When the Federal Safety Net Loosens, State Regulators Step In. Is Your Firm Ready?

The CRC-Oyster Roundtable on State Securities Regulatory Priorities for Broker-Dealers and Investment Advisers

There's a tendency in compliance to equate a quieter federal enforcement environment with a lower overall risk profile. The data tells a more nuanced story.

The SEC's own fiscal year 2025 enforcement results reflect a deliberate refocusing toward fraud-driven cases, away from the volume-driven approach of prior years. FINRA's 2025 disciplinary actions logged 431 actions - the lowest count in a decade - even as the fines per case climbed. Fewer cases. Higher stakes. A federal posture that is, by its own description, more selective.

That selectivity doesn't reduce overall regulatory exposure, it redistributes it. State securities regulators operating across 53 jurisdictions are increasingly coordinated and increasingly active, and history is consistent on what happens next.

Ed Wegener, Marc Miner, and Bill Reilly have watched this play out before. Ed heads the Governance, Risk and Compliance Practice at CRC-Oyster. Marc is Senior Counsel at Thompson Hine LLP and a former Bureau Chief for both New York and New Jersey. Bill is a Director at CRC-Oyster and former Bureau Chief at the Florida Division of Securities. Few conversations on this topic bring together the depth of perspective they carry, from both sides of the examination table.

The Federal Pullback Creates a State Opening

The NASAA recently formed a new broker-dealer inspections and compliance project group to increase multi-state coordination in identifying enforcement targets. States that previously relied on "for cause" examinations may now leverage intelligence from states with routine exam programs. For firms accustomed to managing a primarily federal relationship, the perimeter is expanding in ways that aren't always visible until an examiner is already at the door

Two Reports Every Compliance Professional Should Be Reading

The 2025 NASAA Enforcement Report covers 2024 activity across 49 states and territories. Securities fraud, unregistered sales, and unregistered activity remain the top three violations, but the delivery mechanism is shifting fast. State regulators opened 463 investigations involving digital assets, 175 involving social media fraud, and 81 involving impersonation schemes in a single year. As the CRC-Oyster analysis of this report notes, those numbers likely undercount where things are heading given how quickly AI-driven fraud has accelerated since that data was collected.

The NASAA 2025 Investment Adviser Examination Sweeps Report, drawn from over 1,000 coordinated state exams, is equally instructive, and not just for state-registered advisers. The deficiencies flagged around contracts, books and records, fee disclosures, advertising, and supervision reflect requirements that are substantially common across state and federal frameworks. It functions as a checklist regardless of where you're registered. The roundtable goes deeper on what those deficiencies actually signal, and what examiners are doing with them.

What Wasn't on the List Two Years Ago

NASAA's top 12 investor threats now includes exposures that would have been unrecognizable on prior year lists. Deepfake impersonation. Website and app spoofing. AI-generated outreach designed to mimic legitimate financial professionals. As Bill notes, a 15-second audio sample is now sufficient to construct a convincing imitation of a real person. Fraud targeting older Americans - through pig butchering schemes, social media manipulation, and digital asset fraud - continues to grow and remains a top examiner priority.

What the report can't tell you is how examiners are responding to these threats in practice, which states are moving fastest, and what that means for your supervisory framework. That's where the conversation gets instructive.

Where Commonality Ends and Local Knowledge Begins

Books and records requirements are largely uniform under SEC Rules 17a-3 and 17a-4. Many states adopt SEC and FINRA rules by reference, and NASAA's model rules have helped standardize frameworks across the membership.

Registration requirements, enforcement postures, and appetite for resolution vary considerably across jurisdictions. Knowing which state you're dealing with can be as consequential as knowing the underlying rule. Marc and Bill speak to this from experience that doesn't come from reading the regulations, it comes from having written them, applied them, and navigated around them on behalf of clients for decades.

Using the Quiet Moment to Patch the Boat

The relative calm at the federal level is an opportunity, not a reprieve. Mock examinations, a review of prior exam comments, benchmarking against NASAA's compliance findings, and a structured review with outside counsel or a compliance consultant are practical steps that pay dividends when an examiner arrives. The roundtable addresses specifically where firms are most commonly falling short right now, and where the window to address it quietly is still open.

Listen to the CRC-Oyster Roundtable to hear the perspective of practitioners who are inside the examinations, connected to state regulators, and advising the firms navigating this landscape in real time.