Advisers

FYI: Risk Alert on Privacy Practices for IAs and BDs; Also, BD Outreach Announced

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FYI: OCIE issued a Risk Alert listing examples of the most common deficiencies or weaknesses identified in IA and BD examinations under the Reg. S-P privacy rules, more specifically the privacy notice requirements and the Safeguards Rule, which requires registrants to adopt written policies and procedures that address administrative, technical and physical safeguards for the protection of customer records and information. As has become an increasingly common feature of OCIE Risk Alerts, the deficiencies listed in the Alert cover almost every aspect of the relevant rule requirements. For example, firms were found: • not providing required privacy and opt-out notices, […]

Advisers

FYI: SEC Seeks IA Custody Information

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FYI: The SEC’s Division of Investment Management is requesting information on industry practices in certain areas to help it consider whether and how further amendments to the Advisers Act Custody Rule should be made. This request is further evidence that the SEC is still struggling to understand all the nuances of the Custody Rule and its application in a variety of IA operations. The request sets out a series of questions seeking information about custody and related practices in two areas of particular concern: 1) Non-DVP Assets. Non-DVP assets are securities or other assets that do not settle on a […]

Advisers

FYI: 79 Settlements Announced under SCSD Initiative

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FYI: Today, the SEC issued settled enforcement orders against 79 IAs that collectively will return $125 million to investors under the Division of Enforcement’s 2018 Share Class Selection Disclosure Initiative. The initiative aimed to incentivize IAs to self-report violations resulting from undisclosed conflicts of interest in the selection or recommendation of mutual fund share classes that paid the IAs, their BD affiliates and/or their reps a 12b-1 fee, when less expensive share classes were available. According to the SEC’s announcement, participation in the initiative allowed IAs to avoid financial penalties if they timely self-reported undisclosed conflicts of interest, agreed to […]

Advisers

FYI: Last-Minute Changes to N-PORT Filing Schedule

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FYI: Yesterday the SEC adopted an Interim Final Rule changing the filing schedule for Form N-PORT, the new Investment Company Act form on which registered funds will report their portfolio holdings in a structured data format. Under Rule 30b1-9 as now amended, funds will be required to file Form N-PORT for each month in a fiscal quarter not later than 60 days after the end of that fiscal quarter. Under the rule as originally adopted in 2016 and scheduled to be phased in this year, funds would have been required to file each monthly report no later than 30 days […]

Advisers

FYI: Financial Services Industry Cyber Survey Results

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FYI: Results of the 2018 NSCP/ACA Aponix Cyber Survey have been released, showing practices, trends and experiences from over 200 responding firms regarding cybersecurity compliance. Among the areas surveyed were cybersecurity governance, vendor management, technical controls, budgets and breach response. These types of surveys are a great way to get ideas about what firms of all types and sizes are doing to address compliance challenges and to benchmark against others in the industry. Particularly interesting highlights from this survey included: –Regulatory cyber exams have increased among respondents since last year….the SEC by 21%, FINRA by 30% and the NFA by […]

Advisers

FYI: FINRA Launches 529 Plan Share Class Initiative

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FYI: Perhaps taking a page from the SEC’s playbook, FINRA has launched its first-ever self-reporting initiative for member BDs. Under the initiative, BDs are encouraged to review their supervisory systems and procedures governing 529 plan share-class recommendations and self-report to FINRA any supervisory violations found, along with a plan to remediate harmed customers. In response, according to FINRA’s news release, FINRA’s Department of Enforcement will recommend that FINRA accept a settlement that includes restitution for the impact on affected customers and a censure, but no fine. Although FINRA’s initiative is only aimed at share class recommendations made for customers’ 529 […]

Advisers

FYI: FINRA Issues 2019 Examinations Priorities

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FYI: FINRA has issued its 2019 Annual Risk Monitoring and Examination Priorities Letter, outlining areas of emphasis for FINRA’s risk monitoring and examination program for broker-dealers in the coming year. Among the most interesting areas identified were: NEW AREAS OF FOCUS • Online distribution platforms (especially firms/platforms involved in the online distribution of privately placed securities). • Regulatory technology (aiming to understand how firms are using RegTech tools to address risks, challenges or regulatory concerns in areas such as supervision and governance, third-party vendor management, safeguarding customer data and cybersecurity). • Senior investors (specifically looking at heightened supervision imposed by […]

Advisers

FYI: More Share Class Selection Violations Charged

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FYI: Two more advisers settled charges with the SEC over investing client assets in mutual fund share classes that paid 12b-1 fees to the firms’ IARs, when less expensive classes were available. According to the SEC orders, one adviser incorrectly disclosed to clients that its IARs either did not receive 12b-1 fees or only selected the more expensive share classes when less expensive share classes of the same fund were unavailable. The other adviser incorrectly stated that it selected higher-cost share classes for the “long-term benefit” of clients and only where less expensive share classes of the same fund were […]

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 […]