June 27, 2016
Testifying before the U.S. Senate Committee on Banking, Housing, and Urban Affairs (the “Committee”) on June 14, 2016, Securities and Exchange Commission (“SEC”) Chair Mary Jo White spoke to the “Oversight of the [SEC]” and the current work and initiatives underway at the agency, providing insight into the timing of major regulatory initiatives affecting the investment management industry.
June 22, 2016
The SEC has provided relief from Rule 2-01 of Regulation S-X, confirming that it would not recommend enforcement action against an entity within the "investment company complex" of which the Fidelity Funds are a part (a "Fidelity Entity"), if that Fidelity Entity continues to fulfill its regulatory requirements under the federal securities laws by using the audit services performed by a registered public accounting firm, where that firm has relationships that would cause non-compliance with Rule 2-0l(c)(l)(ii)(A) of Regulation S-X (the "Loan Provision"), subject to certain conditions.
June 21, 2016
SEC Sanctions Investment Adviser for Failing to Establish and Maintain Policies and Procedures to Prevent the Misuse of Material Nonpublic Information
On May 27, 2016, the SEC sanctioned an investment adviser (the "Adviser") for failing to establish and maintain policies and procedures reasonably designed to prevent the misuse of material nonpublic information.1 Specifically, the Adviser failed to adopt and implement policies and procedures for identifying outside consultants who, based on their functional roles and access to confidential information regarding the Adviser's transactions, should be subject to the Adviser's policies and procedures, including its code of ethics.
June 17, 2016
On June 14, 2016, the SEC approved an adjustment for inflation of the dollar amount tests in Rule 205-3 under the Investment Advisers Act of 1940 pertaining to a “Qualified Client”. An investment adviser registered with the SEC is generally prohibited from entering into an investment advisory contract with a client that provides for performance-based compensation, unless the client is a "qualified client." Under the Order, a "qualified client" is one that has at least $1 million under the management of the investment adviser or has a net worth of more than $2.1 million. The Order is effective as of August 15, 2016.
June 16, 2016
The SEC announced today that Apex Fund Services (US), Inc. (“Apex”), a fund administrator that provided accounting and administrative services to four private funds managed by ClearPath Wealth Management, LLC (“ClearPath”) and two private funds managed by EquityStar Capital Management, LLC (“EquityStar”) agreed to pay more than $350,000 to settle charges brought by the SEC after it determined that Apex had, in the course of its administrative and fund accounting duties, committed a series of failures and was a cause of Advisers Act violations committed by ClearPath and EquityStar.
June 8, 2016
Morgan Stanley Smith Barney LLC (“Morgan Stanley”), a registered broker-dealer and investment adviser, agreed to pay $1 million to settle administrative proceedings brought by the SEC after it found that, in violation of Regulation S-P, Morgan Stanley failed to adopt written policies and procedures reasonably designed to protect customer records and information. Although Morgan Stanley had established certain policies and restrictions regarding its employees’ access to, and use of, confidential customer data, and implemented certain technology controls designed to prevent employees from copying data onto removable storage devices and from accessing certain websites, the SEC found that the firm failed to ensure that its policies and procedures were reasonably designed and properly operated.
June 8, 2016
Pursuant to section 205 of the Investment Advisers Act of 1940 (the "Advisers Act"), an investment adviser registered with the Securities and Exchange Commission (the "SEC") is generally prohibited from entering into an investment advisory contract with a client that provides for performance-based compensation, unless the client is a "qualified client." Currently, a "qualified client" is, among other things, one that has at least $1 million under management with the adviser or a net worth of more than $2 million (excluding the value of the client's primary residence).
May 27, 2016
The U.S. Department of Labor's (the "DOL") new regulations re-defining an "advice fiduciary" have broad implications across the entire spectrum of the banking, insurance and financial services industries. This client alert only focuses on the new regulation's potential effects on investment managers, particularly investment managers of private funds.
May 26, 2016
On May 11, 2016, the Financial Crimes Enforcement Network ("FinCEN") issued final rules under the Bank Secrecy Act that will require financial institutions (including mutual funds) (i) to adopt anti-money laundering (AML) programs containing four core requirements for customer due diligence and (ii) to identify beneficial owners of "legal entity customers."
May 6, 2016
The SEC released a proposed rule that would govern the implementation of incentive-based compensation arrangements for certain “covered financial institutions,” including investment advisers. The new rule would apply to advisers with total consolidated assets (i.e., balance sheet assets) of at least $1 billion, as measured at fiscal year-end. The SEC noted in the proposing release that the total consolidated assets should not include “non-proprietary assets,” such as client assets under management.