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The weekly news source for investment management legal and compliance professionals

IAA Urges Senate Committee to Focus on Proxies, Not Proxy Advisory Firms

Stay away from proxy advisory firms and focus instead on repairing proxy infrastructure. That was the message the Investment Adviser Association sent in a letter this month to the Senate Banking Committee, which on the same day held a hearing on issues related to a bill that, if passed, would require proxy advisory firms to register with the SEC as investment advisers, meaning they would be subject to agency regulation.
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Watchdog’s Six-Month Report Card Provides Updates on Investigations of SEC

A potential leak of nonpublic information, securities fraud and obstruction of an SEC proceeding, threats against an administrative law judge, an SEC official operating a hedge fund, and improper influence. These are just some of the allegations against the agency that its Office of the Inspector General has investigated over the past six months, and on which the OIG reports in its latest Semiannual Report to Congress.
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Advisers Must Follow Through on Promised Advisory Fee Discounts

It may sound like an obvious point to make: If an advisory firm promises clients that they will receive fee discounts at certain “breakpoints” based on the amount of assets they turn over to the adviser for management, it must follow through and provide those discounts. However, if an advisory firm fails to implement procedures to make good on these promises, it may find itself both shortchanging clients and facing SEC sanctions.
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Recent Stories

Adviser Association Finds Recent Testing of Proposed Form CRS ‘Flawed’

The Investment Adviser Association is not happy with the recent testing of the SEC’s proposed Form CRS. In a December 6 statement, the IAA said that the testing of the relationship summary form, conducted by the Rand Corporation at the agency’s behest, “is substantially flawed and does not provide a reasonable basis for adopting Form CRS as proposed.”
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Ruling Against SEC in ICO Case May Upset Agency’s Cryptocurrency Strategy

The question of whether a digital token constitutes a security may have been put into play by a federal judge’s ruling in an ongoing case involving the SEC and a company engaged in a digital coin offering (ICO). The judge turned down the agency’s request for a preliminary injunction against the company, saying that the SEC had not sufficiently proved that the digital tokens involved met the definition of a security.
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Holiday Compliance: It’s Not Just Gifts, It’s Client and Vendor Parties

Every year at this time, advisory firms and their employees take a fresh look at their gift and entertainment policies to ensure that there are no compliance problems and that everyone knows what is expected. While many employees are aware of their firms’ dollar limits for receiving or giving gifts, there is another issue that draws less attention: employee attendance at holiday parties thrown by clients, prospective clients, vendors or other third parties.
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Percentage of Advisers Examined Jumps 11 Percent

The percentage of investment advisers examined in fiscal year 2018 by the SEC’s Office of Compliance Inspections and Examinations increased to 17 percent from the 15 percent examined the year before – representing an 11 percent increase in the number of advisers examined, according to the agency. In doing so, OCIE surpassed its FY 2018 goal of holding steady at the 15 percent figure.
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SEC Draws a Digital Line in the Sand for Cryptocurrencies

The SEC, in a recent statement and through recent enforcement actions, made its view on cryptocurrencies clear: Any digital asset deemed to be a security must meet Commission registration requirements. That includes initial offers and sales of these securities, investment vehicles placing money in digital asset securities and those advising others to do the same, or secondary market trading of such products.
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Proxy Advisory Firms Again Front and Center Following SEC Roundtable

The role of proxy advisory firms returned to center stage in recent days following an SEC roundtable that raised questions about the influence such firms have over advisers and funds, conflicts of interest, whether proxy advisers should be regulated, and more. As with a similar roundtable five years ago, viewpoints were aired, with questions remaining about what actions, if any, might be taken at some future date.
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Delays in Providing Compliance Resources to Inexperienced CCO Detailed in Two SEC Settlements

The SEC this month reached a settlement with a former advisory firm over allegations that it failed to perform adequate due diligence and monitoring of key investments. Much of the paperwork in the settlement, as well as in a separate settlement with the adviser’s former chief executive officer involving compliance issues, focused on allegations that the firm hired an inexperienced chief compliance officer and then repeatedly refused to provide him with the compliance resources he requested.
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2018 Enforcement Numbers Top Previous Year

The SEC earlier this month issued the results of its fiscal year 2018 enforcement efforts – and the results show that the number of enforcement actions and total money collected topped those from fiscal year 2017. At the same time, Division of Enforcement officials continued to state that measuring enforcement success primarily though these kinds of metrics “cannot adequately measure the effectiveness of an enforcement program.”
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OCIE Reveals Most Common Cash Solicitation Rule Deficiencies

SEC’s Office of Compliance Inspections and Examinations wants advisers to know the violations its examiners are finding when they visit advisory firms. In recent months, it has issued Risk Alerts highlighting the most common deficiencies cited involving best execution, fees and expenses, and more. Its latest Risk Alert focuses on adviser compliance issues related to Advisers Act Rule 206(4)-3, the Cash Solicitation Rule.
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Fund Association Wants SEC to Propose Rule for Summary Shareholder Reports

The Investment Company Institute (ICI) has made a proposal to the SEC as part of its answer to the agency’s request for comment on ways to enhance fund disclosure for investors. The association, which represents regulated funds worldwide, suggested in a comment letter that the Commission propose a rule creating a new, optional summary shareholder report that would ostensibly make the full shareholder report easier for investors to understand while also helping them compare funds.
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