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Commissioner Wants Cybersecurity Reg SCI Expanded to Advisers and Broker-Dealers

Regulation SCI was adopted by the SEC in November 2014 and requires exchanges, clearinghouses and others to put in place written cyber policies and procedures – but should now be expanded to include advisers, broker-dealers and transfer agents. That’s the view of SEC Commissioner Kara Stein, who, in a recent speech on data usage and regulation, said that she has asked agency Chairman Jay Clayton to prioritize the issuance of what she calls “Regulation SCI 2.0.”
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Blass Outlines Investment Management Agenda in Testimony before Congress

SEC Division of Investment Management Director Dalia Blass, speaking before a House of Representative subcommittee, laid out three guiding principles that the division plans to follow under her tenure. In wide ranging testimony that covered the Division’s agenda, she discussed specific measures the Division plans to take, including marketing reforms and a new look at fund board responsibilities, under those principles.
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Recent Stories

Peikin: Monetary Sanctions are Not the Only Enforcement Tools

SEC Division of Enforcement Director Steven Peikin wants you to know that he does not think every violation is best solved with a civil money penalty. Other enforcement tools, he said in an October 3 speech, including non-monetary relief such as undertakings, conduct-based injunctions, bars and suspensions can also prove quite effective – with the mix to be decided on a case-by-case basis.
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Study from AARP and Other Groups Finds SEC’s Proposed Form CRS Confusing

The SEC proposed Form Customer Relationship Summary to make the differences between advisers and broker-dealers easier for retail investors to understand – but it may not be passing that test. Three major consumer groups – the AARP, the Financial Planning Coalition and the Consumer Federation of America – in their comment letter to the SEC revealed that an independent study of investors “indicate the need for the Commission to revise and retest the content, language and format of the CRS.”
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Cybersecurity: Firm Pays $1 Million to Settle Deficient Procedure Charges

A dually-registered adviser/broker-dealer agreed on September 26 to pay the SEC $1 million in fines as part of a settlement over cybersecurity violations. The settlement with Des Moines-based Voya Financial Advisers involved violations of two agency cybersecurity-related rules, as well as a 2016 incident in which hackers gained access to personally identifiable information for at least 5,600 of the firm’s customers.
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Concealing Asset Values Won’t Solve Problems, May Bring SEC Charges

No adviser wants to see declines in the asset values of the client accounts they manage. Concealing those declines from clients and regulators, however, is not the answer. Not only will clients find out and likely be quite upset, but there is a good possibility the SEC’s Division of Enforcement will take notice. Better to come clean about the true state of affairs.
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SEC Withdraws Two No-Action Letters Regarding Use of Proxy Advisory Firms

The SEC on September 13 did something unexpected: It pulled two 2004 Division of Investment Management no-action letters concerning advisers’ use of proxy advisory firms in preparation for a planned November roundtable on the subject. What made the move unusual was not that the agency decided to supersede the letters, but that it did so by actually removing them, rather than simply issuing new guidance indicating a change of course.
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Advertising with Blended Back-Tested and Actual Results Draws SEC Attention

The SEC for several years has made it clear that it does not like the use of hypothetical and/or back-tested performance results in advertising. A recent settlement not only shows that the agency’s Division of Enforcement has not changed its view, but that it may file enforcement actions against advisers that blend back-tested performance results with actual results.
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Cryptocurrency: SEC Takes Action Against Hedge Fund Manager

It was only a matter of time before it happened. The SEC on September 11 took what it called its “first-ever enforcement action” against a hedge fund manager marketing digital assets. The firm had raised more than $3.6 million for such investments over a four-month period – but the agency charged that it did so using misrepresentations and registration failures.
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2018 Shows Continued Investment Adviser Growth

The investment advisory industry is riding the surf of the economic upturn, with record numbers of advisers, investment advisory jobs and assets under management than ever before. The number of clients took a slight dip this year, while private equity funds increased their popularity over hedge funds.
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Federal Court Dismisses Challenge to SEC Disgorgement Authority

Following the June 2017 Supreme Court Kokesh settlement that subjected SEC disgorgement orders to a five-year statute of limitations, it was perhaps inevitable that there would be legal challenges to the agency’s authority to order disgorgement at all as part of an administrative settlement. Late last month a federal district court judge rejected such a challenge.
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The CAT Takes a Step Forward and a Step Back

The SEC is finding that its progress in creating a comprehensive electronic blueprint of securities transactions, the Consolidated Audit Trail (CAT), is proving as difficult as getting real cats to do what you want. It issued a statement that demonstrates the forward-and-back nature of this project: the arrival of a detailed master plan, but the delay of three key deadlines by a year.
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