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The weekly news source for investment management legal and compliance professionals

Multiple Adviser Settlements Demonstrate Clout of SEC’s Share Class Initiative

The SEC knocked it out of the park this month, demonstrating to naysayers that its Share Class Selection Disclosure Initiative has been effective in appealing to advisory firms. The agency on March 11 announced settlements with 79 different advisory firms that chose to self-report their violations. While these firms collectively agreed to pay more than $125 million in disgorgement and interest, they also escaped having to pay civil money penalties.
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Custody Rule Reform: SEC Seeks Input on Non-DVP Practices, Digital Assets

The SEC staff, in what might be considered a prelude to reform of Advisers Act Rule 206(4)-2, the Custody Rule, on March 12 issued a public letter to the Investment Adviser Association seeking answers to questions involving a certain type of custodial practice, as well as questions related to custody of digital assets. Reform of the Rule is listed on the agency’s long-term regulatory agenda, and the letter should be a welcome sign to those calling for the SEC to move forward.
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Recent Stories

Form ADV Part 2A Difficult Challenges – and How to Handle Them

With March 31 approaching, many investment advisers, their legal representatives and consultants are deep into the Form ADV process. Meeting the deadline, of course is just one challenge. The other is ensuring that the Form is updated to properly disclose changes that took place in an adviser’s business during the past year or that are expected in the coming year. This information is required for both existing and prospective clients – and you can be sure the SEC will be paying attention.
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Soft Dollars and MiFID II: SEC Ponders Post-Relief Course of Action

The asset management industry wants to hear from the SEC, while the SEC wants to hear more from the asset management industry. The issue is what the agency will ultimately decide on the question of how broker-dealer research costs should be paid in light of the European Union’s directive requiring that those costs be unbundled from broker-dealer execution costs.
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Peirce Calls for Careful Thinking in Regulating Cryptocurrencies

SEC Commissioner Hester Peirce, in a recent speech on the dynamic between entrepreneurship, innovation and regulation, called on regulators not to assume that cryptocurrencies need to be regulated like other securities. Care should be taken to ensure that regulations for this relatively new product, while needed, do not inadvertently get in the way of a new method of raising capital.
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Advisory Firm Fees: What the Future May Hold

The world of advisory firm compensation is changing and will continue to change. The next five to 10 years may see discounts, alternative forms of compensation, clients making investments that do not involve fees at all, and more. Advisers that want to stay ahead of the curve will keep up to date and be prepared for any likely eventuality.
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Assess LIBOR Exposure in Preparation for Shift

Advisory firms need to prepare for the financial community’s coming switch from the London Interbank Offered Rate (LIBOR) as the most commonly used interest rate benchmarks. Those who think of the benchmark situation as a problem affecting primarily banks are likely to be in for a rude shock, as many portfolios and financial contracts may be affected by it.
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Fraud Charges Demonstrate that Actions Must Match Disclosures

Telling investors one thing and then doing another is often a recipe for trouble. This may have been particularly true for one advisory firm that the SEC charged January 26 with promising some investors that portions of their profits would be used to protect their investments but instead were used to pay the living expenses of the firm’s owner.
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OCIE Exam Priorities List is a Tool, Not a Compliance Blueprint

New chief compliance officers at small firms, as well as compliance professionals of all sizes of firms, should avoid the trap of regarding the SEC’s annual examination priority list as a template for their own compliance programs. The priority list, published by the agency’s Office of Compliance Inspections and Examinations (OCIE), is a valuable tool for compliance efforts, but those efforts need to address topics in addition to those highlighted in the list.
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SEC Deals with Backlog as It Resumes Full Operations

This past week marked the first full week that the SEC, as well as much of the rest of the federal government, resumed business since the shutdown began on December 22. It will likely be several weeks more, however, until the agency deals with the backlog of applications, requests, examination actions, enforcement matters and more, enabling it to move forward at its previous pace.
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Determine Auditor’s Custody Rule Savvy before Engagement

The Custody Rule can be a major headache for advisory firms and their legal counsel. It is complicated, open to interpretation, and the SEC is on the lookout for advisers – and accounting firms – that violate it. All the more reason, for both advisers and auditors to be knowledgeable and experienced about the Rule before taking steps that may violate its requirements.
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