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2023 Financial Advisory Regulations: Key Changes and Their Impact

27th December, 2023

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2023 Financial Advisory Regulations: Key Changes and Their Impact

2023 has been a pivotal year for the financial advisory sector, marked by transformative regulatory changes and evolving market dynamics. Amidst economic ebbs and flows, the industry has navigated through significant legal challenges, technological advancements, and shifts in client preferences, reshaping the landscape of financial advice. Here are the key developments in 2023 financial advisory regulations, and how they have impacted financial advisors and their clients.

Legal Challenges and Their Implications

In 2023, two court cases, SEC v. Jarkesy and CFPB v. Consumer Financial Services Association of America, raised crucial constitutional questions about the SEC’s enforcement proceedings and the CFPB’s funding. These cases are pivotal, potentially reshaping the regulatory framework within which financial advisors operate. Their outcomes could set precedents affecting how regulations are enforced and funded.

Industry Growth Amidst Regulatory Changes

Despite economic uncertainties, the investment advisory industry grew by 2.1% in 2022, with 15,114 fiduciary investment advisers managing $114.1 trillion in assets for 61.9 million clients. This growth has led to a shift in 2023’s financial advisory sector, necessitating a stronger focus on risk management, regulatory adaptability, increased service demand, technological efficiency, and client diversity. 

Rise in Asset Management Services

There was a notable increase in clients using asset management services in 2022, reaching a record high of 54.3 million, a 2.1% rise. This surge has steered a more stringent regulatory focus in 2023, aligning with client portfolios’ expanding scale and complexity.

Digital Assets and Operational Resilience

The financial industry is paying increased attention to digital assets and operational resilience. The EU’s Markets in Crypto-Assets framework and the UK’s Digital Operational Resilience Act are examples of new regulations that aim to govern the burgeoning digital assets space and enhance the resilience of financial operations Thomson Reuters Institute.

Intensified Regulatory Focus

In 2023, regulators intensified their focus on various risk aspects, including liquidity risk management, resolution planning, financial crime detection, and fairness in financial services. This shift reflects a broader trend of regulators actively seeking to address evolving risks in the financial landscape.

AI, Data Security, and Privacy

Growing regulatory attention is also being directed towards AI, data security, and privacy. Financial firms are expected to manage risks associated with new technologies and ensure responsible system usage, particularly as these technologies become more integral to financial services.

New Reporting Requirements

Another key change is the introduction of new reporting norms, such as Form PF for hedge funds, Form ADV for cybersecurity risks, and Form CRS for company services and conflicts of interest. These requirements are part of a broader move towards enhanced transparency in the financial advisory sector.

2023 Financial Advisory Regulations

Financial advisors and financial service firms face ongoing challenges and opportunities in a regulatory environment marked by rapid change and increasing complexity. Staying informed, adaptable, and proactive in response to these regulatory shifts is critical to success in the financial advisory sector.

We make it our mission to keep all our members updated and covered, regardless of the latest shifts and developments in financial regulation. Get in touch today to find out how membership in Lawsons Network can help you (and your business) thrive in an increasingly challenging regulatory landscape.

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