information relevant to your organization. Then, you can track, react, and report on impactful regulations and requirements on a timely basis.
Don’t wait until the high cost of non-compliance – fines, bad PR, and even shut-down notices – hits your business. To start to regain control over your complicated compliance processes, take the first step by investigating how Compliance AI will automate and streamline key compliance processes, enabling you to mitigate risks, reduce costs, and increase confidence in your organization’s compliance status.
