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Top 5 Regulatory Alerts – November 2018

  1. SEC FILED 32% MORE ENFORCEMENT CASES AGAINST ADVISERS AND FUNDS IN FISCAL 2018 (11/5/18)
  2. CCOS LIABLE FOR FAILING TO “MEANINGFULLY” IMPLEMENT COMPLIANCE PROGRAMS (11/12/18)
  3. SEC IS EXAMINING REGISTERED FUNDS AND ETFS FOR OVERSIGHT, POLICIES, AND CONFLICTS (11/9/18)
  4. FEDERAL COURT RULES THAT THE SEC MUST PROVE THAT DIGITAL TOKENS ARE SECURITIES (11/28/18)
  5. SEC WARNS ADVISERS ABOUT SOLICITATION RULE VIOLATIONS (11/1/18)

  

Most Read – November 2018

  1. CCOS LIABLE FOR FAILING TO “MEANINGFULLY” IMPLEMENT COMPLIANCE PROGRAMS (11/12/18)
  2. INSUFFICIENT COMPLIANCE RESOURCES COST FIRM AND CEO (11/8/18)
  3. SEC WARNS ADVISERS ABOUT SOLICITATION RULE VIOLATIONS (11/1/18)
  4. SEC IS EXAMINING REGISTERED FUNDS AND ETFS FOR OVERSIGHT, POLICIES, AND CONFLICTS (11/9/18)
  5. ADVISORY CLIENTS DID NOT RECEIVE PROMISED FEE BREAKS (11/20/18)

Top 5 Regulatory Alerts – July 2018

Here are our Top 5 Regulatory Alerts for July 2018, ranked by significance.  We have also included the Top 5 most read Alerts.

 

Top 5 Regulatory Alerts – July 2018

  1. ADVISERS FAILING BEST EXECUTION COMPLIANCE OBLIGATIONS (7/16/18)
  2. FUND MANAGERS FINED FOR DISQUALIFYING POLITICAL CONTRIBUTIONS (7/11/18)
  3. BROKER/CUSTODIAN SHOULD HAVE FILED SARS TO REPORT ADVISERS ACT VIOLATIONS (7/10/18)
  4. SEC CHARGES VIOLATIONS OF TESTIMONIAL RULE (7/12/18)
  5. SEC SEEKS EXPANSION OF WHISTLEBLOWER PROGRAM (7/2/18)

 

Most Read – July 2018

  1. PRIVATE EQUITY FIRM FAILED TO DELIVER FINANCIALS WITHIN 120 DAYS (7/19/18)
  2. ADVISERS FAILING BEST EXECUTION COMPLIANCE OBLIGATIONS (7/16/18)
  3. PORTFOLIO MANAGER MADE PERSONAL LOAN TO CEO TO GET ON BOARD (7/17/18)
  4. PRIVATE EQUITY EXEC BARRED FROM INDUSTRY FOR PERSONAL TRANSACTION WITH PORTFOLIO COMPANY (7/27/18)
  5. BROKER-DEALER FINED $1.25 MILLION FOR DELETING PHONE CALLS AND INADEQUATE RECORDS RETENTION (7/18/18)

Top 5 Regulatory Alerts – April-June 2018

 

Here are our Top 5 Regulatory Alerts for April-June 2018, ranked by significance.  We have also included the Top 5 most read Alerts.

 

Top 5 Regulatory Alerts – April-June 2018

  1. SEC PROPOSES BROKER BEST INTEREST STANDARD (4/19/18)
  2. SEC PROPOSES ETF RULE (6/29/18)
  3. INTERNET COMPANY PAYS $35 MILLION FOR FAILING TO TIMELY DISCLOSE HACK OF CUSTOMER INFO (4/25/18)
  4. SEC OFFICIAL SAYS THAT A CRYPTOCURRENCY IS NOT A SECURITY, ABSENT A SPONSORED OFFERING (6/15/18)
  5. SEC FINES 13 FIRMS FOR FAILING TO FILE FORM PF (6/4/18)

 

Most Read – April-June 2018

  1. SEC WARNS ADVISERS ABOUT FEE AND EXPENSE PRACTICES (4/13/18)
  2. BROKER-DEALER FINED FOR FAILING TO PRODUCE EMAILS (5/22/18)
  3. LAWYER CHARGED WITH PREPARING MISLEADING REGISTRATION STATEMENT (5/14/18)
  4. SEC CHARGES HEDGE FUND FIRM WITH INFLATING VALUATIONS TO SLOW REDEMPTIONS (5/10/18)
  5. FUND ADMINISTRATOR LIABLE FOR MISCALCULATING FUND NAV (4/27/18)

Best of the Web – January 2018 Edition

Welcome to the January BOTW, covering articles from November-December.  Cryptocurrency and ICOs are hot, hot, hot.  Check out the podcast by Pepper and the regulatory article from Seward & Kissel.  Also included are the materials from the well-respected K&L Gates annual investment management conference.  We love ACA’s title about wrap programs and Cohen’s piece about management fee waivers.

 

Materials from the 2017 Investment Management Conferences (K&L Gates)

Top cybersecurity trends for 2018 (Cordium)

A Review of Initial Coin Offerings (podcast) (Pepper Hamilton)

The Hot Money: Cryptocurrencies and Implications for Investment Advisers (Seward & Kissel)

Management Fee Waivers: Potentials and Pitfalls for Fund Advisors (Cohen & Co.)

Regulatory Scrutiny on Wrap Fee Programs – Not Such a Wrapper’s Delight (ACA)

Q&A: What to Expect from the “New” SEC (Ropes & Gray)

The Future of FinTech Part 1 and Part 2 (podcast) (DLA Piper)

Nominating Committee Best Practices (podcast) (Thompson Hine)

Plan Sponsor Fee Litigation Cases on the Rise (Groom)

The Duty of Diligent Supervision: To Whom And What Does It Apply And What Does It Require? (Willkie Farr & Gallagher)

Top 20 Regulatory Alerts – 2017

A year ago, nobody really knew what would happen in the investment management regulatory world.  We have sought to inform and guide with our (nearly) daily updates on significant actions, statements, proposals, and cases.  We have culled through all of the Regulatory Alerts that we sent this year.  Below is our list of the Top 20 Alerts of 2017.  You can decide for yourself by visiting our blog at https://cipperman.com/blog/.  It all starts again in a couple of days…

 

  1. FIDUCIARY RULE GOES LIVE ON JUNE 9 WITHOUT SPECIFIC COMPLIANCE REQUIREMENTS (5/25/17)
  2. SEC PUBLISHES LIST OF MOST CITED EXAM DEFICIENCIES (2/9/17)
  3. FINRA IMPOSED $80 MILLION MORE IN FINES IN 2016 (7/6/17)
  4. SEC SWEEP YIELDS CYBERSECURITY BEST PRACTICES (8/9/17)
  5. SEC CHAIRMAN RE-COMMITS TO EXAMINATIONS AND ENFORCEMENT (6/28/17)
  6. SUPREME COURT LIMITS SEC DISGORGEMENT (6/6/17)
  7. LARGE PRIVATE EQUITY FIRM TO PAY $12.8 MILLION FOR ACCELERATED PORTFOLIO MONITORING FEES (12/26/17)
  8. ADVISER FAILED BEST EXECUTION WHEN RECOMMENDING 12B-1 FUND CLASS (4/5/17)
  9. SEC ENFORCEMENT DIVISION TARGETS FINANCIAL EXECUTIVES (11/17/17)
  10. SEC’S CYBER UNIT STOPS VIRTUAL CURRENCY OFFERING (12/5/17)
  11. LACK OF COMPLIANCE INFRASTRUCTURE COSTS PRIVATE EQUITY FIRM AND PRINCIPALS (6/30/17)
  12. CCO BARRED AND FINED $250,000 FOR AML COMPLIANCE BREAKDOWNS (5/9/17)
  13. SEC ISSUES ROBO GUIDANCE ON DISCLOSURES, SUITABILITY, AND COMPLIANCE (2/24/17)
  14. SEC WARNS ADVISERS ABOUT MISLEADING ADVERTISING PRACTICES (9/18/17)
  15. GENERAL COUNSEL AWARDED $7.9 MILLION FOR WRONGFUL WHISTLEBLOWER TERMINATION (2/13/17)
  16. SEC STAFF PUBLISHES 2017 EXAM PRIORITIES (1/13/17)
  17. FINRA POSTS SOCIAL MEDIA AND DIGITAL CONTENT GUIDANCE (5/10/17)
  18. SEC FINES AND BARS CCO FOR IGNORING COMPLIANCE PROBLEMS (12/27/17)
  19. SEC CREATES CYBER-UNIT (9/26/17)
  20. PRIVATE COMPANY AND CEO MISLED INVESTORS ABOUT COMPLIANCE FAILURES (11/3/17)

The Friday List: Our 2018 Predictions

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.

Every year, we offer our predictions on what will happen in the investment management regulatory world.  Last year, we went 4-6 (not great on a test, but pretty good in baseball).  We were right about the fiduciary rule, whistleblowers, state enforcement, and individual liability.  We missed on our predictions of regulatory changes and how the industry would respond to the increased demand for bonds.

The current uncertain regulatory environment has changed our hubris to humility.  Thus, it is with humble intent that we look forward to offer our 2018 predictions:

 

Predictions for the 2018 Regulatory Year

 

  1. More states will adopt fiduciary rules.  Nevada has already adopted a uniform fiduciary standard in the wake of the DoL’s delay.  We expect other states (e.g. California, New York, Connecticut) to follow.
  2. The SEC will propose a uniform fiduciary rule for retail advisers and broker-dealers.   Chairman Clayton has spoken publicly about the need for the SEC to wade into the fiduciary waters.  Expect a proposed rule this year.
  3. The SEC will commence significant cybersecurity enforcement actions.  The staff has done a sweep and issued guidance.  We have not yet seen significant enforcement actions.  We expect several this year.
  4. There will be cases alleging C-suite wrongdoing in private equity.  The SEC Enforcement Division has focused on the private equity industry for the last couple of years.  Given their interest in prosecuting senior executives to deter unlawful conduct, expect a couple of big cases against private equity execs.
  5. FINRA will bring actions against firms for hiring bad brokers.  Rather than simply prosecute the brokers, FINRA will dedicate some enforcement resources to firms that fail to screen out the bad brokers, thereby making it a firm responsibility.
  6. SEC and/or FINRA will bring cases alleging inadequate branch office supervision.  Both regulators have expressed concerns about remote office supervision.  Enforcement cases will ensure the industry’s attention.
  7. The SEC will commence significant marketing/advertising cases.  Seemingly out-of-the-blue, the SEC warned advisers about misleading marketing and advertising claims.  We are assuming that OCIE is uncovering a lot of problems.
  8. The SEC will propose a re-write of the custody rule.  The custody rule has the right intent, but the rule itself is too open to interpretation and questions (see multiple FAQs).  We think the Division of Investment Management will undertake a re-write (although maybe this is just wishful thinking.)
  9. The SEC will propose cryptocurrency regulations.  Bitcoin futures are flying high.  The SEC has expressed its opinion that it should regulate cryptocurrency offerings.  We expect some rules.
  10. The SEC will re-propose the ETF rule.  Plain vanilla ETFs should have a rule that allows them to proceed without an exemptive order.  The SEC proposed and abandoned a rule several years ago.  We anticipate that the SEC will resuscitate the effort.

Top 5 Regulatory Alerts – September 2017

Here are our Top 5 Regulatory Alerts for September 2017, ranked by significance.  We have also included the Top 5 most read Alerts (other than Best of the Web and Top 5).

 

Top 5 Regulatory Alerts – September 2017

  1. SEC CREATES CYBER-UNIT (9/26/17)
  2. SEC WARNS ADVISERS ABOUT MISLEADING ADVERTISING PRACTICES (9/18/17)
  3. DUAL-HATTED CCO AND UNDER-RESOURCED COMPLIANCE FUNCTION RESULT IN FINE/CENSURE FOR BD (9/28/17)
  4. PE FIRM PAYS $3.4 MILLION FOR BROKEN DEAL EXPENSES PAID SINCE 2004 (9/22/17)
  5. BD SMACKED WITH $1.5 MILLION FINE FOR FAILING TO PROPERLY MAINTAIN ELECTRONIC TRADING RECORDS (9/19/17)

 

Most Read – September 2017

  1. SEC WARNS ADVISERS ABOUT MISLEADING ADVERTISING PRACTICES (9/18/17)
  2. SEC TAKES ACTION AGAINST HEAD OF REGULATORY REPORTING (9/5/17)
  3. DUAL-HATTED CCO AND UNDER-RESOURCED COMPLIANCE FUNCTION RESULT IN FINE/CENSURE FOR BD (9/28/17)
  4. PRIVATE EQUITY FIRM CHARGED OVERHEAD AND PORTFOLIO EXPENSES TO FUND (9/12/17)
  5. SEC CREATES CYBER-UNIT (9/26/17)

Best of the Web – May/June 2017

Welcome to the May/June 2017 BOTW.  Things got so crazy for your friendly neighborhood regulatory blogger that I missed a month, requiring a consolidation of the May and June BOTW.  That means a lot of great articles from the tops of the industry.  Alaric extols the virtues of automated compliance testing, ACA delves deep into performance reporting, and Pepper podcasts about valuation.  Meanwhile, Dechert looks to Europe, and Seward & Kissel worries about private equity compliance.  Sadis & Goldberg asks the most provocative question of the late spring: Should you fight the SEC?  (Spoiler Alert: They say you should.)

 

Taking Uncertainty Out of the Equation with Automated Compliance Testing (Alaric)

Performance Reporting: IRR vs. TWR (ACA)

Valuation Issues in Hedge Funds (podcast) (Pepper Hamilton)

So You Want to Market Funds in Europe? – Rules of the Road for Accessing Capital in Europe (Dechert)

Certain Key Compliance Topics for Private Equity Fund Advisers (Seward & Kissel)

Cooperman Insider Trading Settlement Proves You Often Get Better Results by Fighting the SEC than by Settling Quickly (Sadis & Goldberg)

New CFTC Rules Formalize Whistleblower Protections for Employees of Hedge Fund Managers and Other Registrants (Schulte Roth & Zabel)

Blockchain – What It Is and Why It’s Important (Clifford Chance)

ETF operational and regulatory environment drives ETF oversight issues (K&L Gates)

NASAA adopts statement of policy to usher in e-delivery and e-signature for non-traded offerings (DLA Piper)

Nevada Imposes Fiduciary Obligations on Broker-Dealers and Investment Advisers (Morgan Lewis)

Market Matters: Fiduciary Rule Impact (podcast) (Thompson Hine)

Tax Reform Watch: Is a Lower Pass-Through Entity Tax Rate the Solution for Smaller Businesses? (Cohen)

Regulatory Monitor: SEC Update (custody) (Drinker Biddle)

CFTC Proposes Revisions to Chief Compliance Officer Obligations (Willkie Farr & Gallagher)

MiFID II – Cordium’s Annual Conference Poll Summary (Cordium)

SEC Issues Robo Guidance on Disclosures, Suitability, and Compliance

 

The SEC’s Division of Investment Management has issued regulatory guidance for robo-advisers to meet their disclosure, suitability, and compliance obligations.  The IM staff recommends robust disclosures about the algorithm (functions, limitations, risks), overrides, third parties, fees, and client information.   The staff also urges robo-advisers to adequately disclose limits on the models and to ensure that all disclosures are sufficiently clear and prominent.  The staff stresses that robo-advisers must satisfy their suitability obligations by ensuring adequate and clear questionnaires, which would include a process to reconcile inconsistent responses.  The Guidance requires robo-advisers to enhance their compliance programs to include policies and procedures to test the algorithm, analyze the questionnaires, oversee third parties, ensure proper disclosures, monitor social media, and protect against cyber-threats.  The IM Staff warns that it “will monitor these innovations and implement safeguards, as necessary, to help facilitate such developments and protect investors.”

OUR TAKE: The SEC has been taking a hard look at robo-advisers and whether the digital advice model is consistent with securities laws.  This Guidance will force many fintechs to increase compliance and operations spending to satisfy all the requirements described in this Guidance Notice.