Industry Developments

Office of Compliance Inspections and Examinations Issues Risk Alert on the Five Most Frequent Compliance Topics Identified in Examinations of Investment Advisers


On February 7, 2017, the Office of Compliance Inspections and Examinations of the Securities and Exchange Commission (OCIE) published a Risk Alert listing of the five compliance topics most frequently identified in deficiency letters that were sent to SEC‑registered investment advisers (“Advisers“) during the past two years. Within each of these topics, a few examples of typical deficiencies were discussed to highlight the risks and issues that examiners commonly identified.

The five compliance topics addressed in this Risk Alert are deficiencies or weaknesses involving: (i) Rule 206(4)-7 (the Compliance Rule) under the Investment Advisers Act of 1940 (the Advisers Act); (ii) required regulatory filings; (iii) Rule 206(4)-2 under the Advisers Act (the Custody Rule); (iv) Rule 204A-1 under the Advisers Act (the Code of Ethics Rule); and (v) Rule 204-2 under the Advisers Act (the Books and Records Rule). The Staff emphasized that: “Advisers should review their compliance programs and practices in light of the topics noted in this Risk Alert.”

Although the list of deficiencies and weaknesses was based upon examinations of SEC‑registered investment advisers, these findings also should be considered as regulatory guidance by “exempt reporting advisers,” particularly those whose business is anticipated to grow beyond the scope of the exemption on which they are relying; for example, the failure to adopt and maintain a Code of Ethics (an obligation applicable to all investment advisers, whether or not registered), the failure to adopt compliance manuals that are reasonably tailored to the Adviser’s business practices, the failure of Advisers to follow their compliance manual policies and procedures, and the failure of Advisers to maintain accurate books and records with regard to their investment adviser business, including typical accounting and other business records. Press Release.

CFTC Issues Time-Limited No-Action Relief for Aggregation Notice Filings for Position Limits


On February 6, 2017, the U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight issued a time-limited no-action letter providing relief for notice filing failures that relied on certain aggregation exemptions from federal position limit levels. The letter provides temporary relief from February 14, 2017 to August 14, 2017. Press Release. No-Action Letter.

Rating Agency Developments


On February 8, 2017, Fitch updated its rating criteria for U.S. municipal short-term debt. Report.

On February 8, 2017, Fitch updated its criteria assumptions for analyzing securities backed by UK residential mortgage loans. Report.

On February 6, 2017, DBRS published its ratings methodology for certain critical obligations. Report.

On February 4, 2017, Kroll published its ratings methodology for securitizations composed of pools of multiple loans secured by one or more commercial real estate (CRE) properties. Report.

On February 4, 2017, Kroll published its ratings methodology for single-family rental securitizations. Report.

Final Rule Revising the Capital Plan and Stress Test Rules


On January 31, 2017, the Federal Reserve Board (the “Board“) adopted a final rule that revises the capital plan and stress test rules for (i) bank holding companies with $50 billion or more in total consolidated assets and (ii) U.S. intermediate holding companies of foreign banking organizations. Under the final rule, large and noncomplex firms are no longer subject to the qualitative assessment of the Board’s Comprehensive Capital Analysis and Review (“CCAR“). However, large and noncomplex firms will remain subject to their capital requirements as part of CCAR’s quantitative assessment and will still be subject to regular supervisory assessments examining their capital planning processes. Press Release. Final Rule.

The OCC Publishes Final Rule Adjusting Civil Money Penalties for Inflation


On January 27, 2017, the Office of the Comptroller of the Currency (the “OCC“) published a final rule amending its rules of practice and procedure for national banks and in adjudicatory proceedings for federal savings associations. The final rule adjusts the maximum amount of each civil money penalty within the OCC’s jurisdiction to account for inflation. The effective date of the final rule is January 27, 2017, and the adjusted maximum amounts apply to penalties assessed after January 15, 2017 for violations occurring on or after November 2, 2015. Press Release. Final Rule.

CFTC Extends Public Comment Period for the Supplemental Proposal for Regulation Automated Trading


On January 23, 2017, the U.S. Commodity Futures Trading Commission announced an extension for the public comment period for the supplemental proposal for Regulation Automated Trading (Regulation AT). Comments may now be submitted through May 1, 2017. Release.

Rating Agency Developments


On January 23, 2017, DBRS issued a report entitled North American CMBS Rating Methodology. Report.

On January 23, 2017, DBRS issued a report entitled Rating U.S. Federal Family Education Loan Program Securitizations. Report.

On January 23, 2017, Moody’s issued a report entitled Global Packaged Goods. Report.

On January 23, 2017, Moody’s issued a report entitled Global Pay Television – Cable and Direct-to-Home Satellite Operators. Report.

On January 20, 2017, DBRS issued a report entitled Master European Structured Finance Surveillance Methodology. Report.

FHFA Requests Public Input on Duty to Serve Program


On January 18, 2017, the Federal Housing Finance Agency (the “FHFA“) announced its request for public comment on (i) proposed chattel loan pilot initiatives for Fannie Mae and Freddie Mac and (ii) the expectations and evaluation criteria the FHFA should use in relation to Fannie Mae and Freddie Mac’s effectiveness in fulfilling its duty to assist very low, low and moderate income families in the manufactured housing, affordable housing preservation and rural housing categories (pursuant to the Duty to Serve provisions in the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008). Release.