40 Act Blog

Risk Alert on the Most Frequent Advertising Rule Compliance Issues Identified in OCIE Examinations of Investment Advisers

The SEC has released a Risk Alert on those compliance issues that were most frequently identified in deficiency letters recently sent to SEC-registered investment advisers. The Risk Alert is also based on findings from the SEC’s 2016 Touting Initiative, which examined the adequacy of disclosures that advisers provided to their clients when touting awards, promoting ranking lists, and/or identifying professional designations (“accolades”) in their marketing materials, and which was launched in response to the regularity with which the Staff had encountered advisers that advertised these accolades without disclosing material facts about them.

The Risk Alert consists of a list of compliance issues relating to Rule 206(4)-1 (the “Advertising Rule”) under the Investment Advisers Act, and is intended (1) to highlight the risks and issues associated with Advertising Rule compliance, and (2) to assist advisers in adopting and implementing effective compliance programs.

DOL Extends the Advice Fiduciary Rule's Transition Period

In order to review and possibly revise the advice fiduciary rule, the Department of Labor (DOL) has proposed extending the existing transition period under the rule's exemptions until July 1, 2019.

Dalia Blass named Director of the Division of Investment Management

Dalia Blass has been named Director of the Division of Investment Management. The Division oversees and regulates the multi-trillion dollar investment management industry. It is responsible for the regulation of investment companies, variable insurance products, and federally registered investment advisers.

Considerations Presented By Amended Form ADV Effective October 1, 2017

As a reminder, an investment adviser registered or required to be registered with the SEC (each, an "Adviser") filing an initial Form ADV or an amendment to an existing Form ADV on or after October 1, 2017, will be required to use an amended Form ADV (the "Amended Form"), as further described in our Memorandum entitled "SEC Adopts Rules to Enhance Information Reported by Investment Advisers." In anticipation of the effective date, highlighted herein are certain considerations presented by the Amended Form.

August 2017 Compliance Flash

Attached please find the August 2017 edition of the Compliance Flash. If you have any questions or comments, please contact your primary Investment Management attorney at Seward & Kissel LLP.

Compliance Flash - August 2017

The SEC’s Webpage entitled “Cybersecurity, the SEC and You”

The SEC has created a landing page for “Cybersecurity” on its website. This webpage provides a general overview of the steps that the SEC is taking to address cyber threats. Importantly, the webpage provides resources concerning the applicable regulations that address cybersecurity practices for the following respective market participants:

• Investors
• Issuers / Public Companies
• Investment Advisers / Investment Companies
• Brokers and Dealers
• Self-Regulatory Organizations

DOL Proposes Amendments to Delay Applicability Date for Fiduciary Rule

On August 9, 2017, the Department of Labor submitted proposed amendments to the Best Interest Contract Exemption (BICE), Class Exemption for Principal Transactions and Prohibited Transaction Exemption 84-24, to delay applicability under the Fiduciary Rule from January 1, 2018 to July 1, 2019.

In the meantime, we will continue to monitor the Department of Labor's (and the SEC’s) actions in this area, and will keep you informed of any changes to the Fiduciary Rule and Applicability Date.

Please also refer to these prior posts regarding the Fiduciary Rule:

• The Department of Labor Delays the New Fiduciary Rule – 04/14/2017
• DOL Issues Temporary Enforcement Policy on Fiduciary Rule – 03/14/17
• DOL Adopts Proposal to Delay the Fiduciary Rule – 03/01/2017
• Division of Investment Management Provides FAQs on Mutual Fund Fee Structures – 02/22/2017
• Division of Investment Management Provides Interpretive Guidance on Section 22(d) Restrictions – 01/13/2017
• Division of Investment Management Provides Guidance on “Mutual Fund Fee Structures” – 12/15/2016
• The New Fiduciary Rule's Effect on Investment Managers – 05/27/2016"

SEC shares “Observations from Cybersecurity Examinations”

As cybersecurity remains one of the top compliance risks for financial firms, the SEC has released a Risk Alert on observations from OCIE’s Cybersecurity 2 Initiative. Following the initial initiative in 2014 that undertook to assess associated industry practices and legal and compliance issues, the more recent focus was on more validation and testing of procedures and controls surrounding cybersecurity preparedness.

Director of the Division of Investment Management to leave the SEC

The SEC announced today that David W. Grim, Director of the Division of Investment Management, will leave the agency next month after more than 20 years of public service. The SEC announced today that David W. Grim, Director of the Division of Investment Management, will leave the agency next month after more than 20 years of public service.

Division of Investment Management Responds to Questions Regarding New Fund Reporting Rules

The Division of Investment Management (the "Division") recently issued a set of interpretive answers ("Guidance") to questions relating to the investment company reporting reforms adopted by the Securities and Exchange Commission in October 2016.