To help market participants keep tabs on the deluge of actions taken by financial market regulators to address the ongoing COVID-19 crisis, Katten’s Financial Markets Regulation team has launched the Financial Markets Regulation COVID-19 Resource Center. The new site lists and provides links to the COVID-19-related regulatory actions taken by the SEC, CFTC, FINRA,
On January 27, the Office of Compliance Inspections and Examinations (OCIE) of the Securities and Exchange Commission issued a statement summarizing its observations of cybersecurity and operational resiliency practices of broker-dealers, investment advisers, clearing agencies, national securities exchanges and other SEC registrants (the Observations). In its introduction to the Observations, the OCIE staff notes that cybersecurity is a key priority for OCIE. Therefore, although the OCIE staff acknowledges that there is not a “one-size fits all” approach to addressing cybersecurity, it recommends that SEC registrants assess their cybersecurity practices in light of the Observations.
Continue Reading OCIE Provides Observations on Cybersecurity and Operational Resiliency Best Practices
On July 11, the Office of Compliance Inspections and Examinations (OCIE) of the Securities and Exchange Commission issued a Risk Alert to provide investment advisers and other market participants with information concerning many of the most common deficiencies that OCIE staff has found in recent examinations of investment advisers’ compliance with their best execution obligations under the Investment Advisers Act of 1940 (the “Advisers Act”). The Advisers Act best execution obligation requires an investment adviser to execute securities transactions for clients in such a manner that the client’s total costs, or proceeds in each transaction, are the most favorable under the circumstances taking into consideration the full range and quality of a broker-dealer’s services including, among other things, the value of research provided as well as execution capability, commission rate, financial responsibility, and responsiveness to the investment adviser. Furthermore, an investment adviser should periodically evaluate the execution quality of broker-dealers executing their clients’ transactions.
Continue Reading OCIE Issues Risk Alert on Compliance Issues Related to Best Execution by Investment Advisers
On June 5, the Securities and Exchange Commission’s Division of Investment Management staff (Staff) updated its “Staff Responses to Questions About the Custody Rule” (Custody Rule FAQs). The Custody Rule FAQs address questions regarding Rule 206(4)-2 of the Investment Advisers Act of 1940, the “Custody Rule.” The update to the Custody Rule FAQs specifically addressed concerns regarding the Staff’s February 2017 Guidance Update titled: “Inadvertent Custody: Advisory Contract Versus Custodial Contract Authority” (Guidance Update). The Guidance Update indicated that investment advisers may inadvertently have custody (Inadvertent Custody) of client assets due to provisions in a separate custodial agreement entered into between its advisory client and a qualified custodian that allow the investment adviser to instruct the custodian to disburse, or transfer, client funds or securities.
Continue Reading SEC Releases Updates to Custody Rule Frequently Asked Questions
On June 1, the Securities and Exchange Commission announced settlements with 13 registered investment advisers who repeatedly failed to annually file or update reports on Form PF. Form PF is a confidential reporting form required for private fund investment advisers managing $150 million or more of assets. The SEC began requiring that applicable registered investment advisers file an annual Form PF in 2012 under Rule 204(b)-1 of the Investment Advisers Act of 1940. Form PF requests, among other things, information about private funds’: asset values, investment strategies, performance, and use of borrowed money and derivatives. The SEC uses Form PF data to monitor industry trends, inform rulemaking, identify compliance risks, and target examinations and enforcement investigations. The SEC also shares Form PF data with the Financial Stability Oversight Council (FSOC), which assists FSOC in evaluating systemic risks potentially caused by hedge funds and other private funds.
Continue Reading SEC Charges 13 Private Fund Advisers for Repeated Form PF Filing Failures
On May 17, the Securities and Exchange Commission Office of Compliance Inspections and Examinations (OCIE), issued a Risk Alert in response to the widespread ransomware attack known as WannaCry, WCry, or Wanna Decryptor that started on May 12. The attack infected computers and servers of various organizations in more than 100 countries. The Risk Alert encourages broker-dealers and investment management firms (collectively, “Firms”) to review the May 12 alert published by the US Department of Homeland Security’s Computer Emergency Readiness Team and evaluate whether applicable patches for their operating systems are properly and timely installed. …
Continue Reading SEC Issues Risk Alert in Response to WannaCry Ransomware Attack
On March 2, the US Department of Labor (DOL) published a proposed extension (the Proposal) of the effective date of what is commonly referred to as the “fiduciary rule” or the “fiduciary advice rule” (the Rule). The Rule provides that persons who provide investment advice or recommendations for fees or other compensation with respect to …
Registered investment advisers should take note of recent pronouncements by the staff of the SEC’s Division of Investment Management (the Division) regarding Rule 206(4)-2 (the Custody Rule) of the Investment Advisers Act of 1940. The Division makes clear that many advisers may unwittingly have custody of client assets under the Custody Rule. Investment advisers should…