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This Week’s Issue

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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.

Recent Stories

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.

SEC Notes Failure to Self-Report in Latest Share Class Settlement

The SEC, in its latest share class disclosure settlement with an advisory firm, makes a point of noting, fairly prominently in the settlement order, that the firm chose not to self-report its alleged violations to the Division of Enforcement. The result appears to be that the adviser got hit with more than $900,000 in disgorgement and civil money penalties – part of which could have been avoided by voluntarily coming forward.

Coronavirus: Test Business Continuity Plans, Speak to Clients with One Voice

Advisers and funds experienced severe downturns in the stock market this past week, primarily due to the ramifications of the growing coronavirus, which began in China and now is spreading internationally, including in the United States. Aside from concerns about client investments and employee health, compliance departments should ensure that their business continuity plans are ready to go, and stay on top of client messaging.

Proposed Proxy Advisory Firm Rule Amendments Draw Comments

Two key industry players – the Investment Adviser Association and the Investment Company Institute – are taking issue with key parts of the SEC’s proposed rule amendments that would regulate how proxy advisory firms provide services to advisory firms, investment companies and others. In recent comment letters to the agency, both found fault in key provisions of the proposal.

Peirce Proposes Safe Harbor for New Digital Networks

SEC Commissioner Hester Peirce periodically notes that she has been called the “crypto mom” for her advocacy of a more welcoming approach from the SEC in the area of digital networks and cryptocurrencies. She is likely to only enhance her credibility in that area following her recent proposal to create a safe harbor in agency rules that would allow new digital networks greater freedom to develop and operate in their first three years.

Most Important Supreme Court Decisions for Advisers and Funds

Find out the high court decisions from recent years that are likely to affect how advisers and investment companies work from Debevoise partner Robert Kaplan. 

Industry Associations Applaud Proposed Advertising Rule, but Want Changes

When the SEC unveiled its proposed Advertising Rule in November, it was roundly welcomed by the asset management industry. The proposal was the first reform of the existing Rule in more than half a century, and the principles-based approach it took to advertising regulation made more sense to many than the prescriptive prohibitions of the existing Rule. Now, with a few months to digest and review the proposed Rule, the industry continues to welcome it, but also wants some changes made.

SEC Seeks 5 Percent Budget Increase for 2021 Fiscal Year

The SEC this month asked Congress to up its annual budget in fiscal year 2021 by almost $90 million to $1.9 billion, representing a 5 percent increase from its current appropriation. The additional moneys, if approved, would fund a variety of items, including increased personnel for enforcement, examinations and improvements in cybersecurity.