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The weekly news source for investment management legal and compliance professionals

Clayton Rebuts Critics of SEC Standards of Conduct Package

The SEC is standing its ground on Regulation Best Interest, the investment adviser fiduciary interpretation, Form CRS and the agency’s interpretation of the "solely incidental" prong under the Advisers Act. Much of the criticism, agency Chairman Jay Clayton said in a strongly-worded July 8 Boston speech, is "false, misleading, and, unfortunately, in some cases, is simply policy preferences disguised as legal critiques."
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SEC Will Revisit Registration Exemptions, 401(k) Private Fund Investments

The SEC is seeking public comment on ways to reform registration exemptions in order to "expand investor opportunities while maintaining appropriate investor protections." The concept release and request for comment is expected to, among other things, look at ways to ease the ability of 401(k)s and other retail investor retirement vehicles to invest in private funds.
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Clayton Backs Simultaneous Resolution of Settlement Offers and Waiver Requests

Advisers and their attorneys face a problem when the SEC acts on a settlement offer but holds off on granting related waiver requests – leaving them in the position of having to decide whether to accept a settlement without knowing whether needed waivers are forthcoming. Those facing agency enforcement will likely be happy to know that SEC Chairman Jay Clayton this month came down on the side of simultaneous resolution of both.
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Recent Stories

Form CRS Challenge: Prescriptive Instructions Leave Room for Flexibility

Sometimes completing a two-page or four-page form may be just as challenging as completing a much longer one. The SEC’s new Form CRS, while not overly daunting in what it requires of advisers and broker-dealers, will require a certain degree of attention to the information the agency wants shared and perhaps some imagination in just how registrants choose to share it.
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House Amendment Prohibits SEC from Acting on Standards of Conduct

Every day is different. Less than a month ago, the SEC adopted the components of its Standards of Conduct Package – Regulation Best Interest, Form CRS, an interpretation of an adviser’s fiduciary duty, and an interpretation of what constitutes "solely incidental" advice provided by broker-dealers. On June 26, the U.S. House of Representatives passed an amendment to an appropriations bill that would prevent the SEC from using its funds to "implement, administer, enforce or publicize" those same rules and interpretations.
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Clayton Addresses Recent Court Rulings and the Path Forward

The SEC has been buffeted by several court decisions in recent years – Kokesh in 2017, Lucia in 2018, Robare and Lorenzo this year. At least two of these had a negative impact on how the agency’s Division of Enforcement operates, while one can be seen as enhancing the Division’s enforcement authority. SEC Chairman Jay Clayton, in a recent speech, described his thoughts about these decisions and how the SEC intends to move forward.
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SEC Adviser Fiduciary Interpretation: Review Disclosures, Contracts and More

Now that the dust is settling following the SEC’s adoption of its Standards of Care Package, advisers and broker-dealers are looking over the parts that affect them the most. For advisers, the Commission’s interpretation and clarification of their fiduciary duty may be the first thing they look at. While the interpretation does not appear to contain any earthshaking changes, it does make some, while clarifying what it sees as important. Advisers would be wise to review the interpretation to get a better handle on what the agency wants to see.
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Association Calls for Changes in Fund Proxy Voting and Communication

The Investment Company Institute, in its third comment letter to the SEC regarding changes involving proxies and proxy voting, called for the agency to forego requiring shareholder approval for certain topics, and creating a new way for funds to achieve a majority vote for others. At the same time, the ICI, which represents regulated funds, urged the SEC to require intermediaries to provide their fund shareholder lists to funds.
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SEC Moves Custody Rule Reform to the Fast Track

The SEC plans to propose amendments that will reform the Custody Rule within the next 12 months. The rule’s reform will join agency plans to take other actions within that same time period, including changes to the Advertising Rule, long identified within the asset management community as needing reform, the Cash Solicitation Rule, the use of derivatives by investment companies, and fund of funds arrangements.
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Commissioner Calls for More SEC Cryptocurrency Guidance

The SEC needs to do more to regulate the burgeoning cryptocurrency industry, in part by providing guidance to issuers, advisers, funds and broker-dealers so they can stay in the proper compliance lanes in regard to matters like custody, portfolio holdings, electronic platform obligations, and more. That is the view of agency Commissioner Hester Peirce, who, in a recent speech, said that the SEC, which some feared might go too far in regulating digital currencies, instead has demonstrated "its unwillingness to take meaningful action at all."
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OCIE Director on Anti-Money Laundering, Cybersecurity, Customer Funds

What do SEC examinations involving anti-money laundering, cybersecurity and protection of customer funds have in common? Examination efforts in these areas are examples of the agency protecting retail investors. So said SEC Office of Compliance Inspections and Examinations Director Peter Driscoll, who recently addressed the SIFMA Operations Conference in Boca Raton, FL.
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SEC Scrutiny of Privacy Policies and Procedures Makes Implementation Essential

With SEC examiners increasing their scrutiny of how advisory firms protect privacy, now is the time for chief compliance officers to ensure that privacy policies and procedures not only exist, but are robustly implemented. The result will not only be an advisory firm with high confidence that private information is protected, but that its firm’s privacy practices will pass muster the next time examiners come to visit.
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Adviser Waives New ALJ Hearing Despite Lucia Ruling, Settles Charges

An advisory firm and its founder, despite an Appeals Court ordering a rehearing with a different administrative law judge of a previous ALJ decision, on May 16 settled charges with the agency that it engaged in fraudulent trade allocations and misused soft dollars. The firm owner was permanently barred from the securities industry and agreed to pay disgorgement of $669,965.
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