Advisers

FYI: SEC Adopts Reg BI and Related Interpretations

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FYI: Moments ago, the SEC voted 3 to 1 on all items (Commissioner Jackson voting against; the fifth seat on the Commission remaining vacant at this time) to adopt Reg BI and related interpretations in final form. A careful reading of the lengthy Adopting Releases and interpretations will be required to get a full understanding of the rules as adopted, including changes made since the proposal made in 2018. However, from oral presentations made by SEC Staff at the SEC’s open meeting today, the basic approach and rationale presented in the 2018 proposal appears to have survived largely intact. These […]

Advisers

FYI: The Senior Safe Act and Immunity

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FYI: The SEC, NASAA and FINRA have jointly issued a Fact Sheet about The Senior Safe Act enacted by Congress last year, to help raise awareness of the Act and to help explain how the Act’s immunity provisions work. In principal part, the Act provides qualified immunity to certain individuals and financial institutions — which could include IAs and BDs — from liability in any civil or administrative proceeding for reporting a case of potential exploitation of a senior citizen to a covered agency. The multiple-agency Fact Sheet and press release can be accessed here: https://www.sec.gov/news/press-release/2019-75. The Senior Safe Act […]

Advisers

FYI: Reg BI Set for Vote at SEC’s June 5, 2019 Meeting

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FYI: The agenda for the SEC’s open meeting on Wednesday, June 5, 2019, includes consideration of whether to adopt: • Reg. BI • Form CRS • Interpretive Guidance Addressing IA Standard of Conduct. Interestingly, the agenda also lists an item that was not specifically included in the suite of proposals originally bundled together with Reg. BI, namely, whether the Commission should publish an interpretation of the “solely incidental” prong of Section 202(a)(11)(C) of the Investment Advisers Act of 1940. Section 202(a)(11)(C) is the so-called ‘broker-dealer exception’ from the Advisers Act, which excludes from the definition of ‘investment adviser’ any BD […]

Advisers

FYI: Risk Alert Addressing Network Stored Information

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FYI: OCIE issued a Risk Alert today addressing security weaknesses found in recent IA and BD examinations relating to the storage of customer and firm information on internal and external networks (including hosted cloud storage). The Risk Alert pointed out that the majority of network storage solutions offer encryption, password protection and other security features designed to prevent unauthorized access, but firms did not always use the available security features. Three particular areas of concern were listed: • Misconfigured network storage solutions. • Inadequate oversight of vendor-provided network storage solutions. • Insufficient data classification policies and procedures. On the positive […]

Advisers

FYI: Is the SEC Wearing Its “Reasonableness Pants”?

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FYI: In a recent speech, SEC Commissioner Hester Peirce questioned whether the SEC was wearing its “reasonableness pants”* when it undertook the recent Share Class Selection Disclosure Initiative, which earlier this year resulted in 79 settled enforcement actions against advisers that voluntarily self-reported having selected for clients mutual fund share classes that carried a 12b-1 fee when a lower-cost share class for the same fund was available to the clients, ostensibly without adequate disclosure of the attendant conflicts of interest. While acknowledging that the aggregation of all those cases together helped to preserve precious SEC staff resources, Commissioner Peirce does […]

Advisers

FYI: Resources on Protecting Senior Investors

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FYI: The SEC’s Office of the Investor Advocate has issued a paper entitled “How the SEC Works to Protect Senior Investors,” describing what the SEC is doing to protect senior investors, especially in the areas of investor education, regulatory examinations and enforcement. The paper is well worth a read by anyone interested in compliance relating to seniors, as it summarizes work in the area not only by the SEC, but also by FINRA (for example, FINRA Rule 2165 on Financial Exploitation of Specified Adults) and the states (for example, the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, […]

Advisers

FYI: Appellate Court Decides Robare Disclosure Case

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FYI: This week, the DC Circuit Court of Appeals issued its opinion in the Robare case, originally brought as an SEC administrative proceeding against an investment adviser and two principals, alleging misleading disclosure regarding a revenue sharing arrangement. While the adviser’s disclosure about the revenue sharing arrangement evolved over time, this case in part raised a question the SEC has now raised in a number of cases, that is, whether disclosure is misleading if it states an arrangement “may” result in certain payments to an adviser when in fact the arrangement is already in place and has already resulted in […]

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 […]