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The weekly news source for investment management legal and compliance professionals

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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Get the Most from the Exam Postmortem

SEC examiners may visit an adviser for anywhere from one to multiple days. Most advisers will see their visits end with a number of deficiencies found, a few lucky ones will escape with no deficiencies found at all, and a very few unlucky ones will learn that they have been referred to the SEC’s Division of Enforcement. Whatever the outcome of an examination, wise advisory firms will conduct an internal postmortem of the exam experience and lessons learned.
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Procedures Designed to Prevent Conflicts of Interest are Not Just for Show

Conflicts of interest are among the big red flags that the SEC’s Division of Enforcement looks for when investigating advisers. Firms that disclose such conflicts to clients and adopt procedures to handle the conflicts can avoid compliance problems, while at the same time build trust with both existing and prospective clients. But when advisers violate their own procedures and then fail to disclose that they did so, they will not only damage or lose that trust, they are likely to draw in investigators.
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Watchdog Wants SEC to Improve Management of Information and Data Sources

Better acquisition and management of subscription contracts, better controls over certain purchases of electronic information sources (EIS), and better monitoring and tracking of those sources and others – that’s what the SEC’s Office of the Inspector General recommended to the agency in a recent final audit report. The agency concurred and basically said that it will jump right on resolving the problems.
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SEC’s Five-Year Strategic Plan Focuses on Retail Investors, Innovation and More

The SEC’s final Five-Year Strategic Plan for fiscal years 2018 through 2022 – much awaited by those who pay attention to agency priorities – is a slimmed-down version of SEC strategic plans from the previous five-year period. It bears the hallmarks of agency Chairman Jay Clayton’s stated aims to focus on retail investors, innovation and cybersecurity, among other areas, while retaining specific initiatives from past plans focusing on enforcement and examinations.
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Information Security Rule Proposed by State Securities Regulators Association

Rules and guidance from the SEC on cybersecurity and related matters have been proposed and/or issued in recent years – but the agency is not the only regulator taking action in these areas. States also have the authority to regulate securities entities – and the association representing state and provincial securities regulators in the United States, Canada and Mexico, the North American Securities Administrators Association (NASAA), is seeking comment on a proposed information security and data privacy model Rule and related amendments.
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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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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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