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This Week’s Issue

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Form CRS and Reg BI Compliance: OCIE Reveals What Examiners Want to See

The SEC’s Office of Compliance Inspections and Examinations this past week issued risk alerts specifying what examiners may look at when they visit advisory firms and broker-dealers to check on compliance with Form CRS and Regulation Best Interest. With the SEC now clear that the June 30 compliance date for both requirements will not be changed (ACA Insight, 4/6/20), firms – already dealing with the problems created by the coronavirus – will need to make sure they are in compliance, applicable with these new rules.

COVID-19: SEC Further Extends Public Comment Deadline, Commissioner Calls for Still More Time

The SEC has effectively extended its public comment deadline for a number of proposed rules to May 1, adding a week to the previous extension of April 24. Both extensions were made in response to the changes following the advent of the coronavirus, which has led to firm disruptions. Whether the latest extension is enough however, is in question, as one commissioner called for an even longer period.

U.K. Regulators Set Coronavirus Expectations for Firm Management

Investment advisory firms and broker-dealers with subsidiaries or affiliates in the United Kingdom will need to follow two new sets of “expectations” for dual-regulated firms and solo-regulated firms issued recently by the U.K.’s Financial Conduct Authority and Prudential Regulation Authority. The statements lay out the regulators’ views on senior management responsibilities, temporary staff arrangements, furloughed staff and more in the wake of COVID-19.

Recent Stories

Remote Office Challenges: 15 Solutions for Cyber Threats and More

The push to remote offices as a result of COVID-19 brings with it all kinds of challenges, including the need for vigilant cybersecurity, continued effectiveness with clients, staff organization and meetings, and communications. Firms would be wise to see the move to remote offices as more than a geographic challenge, but one that impacts both cybersecurity and the way they do business.

SEC Won’t Extend Form CRS and Reg BI Deadlines because of COVID-19

Ending speculation over whether the SEC would extend its COVID-19 regulatory relief to postponing the June 30 compliance dates for Form CRS and Regulation Best Interest, two key parts of the agency’s recently passed Standards of Conduct package, Chairman Jay Clayton gave a firm no.

Two More Advisers Settle Aequitas-Related Conflict-of-Interest Cases

Investment advisers in New Jersey and California recently reached settlements with the SEC in regard to client investments in entities tied to former Oregon-based firm Aequitas Management. Those settlements, like a July agency settlement with a Massachusetts advisory firm, resolve allegations involving conflicts of interest and inadequate disclosure.

Prepare for Remote OCIE Exams in Wake of Pandemic

The SEC’s Office of Compliance Inspections and Examinations (OCIE) will be doing most of its examinations remotely in the weeks ahead, at least until the coronavirus passes. Advisory firms and investment companies that expected onsite visits should now expect greater use of audio and video interviews as the agency seeks to continue its mission.

SEC Warns against Insider Trading during Coronavirus

The SEC wants to make sure that no one takes advantage of the business situation created by the coronavirus and the government and business reactions to it by misusing material non-public information and engaging in insider trading. It issued a warning to that effect.

SEC COVID-19 Actions: Report Exemptions Extended, Fund Borrowing Loosened

The SEC appears to be taking a hands-on approach as the coronavirus pandemic spreads. In the past week, it has, among other things, widened the window for which advisers and funds may take advantage of extended regulatory exemption deadlines that were established only the week before; adopted temporary exemptions allowing funds to borrow from affiliates and through other arrangements; and provided new exemptions for EDGAR filings, compliance with Regulation A and crowdfunding.

Adviser’s Ownership Interest Triggers Principal Trading Settlement

An investment advisory firm and its founder/chief executive officer reached a settlement with the SEC after the agency charged both with principal trading violations. The founder’s ownership interest in a fund his firm managed when the trades occurred was more than 35 percent, the agency said, well above the 25 percent limit mentioned in a recent agency Risk Alert, and apparently triggered the agency investigation.

Coronavirus: Regulators Here and Abroad Take Action

The ripples from COVID-19 are many and growing. Aside from concerns about people’s health and the large and volatile stock market decline, there are ramifications affecting investment advisers, investment companies and others, with the SEC, the CFTC, the United Kingdom’s Financial Conduct Authority (FCA) and European Union regulators addressing the issues and taking actions.

Asset Managers Need to Address COVID-19 Effect on Operations, Cybersecurity

Investment advisers, funds and other financial firms face a changing business and compliance dynamic as the threat of the coronavirus – and the government and other restrictions to combat it – grow. Decisions need to be made in areas such as operations, compliance, cybersecurity and more.

COVID-19 and the CAT: Exemptive Relief and Cybersecurity Measures

The SEC’s recent actions in regard to the coronavirus address a wide range of concerns. One of these agency measures provided relief for those working on development of the Comprehensive Audit Trail, perhaps better known as the CAT, through a temporary no-action letter for self-regulatory organizations.

SEC Commissioner Questions Proposed Advertising Rule’s Principles-Based Approach

When the SEC proposed its new Advertising Rule back in November, there was much applause. Some suggestions for improvement were made, but by and large, the Rule was welcomed by the asset management community. After all, the Rule had not been significantly updated since 1961, and its principles-based approach, as opposed to specific prescriptive prohibitions, appeared to be generally well received. Now, however, a significant voice is questioning whether that approach is correct.

What’s in a Fund Name? The SEC Wants to Know

When is a name not a name? When it is a misnomer, of course, that is, when the name does not accurately reflect the identity of that which it purportedly identifies. For the SEC, that means requiring that funds have names that do not mislead investors, a requirement that it believes may need to be tweaked to stay current with the times.

Side Compensation without Disclosure Leads to Court Charges against Adviser

The SEC recently filed charges in federal court against an advisory firm, its owner and a former owner, claiming that the three breached their fiduciary duty when they failed to disclose to their clients that they were accepting compensation that created a conflict of interest. Now the defendants face not only the charges, but the possibility of disgorgement and financial penalties.

SEC Exemption Proposal Would Raise Offering Limits and Streamline Process

The SEC, in a move that would ease access to capital, on March 4 proposed rule amendments to its exempt offering framework that would, among other things, raise the offering limit under a number of existing regulations, and could streamline the exempt offering process. The proposal will be open for public comment for 60 days, before being considered for adoption.

Peirce Criticizes Commission for Digital Lack of Progress

SEC Commissioner Hester Peirce, a strong advocate of the SEC creating a regulated path for digital currencies and networks, let loose her criticism of the Commission in regard to such issues in a sharply worded dissent. Her disagreement involved a proposed rule change that would have opened bitcoin access to investors on a national securities exchange.