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The weekly news source for investment management legal and compliance professionals

Topic: Fund Governance

Restricted Lists: Update, Monitor and Avoid Common Errors

April 6, 2018
Many advisory firms maintain "restricted lists:" compiled names of companies and securities with which they do not allow trading. These lists protect an advisory firm from a number of dangers Ė but advisers with such lists need to ensure they are properly updated, monitored and that they avoid mistakes that may cause problems down the road.

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SEC Moving Forward on Exchange-Traded Funds Rule

March 23, 2018
The SEC under chairman Jay Clayton has a relatively short list of regulatory priorities for 2018, and one that appears to be on the high-priority track is proposing an Exchange-Traded Funds Rule. Division of Investment Management director Dalia Blass, who spoke on the need for such a rule at a recent conference, is clearly an advocate of getting such a rule adopted.

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SEC Reverses Itself and Votes Against Public Reporting of Liquidity Classifications

March 16, 2018
In something of a turnaround, the Commission on March 14 voted, 3 to 2, to change a previously adopted liquidity classification requirement. Under the proposed amendments, funds will no longer need to publicly report the classification buckets their securities fall into. Instead, they will simply need to provide a qualitative narrative describing how their liquidity risk management programs are working.

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Liquidity FAQs Fill in the Blanks on Classification by Asset Class

March 9, 2018
When the SEC delayed the Liquidity Risk Management Rule classification compliance date by six months recently, it also issued a new set of answers to frequently asked questions that should make fund compliance with the Rule somewhat easier. The FAQs, which follow up on an earlier set issued in January, provide agency staff thinking on a variety of topics, including classifying liquidity by asset class, the 15 percent limit on illiquid investments, and more.

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Cryptocurrencies: Caution is the Watchword as This Digital Avenue Grows

March 2, 2018
Digital currencies such as bitcoin and ethereum may be the wave of the future Ė but that future is not here yet and may not be for a while. Advisers, investment companies and broker-dealers looking at cryptocurrencies should consider holding back until the SEC and other regulators work out a number of outstanding questions, many of which have a direct bearing on investor protection and fiduciary duty.

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SEC Extends Liquidity Rule Classification Deadline by Six Months

February 23, 2018
Mutual fund managers concerned about the requirements of the SECís Liquidity Risk Management Rule got a partial reprieve on the evening of February 21. The Commission voted to create an interim final rule extending the compliance deadline for the most contentious part of the Rule Ė the requirement that open-end funds classify their securities into four liquidity groupings, often referred to in the industry as "buckets" Ė by six months.

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SEC Files Misrepresentation Charges Against Adviser Raising Money to Flip Real Estate

February 2, 2018
Flip or flop? Advisers seeking to raise money from clients and investors for the declared purposed of flipping residential properties would be wise to ensure that the dollars raised go to that purpose. The SEC has filed charges against an adviser and others for allegedly failing to do just that.

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Undisclosed Investment Strategy Changes Unlikely to Save the Day

January 26, 2018
An adviser may start a fund with high expectations, but find that, for a number of reasons, returns do not come in as expected, and in fact go south. Advisers in such situations may be tempted to turn to a higher risk/higher reward investment strategy in the hope it will make up for the losses. Those that do should be aware that such a move may bring with it business and compliance challenges that no adviser wants to face.

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SEC Liquidity Risk Management FAQs Flesh Out ETFs, Role of Subadvisers

January 18, 2018
Funds and advisers with questions about liquidity risk management programs may breathe a bit easier Ė at least if some of those questions pertained to how in-kind exchange-traded funds work and the role of sub-advisers. The SECís Division of Investment Management on January 10 issued FAQs that address at least some of the questions that have arisen in these areas.

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Treasury Urges Liquidity Rule Compliance Date Delay, No Classification Buckets

November 3, 2017
The Treasury Departmentís recommendations that the SEC postpone at least one of the scheduled compliance dates for Rule 22e-4, the Liquidity Risk Management Rule, and eliminate the requirement that funds categorize assets into four liquidity classifications was an industry-friendly move that will likely find much applause in the asset management industry.

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Sub-Advisers and Their Role in Liquidity Risk Management Rule Compliance

October 20, 2017
Advisory firms are taking steps to comply with the Liquidity Risk Management Rule. With the compliance dates approaching Ė funds with more than $1 billion in net assets have only a little more than a year left to comply Ė smart advisers are not letting the grass grow under their feet. They are getting the preparation process underway in a variety of areas, among them the role that sub-advisers will play.

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Failure to Provide Counsel with Key Information Likely Won’t Pass SEC Muster

October 13, 2017
When seeking legal advice, advisers should provide all relevant material facts to the attorney. Failure to do so may result in a legal opinion that wonít stand up to SEC scrutiny.

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Jury Rules Against F-Squared Founder in Federal Court

October 13, 2017
The SEC came out the winner on October 6, when a federal jury ruled against advisory firm F-Squared Investments founder and former CEO Howard Present in a case the agency brought almost two years ago in federal district court.

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Failure to Disclose Reserve Funds and Related Fees May Lead to Enforcement

September 15, 2017
Reserve funds are sometimes created and used by advisory firms to "smooth" investor earnings or to ensure redemption requests can be met. Advisers that do so must disclose such a fundís existence, ensure that fee policies are disclosed and avoid conflicts of interest. Failure to do so may lead to problems with examiners and agency enforcement.

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DOL Proposes Fiduciary Rule Exemptions Delay, Considers Further Measures

September 7, 2017
The Department of Labor keeps finding ways to prevent key elements tied to its Fiduciary Rule from taking effect. The latest: an 18-month application date delay on three Rule exemptions, the likelihood that the DOL will "in the near future" propose "a new and more streamlined class exemption," and calls for comments in several other areas.

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Fund Managers Should Disclose Before Using One Fund to Prop Up Another

August 25, 2017
Recipe for a conflict of interest: An adviser managing two funds causes one fund to invest in the second Ė but fails to disclose the investment to the investors of the first fund. The fund receiving the investments uses them to finance and help grow the advisory firm.

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Hedge Fund Manager Ordered to Pay $13 Million in Investor Fraud Case

August 25, 2017
Donít promise what you canít deliver, donít overvalue investments and donít take from Peter to pay Paul. Those seem to be the main lessons drawn from a federal courtís judgment against a hedge fund manager that the SEC has litigated against for the past seven years.

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Liquidity Risk Management First Steps: Define Program, Assign Responsibility

August 25, 2017
Thereís no time like the present for fund managers to start working on compliance with the SECís Liquidity Risk Management Rule. The compliance deadline may be months away, but wise firms will use that time to begin the compliance process by assigning responsibility and defining a program that matches their fundsí investment portfolios. Those that do will be well-positioned to tackle the additional compliance challenges that await. Those that donít may find themselves scrambling as compliance deadlines approach.

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SEC Issues FAQs to Guide Investment Companies Through Reporting Changes

July 28, 2017
Weíre halfway through 2017 and some eyes are already on changes that 2018 will bring. An example in point is the SECís Division of Investment Management, which this month issued guidance in the form of FAQs to help investment companies and their managers meet the new reporting requirements that begin next year.

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SEC Adopts Final Liquidity Risk Management and Related Rules with Changes

October 14, 2016
The SEC adopted its final liquidity risk management rule, along with related rules and amendments, on October 13. While the final rule has some significant changes from the proposed version Ė such as reducing the number of liquidity classifications from six to four Ė it will still have a significant effect on how mutual funds and other open-end management funds conduct business.

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