Welcome to the February 2019 edition of the Best of the Law
Firms. In this feature, we recommend
some of the best recent articles and analyses authored by top investment
management lawyers. These articles offer
a more comprehensive review of the issues that we address in our daily “Our
The best law firms cranked out some great articles during
the last several weeks, perhaps feeling a post-holiday burst of energy. Paul Hastings offers a great overview of the
esoteric world of Section 13 and Section 16 filings. Morgan Lewis addresses best execution issues
when recommending mutual fund share classes.
Dechert tries to discern the future of Brexit. There were also some great pieces on
co-investments from Pepper Hamilton, political and lobbying activities from
K&L Gates, and a CFTC survey from WilmerHale.
Emily Silva and Bridget Garcia of Cipperman Compliance Services recently attended the Philadelphia Compliance Roundtable meeting that included presentations by the Investment Adviser Association about its regulatory priorities and Morgan, Lewis & Bockius about SEC and FINRA Enforcement Trends. Linked below is a more detailed summary of the meeting prepared by Emily and Bridget, who would be happy to discuss with you in more detail. Representatives of the IAA said that they would advocate for a uniform fiduciary standard, simplification of the custody rule, and protecting customer information. The Morgan Lewis lawyers outlined recent enforcement trends including protecting retail investors, undisclosed compensation, anti-money laundering, and compliance. The Roundtable is a group of Philadelphia-area investment compliance professionals that meets periodically throughout the year to discuss compliance best practices.
Today, we offer our “Friday List,” an occasional feature summarizing a topic significant to investment management professionals interested in regulatory issues. Our Friday Lists are an expanded “Our Take” on a particular subject, offering our unique (and sometimes controversial) perspective on an industry topic.
A few weeks back, we offered our predictions for 2017 (see https://cipperman.com/2016/12/02/friday-list-2017-predictions/) . Today, we look back on the most significant investment management regulatory trends for 2016. Of course, past performance is no guarantee of future results. However, as any handicapper will tell you, past behavior often foretells future actions.
10 Most Significant Regulatory Trends for 2016
Enforcement Actions – SEC Chair White continued her “broken windows” enforcement against even the smallest infractions. The SEC reported a record number of enforcement actions, including 160 cases against investment advisers and investment companies.
Personal Liability – According to the SEC’s outgoing Enforcement Chief, the Enforcement Division names an individual in over 80% of cases. This past year, we have seen cases against senior executives, mid-level executives, Chief Compliance Officers, and everybody in between.
Fiduciary Duty – The Department of Labor adopted the long-debated fiduciary rule, which will upend the advice industry. Additionally, the SEC considered a fiduciary rule for retail brokers, while FINRA supported a fiduciary standard.
Cybersecurity – Hackers forced senior executives to learn new terms such as “firewall,” “vulnerability assessment,” and “intrusion.” Many firms faced liability for failing to monitor service providers.
Private Equity – The SEC instituted several 7-8 figure cases against the biggest names in private equity, an industry un-regulated until Dodd-Frank.
Whistleblowers –The SEC’s Whistleblower Office reported more than $100 Million in aggregate awards. The SEC also brought several cases alleging retaliation and illegal confidentiality agreements.
Retail Distribution – Both FINRA and the SEC attacked wrap sponsors for the wrong share class recommendations and trading away. At least 15 firms were charged for failing to conduct sufficient due diligence on third party performance claims. The Investment Management Division continues to analyze 12b-1 fees and other distribution-in-guise payments.
Gatekeeper Liability – Service providers have suffered by association with miscreant clients. This past year saw enforcement activity against administrators, lawyers, auditors, custodians, directors, and consultants.
Robos – Massachusetts raised concerns about how robo platforms satisfy their fiduciary responsibilities. Meanwhile, FINRA heightened supervision of robo providers.
Compliance Outsourcing – The SEC has recognized compliance outsourcing as a growing trend. That trend accelerated in 2016: nearly 20% of advisers outsource compliance and approximately 2/3 use an outside compliance consultant. Chair White has announced that the SEC staff has completed a proposal requiring all advisers to undergo third party compliance reviews.