Advisers

FYI: Robos Charged with Violations

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FYI: Perhaps in an effort to emphasize that robo advisers have to adhere to the same rules as other advisers, the SEC announced settled charges with two robos yesterday, citing various violations under the anti-fraud, advertising and books and records rules. According to the SEC orders, the first case involved violations stemming from: –False disclosures that said the robo’s tax loss harvesting strategy monitored for “wash sales” when it did not, resulting in numerous wash sales occurring over the relevant period. –Retweeting on its Twitter feed positive statements made about the robo by other Twitter users, including in some cases […]

Advisers

FYI: OCIE Issues 2019 Exam Priorities

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FYI: OCIE issued its 2019 exam priorities report, listing the following areas of focus for examinations in 2019: 1. Retail investors, including seniors and those saving for retirement: –fees and expenses: disclosure of the costs of investing –conflicts of interest –senior investors and retirement accounts and products –portfolio management and trading –never-before or not recently-examined investment advisers –mutual funds and exchange traded funds –municipal advisors –broker-dealers entrusted with customer assets –microcap securities 2. Compliance and risk in registrants responsible for critical market infrastructure: –clearing agencies –entities subject to regulation systems compliance and integrity –transfer agents –national securities exchanges 3. Oversight […]

Funds

FYI: SEC Proposes “Fund of Funds” Rule

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FYI: The SEC has proposed new Investment Company Act Rule 12d1-4 intended to streamline and enhance the regulatory framework for funds that invest in other funds. In short, the rule would allow registered funds to invest in other registered funds in excess of the statutory limits set out in the Investment Company Act, subject to conditions along the lines of those imposed on existing funds of funds operating under exemptive orders. The conditions are aimed at avoiding problematic voting/control, large-scale redemptions, excessive fees and overly complex structures. Simultaneously, the SEC is proposing to rescind Rule 12d1-2 and most previously issued […]

Advisers

FYI: Risk Alert on Electronic Messaging

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FYI: OCIE has issued a Risk Alert on electronic messaging aimed at reminding IAs of their obligations in light of the increased use of various types of messaging for business-related communications. The Risk Alert does NOT address firm email, as firms now have decades of experience with that. Rather, the Risk Alert focuses on electronic messaging occurring OUTSIDE the normal firm email system and which could therefore pose greater compliance risks, such as private email, texting, IMs, personal or private messaging through social media, etc., taking place on any firm or personal devices. From the Risk Alert, it is clear […]

Advisers

FYI: 2019 Compliance Outreach Program for Municipal Advisors

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FYI: The 2019 Compliance Outreach Program for municipal advisors has been scheduled for February 7, 2019, in San Francisco, jointly sponsored by the SEC, FINRA and MSRB. The agenda will include: –Rule G-42 fiduciary duty; –New MSRB rules, including those on advertising and professional qualifications; –Considerations for underwriters and advisors, including roles, registration and supervisory obligations; –Examination and enforcement. While the program is designed for municipal advisors, many of these topics are likely to be of interest to all advisers, and certain brokers as well, covering such issues as standards of conduct, conflicts of interest and advertising. The program will […]

Funds

FYI: FAQs Issued Addressing New Fund Reporting Requirements

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FYI: The Division of Investment Management has posted 40 FAQs in response to questions about the new fund reporting requirements, such as Form N-PORT, Form N-CEN, liquidity program reporting, derivatives reporting, securities lending disclosures and Reg S-X financial statement changes. Every fund would be wise to review the FAQs now and as updated in the future, for guidance pertinent to their filing situation given that these changes can be complex, technical and potentially confusing, especially as to the compliance dates and filing deadlines, which in some cases have already phased in and in other cases have been delayed by amendment. […]

Advisers

FYI: OCIE Risk-Based Exam Initiatives for Investment Companies

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FYI: OCIE has issued a Risk Alert announcing a series of exam initiatives focused on certain mutual funds and ETFs, their advisers and their boards, targeting circumstances in which retail investors could be disadvantaged and reviewing whether registrants have met their regulatory and other legal obligations. Funds in one or more of the following categories will be the focus of the initiatives: — Index funds that track custom-built indexes; — Smaller ETFs and/or ETFs with little secondary market trading volume; — Mutual funds with higher allocations to certain securitized assets (e.g., securitized auto loans, student loans, credit card receivables or […]

Advisers

FYI: Enforcement Based on IA’s Lack of Compliance Resources

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FYI: The CEO of an investment advisory firm settled an enforcement action with the SEC based on the CEO’s role in failing to adequately resource the firm’s compliance program. According to the SEC’s order, the CEO was aware that the firm’s compliance program lacked sufficient resources but failed timely to address this deficiency, which contributed to the firm’s compliance rule violations. Facts indicated that the firm’s CCO informed management on numerous occasions that the firm’s compliance resources were inadequate, but the CEO continuously decided not to add resources. Sanctions imposed against the CEO personally included a censure, cease and desist […]

Advisers

FYI: SEC Enforcement Annual Report for FY18

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FYI: Enforcement’s 2018 Annual Report (for FY ending September 30, 2018) reflects the Division’s current guiding principles: Principle 1: Focus on the Main Street Investor (rolling out, for example, the Share Class Selection Disclosure Initiative, under which the report indicates “scores” of IAs participated, which “will result in charges against them”). Principle 2: Focus on Individual Accountability (for example, continuing to bring cases against CEOs and CFOs, as well as accountants, auditors and other gatekeepers). Principle 3: Keep Pace with Technological Change (for example, enforcing against fraudulent ICOs and blockchain offerings, as well as continuing to use proprietary data analytics […]

Advisers

FYI: Risk Alert on Cash Solicitation Rule

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FYI: OCIE has issued a Risk Alert outlining common deficiencies found under the Cash Solicitation Rule (Rule 206(4)-3). Subject to few exceptions, the Cash Solicitation Rule applies whenever an IA pays cash to any solicitor with respect to solicitation activities. A “solicitor” is any person who, directly or indirectly, solicits any client for, or refers any client to, an IA. This covers the IA’s own personnel, as well as third-party solicitors. Personnel Solicitors. It is not uncommon for the rule to be missed altogether by IAs who use their own personnel (partners, officers, directors and employees of the IA or […]