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The weekly news source for investment management legal and compliance professionals

Topic: Fund Governance

SEC Takes Adviser to Court over Share Class and Revenue Sharing Conflicts

August 9, 2019
The SEC this month charged a large Massachusetts-based advisory firm with conflicts of interest over its alleged failure to disclose to clients ways in which it benefitted at their expense. The enforcement action is an example of the agency cracking down on both share class violations and improper revenue sharing.

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SEC Staff Urges Market Participants to Begin Transition from LIBOR

July 19, 2019
The end of 2021 may still seem some far off, but in terms of advisers and other market participants that will need to transition from the London Interbank Offered Rate (LIBOR), it may be getting uncomfortably close. The SEC staff in July issued a statement urging all market participants using LIBOR to begin the process of moving away.

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Survey Finds Advisers and Funds Making Liquidity Risk Management Choices

June 7, 2019
Investment advisers and fund complexes have begun to move past the stage of contemplating how they will comply with the SECís Liquidity Risk Management Rule and are making key choices on issues such as classification risk responsibilities, administration of their liquidity risk management program, and more.

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Associations Challenge Redemption Limit in Proposed Fund of Funds Rule

May 10, 2019
The Investment Company Institute, the Investment Advisers Association, the ecurities Industry and Financial Markets Associationís Asset Management Group and others in the asset management industry are not happy with a key element in the SECís proposed Fund of Funds Arrangements Rule. They want the agency to remove the 3 percent cap on acquired fund redemptions.

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Private Fund Name-Sharing in Certain Foreign Countries Raises Concerns

May 3, 2019
Hedge funds or private equity funds organized and offered by banking entities and affiliated advisers in certain foreign countries may not, under current law, be allowed to share the same name or even a variation of the same name with that bank or adviser. This may cause a problem, because countries like China or Taiwan have local regulations that may require the use of the same name. Some in the industry are asking for relief to deal with this issue.

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SEC Charges Former Advisory Firm COO Overbilled to Give Himself a Raise

April 5, 2019
Donít steal from your clients and donít steal from your employer. These seem like fairly easy rules to understand and follow Ė but the SEC and the U.S. Attorneyís Office for the Southern District of New York, in separate enforcement actions on March 28, charged a former advisory COO with doing both.

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Assess LIBOR Exposure in Preparation for Shift

February 22, 2019
Advisory firms need to prepare for the financial communityís 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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Adviser Relationships with Sub-Advisers Draw Examiner Scrutiny

November 2, 2018
Advisers need to step up their game in terms of overseeing their sub-advisers. SEC examiners are scrutinizing the relationships between advisers and sub-advisers for conflicts of interest and to ensure that advisers are properly on top of what their sub-advisers are doing.

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Procedures Designed to Prevent Conflicts of Interest are Not Just for Show

October 26, 2018
Conflicts of interest are among the big red flags that the SECís 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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SEC Staff Taking New Look at Oversight Role of Fund Boards

October 19, 2018
With both a no-action letter and a speech from Division of Investment Management Director Dalia Blass, the SEC staff has sent a message to fund board directors: We are paying attention to your concerns, particularly in the area of board responsibilities for oversight.

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Don’t Promise One Investment Strategy to Investors and Use Another

September 21, 2018
Investors might justifiably be somewhat upset if they find out that the fund in which they invested had to shut down. They might be even more bothered if they discover that the adviser managing the fund invested their dollars using a higher risk investment strategy than promised Ė and so might the SEC.

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Failure to Disclose All Redemption Options May Lead to Enforcement Action

September 14, 2018
It may be tempting to be nice when an investor wants to cash in part of his or her investment with shorter notice window than your firm usually allows. But a shorter redemption window for some investors may lead to unfair results for other investors forced to wait Ė especially if all redemption options have not been disclosed.

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Product Decisions Without Promised Internal Review May Lead to SEC Sanctions

September 14, 2018
Donít fall into the trap of adding or dropping investment products to satisfy clients or business affiliates without conducting the internal reviews promised in Form ADV and marketing materials. Such actions may at the time seem like a way to keep key stakeholders happy, but it is a recipe for an SEC investigation and possible enforcement action.

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Advisers and Funds Cautiously Move Forward on Liquidity Rule Compliance

August 16, 2018
Many advisory firms and fund complexes are taking steps to comply with the requirements of the SECís Liquidity Risk Management Rule, but there are differences in how they comply Ė not only between advisers and fund complexes, but within each group. Changes in some of the requirements and deadlines have added to the mix.

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Associations Support Proposed Liquidity Rule Changes. . . But Suggest More

June 15, 2018
The period for public comments on the SECís proposed amendments to the Liquidity Risk Management Rule is over, and the comments, at least from three major associations in the asset management community, appear to be positive Ė but with suggestions for more changes.

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New Law Reforming Dodd-Frank Affects Advisers and Funds

May 31, 2018
Now that the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) has been signed into law, whatís in it for investment advisers and investment companies? Not a lot, it turns out, but there are key measures that advisory firms and funds should be aware of.

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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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