The ‘40 Act Blog Top 10 of 2023

In 2023 registered investment companies and investment advisers saw a flurry of regulatory developments from the SEC. We have aimed to provide an overview of many of these developments through the ‘40 Act Blog. Below, we highlight our 10 most viewed ‘40 Act Blog posts in 2023:

1. SEC Proposes New Cybersecurity Requirements for Certain Market Entities and Reopens Comment Period for Proposed Cybersecurity Rules for Registered Advisers and Funds
   • Quick Take: The SEC proposed new requirements for several different market entities designed to mitigate cybersecurity risk, including requirements relating to written policies and procedures and notifications about cybersecurity incidents.
2. SEC Charges Adviser and Fund Trustees in First Case Enforcing Liquidity Rule
   • Quick Take: The SEC charged a registered investment adviser, two of the adviser’s officers, and two independent trustees of a mutual fund managed by the adviser with violations of Rule 22e-4 (Liquidity Rule). 
3. SEC Settles Charges With Transfer Agent for Lost Securityholders
   • Quick Take: The SEC recently settled charges with a registered transfer agent for failing to take reasonable steps to find “lost securityholders” in situations where the transfer agent had possession of an investor’s securities but no longer had current contact or location information for that investor. As part of the settlement, the transfer agent agreed to request that its mutual fund clients periodically send out notifications to their client shareholder base informing them of the risk of escheatment and educating them on steps to take to avoid dormancy.
4. SEC Issues a Risk Alert Providing Details on the Investment Adviser Examination Process
   • Quick Take: The staff of the SEC’s Division of Examinations (Staff) recently issued a Risk Alert which describes the process and criteria the Staff use in selecting investment advisers to examine as well as the scope of what will be reviewed during an exam. The Risk Alert includes an attachment titled “Typical Initial Information Examiners Request of Investment Advisers” which is a helpful resource for advisers to understand what to expect during an SEC examination.
5. SEC Files a Civil Complaint Against a Broker-Dealer for False and Misleading Disclosures Relating to Information Barriers
   • Quick Take: The SEC filed a complaint in federal court alleging that a broker-dealer made materially false and misleading statements and omissions regarding its information barriers, which were designed to safeguard material nonpublic information (MNPI) of its customers from other parts of its business. 
6. SEC Settles Charges Against Investment Advisers for Alleged Breaches of Fiduciary Duties
   • Quick Take: The SEC settled charges against two affiliated registered investment advisers, alleging that the advisers failed to disclose conflicts of interest, breached their fiduciary duties, including the duty to seek best execution for clients, and failed to maintain written compliance policies and procedures.
7. SEC Adopts Amendments to the Fund “Names Rule”
   • Quick Take: The SEC recently adopted¹ amendments (Amendments) to Investment Company Act Rule 35d-1, the fund “Names Rule.” The Amendments broaden the scope of the Names Rule’s applicability and impose additional compliance and reporting obligations on funds subject to the Names Rule.
8. SEC Settles Charges with Registered Investment Adviser over Valuation Policies and Procedures
   • Quick Take: The SEC settled charges against a registered investment adviser (Adviser) for failing to adopt and implement reasonably designed written policies and procedures addressing the valuation of private fund portfolio investments in violation of Rule 206(4)-7 under the Advisers Act.
9. SEC Proposes New Rules Concerning Investment Adviser and Broker-Dealer Use of Predictive Data Analytics
   • Quick Take: The SEC recently proposed new rules and amendments that seek to address conflicts of interest stemming from investment advisers’ and broker-dealers’ use of so-called predictive data analytics and similar technologies in interactions with investors.
10. SEC Settles Charges Against Investment Adviser for Improper Fixed Income Securities Trading
    • Quick Take: The SEC charged an investment adviser in connection with improper trading in certain fixed income securities. The SEC’s order alleges that the adviser improperly traded the securities between advised clients, resulting in artificial increases in the price of the securities as well as increased advisory fees paid to the adviser. In addition, many of the trades involved mutual funds, resulting in prohibited affiliate transactions under the Investment Company Act that did not comply with applicable exemptive requirements.