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SEC Issues Cybersecurity Compliance and Disclosure Guidance

The SEC has issued cybersecurity guidance that directs public companies to adopt effective disclosure controls and procedures and overhaul their disclosure about incidents and threats.  The SEC believes that public companies should adopt and implement cybersecurity risk management policies and procedures that ensure timely disclosure, internal reporting, processing of risks and incidents, and prevention of insider trading.  The SEC also admonishes public companies to review all public disclosures including the materiality of incidents and security, risk factors, MD&A disclosure, business description, legal proceedings, financial statements, and board risk oversight.  Firms should also consider disclosing past incidents “in order to place discussions of these risks in the appropriate context.”  The SEC believes that “the importance of data management and technology to business is analogous to the importance of electricity and other forms of power in the past century.”  The SEC said that it will be reviewing cybersecurity disclosures.

OUR TAKE: We expect institutional investors will add similar cybersecurity inquiries into their Operational Due Diligence processes before choosing an investment firm.  So, even if you do not work for a public company, you should consider implementing the SEC’s recommendations.

 

Form ADV FAQs Impact Cross-Border Investment Managers

The SEC’s Division of Investment Management has released additional Form ADV FAQs that affect cross-border investment managers.  The staff advises that non-U.S. investment funds, including UCITs or their equivalent, should be classified as “pooled investment vehicles” when describing assets.  Also, a non-resident GP or managing agent of a relying adviser must file Form ADV-NR.  The FAQs also broadly define “borrowings” for purposes of whether an adviser engages in borrowing transactions on behalf of clients, explain social media disclosure, and clarify that the new Form supersedes SEC no-action relief with respect to relying advisers.

OUR TAKE: The SEC continues to take an extra-territorial regulatory approach to any cross-border adviser that must register in the U.S.

https://www.sec.gov/investment/im-info-2017-04.pdf