40 Act Blog

Standards of Conduct for Broker-Dealers and Investment Advisers

On April 18, 2018, the Securities and Exchange Commission (the “Commission”) voted to propose two rules and an interpretation relating to the standards of care for investment advice provided by broker-dealers and investment advisers. The proposals seek to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers while preserving retail customer access to transaction-based brokerage accounts and a broad range of investment products.

Reminder of Compliance Deadline for Financial Crimes Enforcement Network’s Customer Due Diligence Rule

As a reminder, May 11, 2018 is the deadline for compliance with the Financial Crimes Enforcement Network (FinCEN)’s customer due diligence rule (CDD Rule). The CDD Rule strengthens existing customer due diligence requirements and requires mutual funds as well as banks, brokers and other financial companies to identify and verify beneficial owners of legal entity customers.

OCIE Releases 2018 Examination Priorities

On February 7, 2018, the SEC's Office of Compliance Inspections and Examinations ("OCIE") released its 2018 National Exam Program Examination Priorities. The examination priorities are broken down into five categories:  (1) compliance and risks in critical market infrastructure; (2) matters of importance to retail investors, including seniors and those saving for retirement; (3) FINRA and MSRB; (4) cybersecurity; and (5) anti-money laundering programs.

Reminder regarding Annual Amendment to Form ADV

As a reminder, an SEC-registered investment adviser (an "Adviser") with a December 31st fiscal year-end must submit an annual amendment to its Form ADV on or before March 31, 2018.  Since an Adviser will be required to complete the newly amended Form ADV, we recommend preparing the annual amendment as soon as possible. The following is a list of certain new items required by the amended Form ADV.

SEC sanctions Gemini Fund Services for inflated NAV

Last week, the SEC instituted cease-and-desist proceedings pursuant to Section 203(k) of the Investment Advisers Act against Gemini Fund Services for its calculation of an inflated NAV when it was aware of inconsistencies with the custodian bank’s records.

SEC Letter to ICI and SIFMA Lays Out Concerns of Division of Investment Management

On January 18, 2018, the staff of the Securities and Exchange Commission ("SEC") Division of Investment Management (the "IM staff") issued a letter to the Investment Company Institute ("ICI") and the Securities Industry and Financial Markets Association ("SIFMA"). In the letter, the IM staff highlights significant investor protection issues presented by certain features of cryptocurrencies and cryptocurrency-related products that the IM staff believes must be addressed before funds investing in cryptoassets are offered to retail investors. In particular, the IM staff raised questions related to (1) valuation, (2) liquidity, (3) custody, (4) arbitrage and (5) market manipulation. The IM staff also formally announced its position that until the questions raised by the IM staff can be addressed satisfactorily, it does not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products. In addition, the IM staff announced that it does not believe existing funds should file post-effective amendments under Rule 485(a) to register a fund that invests substantially in cryptocurrency or related products.

SEC Division of Investment Management Issues FAQs on Investment Company Liquidity Risk Management Programs

The staff of the Division of Investment Management of the SEC has issued guidance in the form of frequently asked questions (FAQs or guidance) related to the SEC's Investment Company Liquidity Risk Management Programs Rule adopted in October 2016. As discussed in our October 2016 memorandum, the SEC adopted new Rule 22e-4 (Rule) under the Investment Company Act of 1940, as amended,¹ which requires each registered open-end management investment company, including mutual funds and exchange-traded funds (ETFs) but excluding money market funds, to adopt and implement a written liquidity risk management program reasonably designed to assess and manage the fund's liquidity risk.

Final Tax Reform Legislation

On December 20, 2017, Congress passed tax reform legislation (the "Tax Act"). President Trump signed the Tax Act into law today. Most provisions take effect for tax years beginning after December 31, 2017.

This Memorandum updates our previous analysis of the House and Senate Tax Acts, and focuses particularly on the issues that are most relevant to our Investment Management, Trusts & Estates and Family Office clients. Seward and Kissel's Trusts and Estates group has also reviewed the Tax Act and offered guidance on year-end planning. Section I of this Memorandum describes notable individual and corporate income tax changes. Section II describes certain provisions that affect investment managers. Section III describes certain provisions that affect investment funds.

December 2017 Compliance Flash

Attached please find the December 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 - December 2017

SEC Modifies Approach to Form N-PORT Filing Requirements

On Friday, December 8, 2017, the Securities and Exchange Commission (“Commission”) announced the adoption of a temporary final rule that effectively delays the required submission of reports on Form N-PORT via EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system) by nine months.