Advisers

FYI: FAQs Issued Addressing Form CRS

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FYI: The first FAQs addressing Form CRS have been posted on the SEC’s website, addressing 4 topics: Format requirements for firms offering multiple services. Meeting the “machine readability” formatting requirement. Delivery requirements for existing clients/customers. Pooled vehicle investors – are they “retail investors”? One can expect that additional FAQs will be added to this list as firms gain more experience drafting Form CRS and additional questions are posed to the SEC Staff. Form CRS FAQs: https://www.sec.gov/investment/form-crs-faq. *  *  *

Advisers

FYI: Rules Proposed to Govern Use of Derivatives by RICs and BDCs

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FYI: Today the SEC voted to propose a series of new rules and amendments aimed at better regulating the use of derivatives by business development companies and registered investment companies, including mutual funds, exchange-traded funds (ETFs) and closed-end funds. The major components of the proposal are: Proposed new Investment Company Act Rule 18f-4, which would allow a fund to enter into derivatives and certain other transactions, notwithstanding the restrictions under Sections 18 and 61 of the Investment Company Act, provided that the fund complies with the conditions of the rule, including the adoption of a derivatives risk management program and […]

Advisers

FYI: SEC Enforcement Report for 2019

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FYI: The SEC’s Division of Enforcement has released its Annual Report on enforcement activity during Fiscal Year 2019 (the year ended September 30, 2019). Much of the report pertains to enforcement activity in areas outside of the financial services industry. However, interesting points summarized in the report involving or impacting financial services include: The report recaps the 2 waves of settled cases brought under the mutual fund Share Class Selection Disclosure Initiative, where a total of 95 IA firms voluntarily self-reported and were ordered to return a total of over $135 million to primarily retail investors. Standardized settlement terms were […]

Advisers

FYI: Amendments Proposed to IA Advertising and Cash Solicitation Rules

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FYI: Today the SEC voted to propose amendments to the Advisers Act Advertising Rule (Rule 206(4)-1) and the Cash Solicitation Rule (Rule 206(4)-3). Both of these rules have been largely unchanged for decades and the proposals are aimed at updating the rules and incorporating no-action and other interpretive positions that IAs have been relying on for years governing these areas. A summary Fact Sheet included the following among the many interesting proposals: Advertising Rule Jettisoning the oddly technical, outdated prohibitions in the current Advertising Rule, the proposed Rule amendments would take a principles-based approach, including a broad definition of “advertisement” […]

Advisers

FYI: States Sue to Invalidate Reg BI

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FYI: Today, eight jurisdictions – NY, CA, CT, DE, DC, ME, NM and OR – filed suit in the US District Court for the Southern District of New York asking the court (among other things) to vacate Regulation Best Interest and enjoin the SEC from implementing or enforcing it. The introductory statement in the plaintiffs’ Complaint summarizes their substantive concerns: “This lawsuit challenges a final regulation [Reg BI] issued by the Securities and Exchange Commission that undermines critical consumer protections for retail investors, increases confusion about the standards of conduct that apply when investors receive recommendations and advice from broker-dealers […]

Advisers

FYI: Significant Disclosure Guidance

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FYI: Three significant items have been posted on the SEC’s website explaining certain disclosure requirements for BDs, IAs and funds: 1) A small entity compliance guide has been posted addressing requirements for BDs and IAs under newly adopted Form CRS. The guide provides a helpful summary highlighting the drafting, filing and updating requirements for the form. While it is a summary intended to assist small firms, the guide provides a helpful, succinct explanation of requirements applicable to all BDs and IAs using Form CRS. Form CRS Relationship Summary and Amendments to Form ADV — A Small Entity Compliance Guide: https://www.sec.gov/info/smallbus/secg/form-crs-relationship-summary. […]

Advisers

FYI: Risk Alert on IA Principal and Agency Cross Trading

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FYI: OCIE issued a Risk Alert today identifying the most frequent compliance issues found in investment adviser examinations relating to principal and agency cross trading. The Risk Alert strikes a familiar theme by listing deficiencies in almost every key area of Advisers Act Section 206(3) (which governs IA principal and cross trading) and related Rule 206(3)-2 (which IAs can choose to follow when executing certain agency cross trades), such as: • failing to recognize transactions as principal transactions; • failing to make the required disclosures; • failing to obtain required client consents (or failing to obtain them in a timely […]

Advisers

FYI: Mutual Fund Waiver Initiative Results Announced by FINRA

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FYI: FINRA announced (press release: http://www.finra.org/newsroom/2019/finra-announces-final-results-mutual-fund-waiver-initiative) that it has settled with 56 broker-dealer firms in its Mutual Fund Waiver Initiative, obtaining a total of $89 million in restitution for nearly 110,000 charitable and retirement accounts. The Mutual Fund Waiver Initiative was a multi-year initiative started in 2015 with settlements with firms that self-reported failures to consider applicable mutual fund share class sales charge waivers for charitable and retirement plan accounts. This was followed by additional self-reported failures, which led FINRA to launch a sweep exam looking at this area. In the end, FINRA sanctioned 56 firms for failing to waive […]

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 […]