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: 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: 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: 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: Info on SCSD Initiative

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FYI: So far, we don’t know much about the outcome of the SEC’s Share Class Selection Disclosure (SCSD) Initiative, which allowed advisers to voluntarily self-report if they failed to make required disclosures relating to the selection of mutual fund share classes that paid the adviser or its affiliates 12b-1 fees when a lower-cost share class for the same fund was available to the adviser’s clients. For example, we don’t know how many firms self-reported by the June 12, 2018 deadline, or how many funds, clients or fees were involved in self-reported cases. However, in a speech this week, Co-Director of […]

Advisers

FYI: Latest Disclosure Enforcement Action – More of the Old and Some New

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FYI: The SEC has settled a disclosure enforcement action against an adviser (dual-registered as a BD) that contained some old and some new aspects. The adviser was charged with failing to disclose compensation it received and the attendant conflicts of interest arising under a marketing services agreement with a third-party BD that served as custodian of certain client accounts (“Custodian A”). According to the SEC’s settlement order, Custodian A paid the adviser two basis points of the value of assets the adviser’s clients maintained at Custodian A, creating an incentive for the adviser to recommend Custodian A to clients over […]

Advisers

FYI: Proxy Voting No-Action Letters Withdrawn

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FYI: The SEC is considering a number of fundamental issues regarding proxy voting, including the “plumbing” of the proxy voting process as well as proxy voting by institutions, advisers and other investors. Reflecting long-standing concerns about a wide variety of issues, including the voting influence being concentrated in and wielded by proxy advisory firms, the SEC has taken recent actions worth noting: • The SEC has announced it will be hosting a Roundtable on the Proxy Voting Process to hear from a variety of stakeholders (issuers, investors, other market participants) about whether and how the SEC’s proxy voting rules should […]

Advisers

FYI: Report on State of IA Industry Released

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FYI: The IAA has released its 2018 Evolution Revolution report profiling the investment advisory industry. This annual report is always worth a read for anyone interested in continued changes to the advisory industry. This year’s report includes information based on the new detail called for by Form ADV in a number of areas, such as: • number of clients, • amount of RAUM attributable to non-U.S. clients, • advisers that participate in wrap fee programs, • social media accounts, • advisers with multiple offices, • custodians, • “umbrella registrations” (private fund advisers operating as a single advisory business), and • […]

Advisers

FYI: Computer Model Errors – Continued Risk to Advisers

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FYI: The SEC has brought and settled another case based on charges that should all advisers should heed as investing increasingly relies on computer algorithms, quantitative models and other automated procedures that affect client portfolios. This most recent case was brought against various AEGON/Transamerica-affiliated advisory entities for fraud and various other violations resulting from errors in quantitative investment models that, according to the SEC’s settlement order, were developed solely by an inexperienced, junior analyst, contained numerous errors, and did not work as promised. The SEC also found that when the firms learned about the errors, they stopped using the models […]