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 […]

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 […]

Advisers

FYI: Themes Currently Guiding SEC Division of Investment Management

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FYI: In a speech to the ICI this week, the Director of the SEC’s Division of Investment Management outlined themes that are currently guiding the work of the Division, among them: — Improving the investor experience. This includes not only the on-going effort to improve the quality and usefulness of disclosure, but also how to facilitate modernizing the content, design and delivery of information provided to investors. — Modernizing key areas of the fund regulatory framework. One area specifically mentioned was the regulation of funds using derivatives. From the Director’s remarks, it is clear that the dialog about how to […]

Advisers

FYI: DOL Looks to Reconsider Fiduciary Rule in 2019

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FYI: The DOL’s latest regulatory agenda indicates that it is “considering regulatory options” in light of the Fifth Circuit court case that vacated the DOL Fiduciary Rule earlier this year. The agenda lists the timetable for a “Final Rule” on this as September 2019. Notably, September 2019 is also listed on the SEC’s current regulatory agenda as the timetable for “Final Action” on proposed Regulation Best Interest (as well as proposed Form CRS and the proposed Investment Adviser Standard of Conduct Interpretative Release). This coincidence of dates between the DOL and SEC may indicate that the agencies are attempting to […]

Advisers

FYI: No-Action Letter Allows Fund Boards to Rely on CCO Certifications

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FYI: The SEC’s Division of Investment Management has issued a no-action letter indicating that fund Boards can rely on quarterly written CCO certifications that transactions entered into in reliance on certain Exemptive Rules were effected in compliance with fund procedures, instead of the Boards having to make that determination themselves. According to the no-action letter, this is consistent with the Commission’s approach in adopting Rule 38a-1 and allows Boards to avoid duplicating certain functions commonly performed by or under the supervision of the CCO. Although this does not change the Board’s oversight role with respect to a fund’s overall compliance […]

Advisers

FYI: Charges Brought for Cybersecurity Failures

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FYI: The SEC has brought settled charges against Voya Financial Advisors, Inc. (VFA), a dual-registered BD/IA, for cybersecurity failures. Here are some salient facts, according to the SEC’s order: • VFA gave its independent contractor representatives access to its brokerage and advisory customer information through a proprietary web portal through which the reps accessed customer information and managed their brokerage accounts. The reps generally used their own IT equipment and their own networks to access the portal. Voya’s service call centers serviced support calls from VFA’s customers and VFA’s reps. o Over a 6-day period, imposters impersonating VFA reps were […]