investment advisers

SEC Office of Compliance Inspections and Examinations Issues Risk Alert on Whistleblower Rule Compliance

 

On October 24, Staff in the Office of Compliance Inspections and Examinations (the “Staff”) issued a National Exam Program Risk Alert announcing that it is examining registered investment advisers and registered broker-dealers compliance with key whistleblower provisions arising out of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Commission recently has brought several enforcement actions charging violations of Rule 21F-17 of the Commission’s whistleblower regulations.

 

The Staff now is routinely reviewing, among other things, compliance manuals, codes of ethics, employment agreements, and severance agreements to determine whether provisions in those documents pertaining to confidentiality of information and reporting of possible securities law violations may raise concerns under Rule 21F-17.
Section 21F of the Securities Exchange Act of 1934 was added by the Dodd-Frank Act.  To implement Section 21F, among other things, the Commission adopted Rule 21F-173 thereunder which provides that “no person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”

 

The Staff highlighted that “Recent enforcement actions have identified certain provisions of confidentiality or other agreements required by employers as contributing to violations of Rule 21F-17 because they contained language that, by itself or under the circumstances in which the agreements were used, impeded employees and former employees from communicating with the Commission concerning possible securities law violations. This potential chilling effect can be especially pronounced when such documents (e.g., severance agreements) provide that an employee may forfeit all benefits if he or she violates any terms of the agreement.” Alert.

SEC Adopts Rules to Enhance Information Reported by Investment Advisers

 

On August 25, 2016, the Securities and Exchange Commission adopted amendments to rules and forms designed to improve disclosures provided by investment advisers to investors and the Securities and Exchange Commission. Press release.

SEC Proposes Rule Requiring Investment Advisers to Adopt Business Continuity and Transition Plans

On June 28, 2016, the Securities and Exchange Commission proposed a new rule that would require registered investment advisers to adopt and implement written business continuity and transition plans.  In announcing the proposed rule the SEC stated that:  “The proposed rule is designed to ensure that investment advisers have plans in place to address operational and other risks related to a significant disruption in the adviser’s operations in order to minimize client and investor harm.”

The risks identified by the SEC include: business disruptions – whether temporary or permanent – such as a natural disaster, cyber-attack, technology failures, and the departure of key personnel.

The proposed rule also would require an adviser’s plan to include policies and procedures addressing the following specified components: maintenance of systems and protection of data; pre-arranged alternative physical locations; communication plans; review of third-party service providers; and plan of transition in the event the adviser is winding down or is unable to continue providing advisory services.

The proposed rule and rule amendments also would require advisers to review the adequacy and effectiveness of their plans at least annually and to retain certain related records.

In addition to the proposed rule, SEC staff issued related guidance addressing business continuity planning for registered investment companies, including the oversight of the operational capabilities of key fund service providers.

The proposed rule can be found by clicking here. Comments are due on or before September 6, 2016.

SEC Temporary Rule on Principal Trades with Advisory Clients

On December 20, 2012, the SEC amended Temporary Rule 206(3)-3T under the Investment Advisers Act of 1940 that establishes an alternative means for investment advisers who are registered as broker-dealers to meet the requirements of Section 206(3) of the Investment Advisers Act when they act in a principal capacity in transactions with certain advisory clients.  The amendment extends the sunset date for the rule from December 31, 2012 to December 31, 2014.  SEC Rule.

CFTC and SEC Proposed Rules on Reporting by Investment Advisers

On January 26, the CFTC and the SEC proposed new rules to implement provisions of the Dodd-Frank Act to assist the Financial Stability Oversight Council in its assessment of systemic risk. The proposed SEC rule would require SEC-registered investment advisers that advise private funds to file Form PF with the SEC. The proposed CFTC rule would require commodity pool operators and CFTC-registered commodity trading advisors who are also SEC-registered investment advisers that advise one or more private funds to satisfy certain proposed CFTC filing requirements by filing Form PF with the SEC. Comments on the proposed rules must be submitted within 60 days after publication in the Federal register. SEC Rule.

SEC Adopts Measures Curtailing Pay to Play Practices by Investment Advisers

On June 30, the SEC approved new rules to restrict the “pay to play” practices by investment advisers in an effort to allow advisers of all sizes to compete for government contracts.  The new rules become effective 60 days after publication in the Federal Register, and compliance generally will be required within six months of the rules’ effective date. Release.