Investment advisers registered with the U.S. Securities and Exchange Commission (SEC) or with a state as well as commodity pool operators (CPOs) and commodity trading advisors (CTAs) registered with the U.S. Commodity Futures Trading Commission (CFTC) are subject to important annual compliance obligations. This summary sets forth the primary obligations of which SEC-registered advisers should be aware.
On June 30, 2020, the Security and Exchange Commission's Regulation Best Interest (Reg BI) goes into effect for broker-dealers, registered investment advisers, and dual registrants to enhance the transparency and quality of investors' relationships. But that's just the beginning of the journey. This article contains details about available Deloitte resources to help our clients implement the Reg BI rule in their firms.
After BlackRock Chairman Larry Fink's revelations about the asset manager's renewed push for sustainable investments, State Street released its own prerogative to companies, announcing it would begin to vote against board members at companies that didn't follow environmental, social and governmental practices. The reason, especially for underperforming funds, is State Street found that "shareholder value is increasingly being driven by issues such as climate change, labor practices, and consumer product safety."
Last week, five federal financial regulatory agencies invited public comment on a proposal to modify regulations implementing the Volcker rule's general prohibition on banking entities investing in or sponsoring hedge funds or private equity funds - known as "covered funds." Since the regulations implementing the Volcker rule were finalized in 2013, the rule has created compliance uncertainty and imposed limits on certain banking services and activities that the Volcker rule was not intended to restrict. To address these concerns, the agencies simplified requirements for the proprietary trading restrictions in November 2019. This proposal would modify the restrictions for banking entities investing in, sponsoring, or having certain relationships with covered funds.
Yesterday the SEC's Office of Compliance Inspections and Examinations (OCIE) issued examination observations related to cybersecurity and operational resiliency practices taken by market participants. The observations highlight certain approaches taken by market participants in the areas of governance and risk management, access rights and controls, data loss prevention, mobile security, incident response and resiliency, vendor management, and training and awareness. The observations highlight specific examples of cybersecurity and operational resiliency practices and controls that organizations have taken to potentially safeguard against threats and respond in the event of an incident.
Last week, FINRA cites the United States Department of Homeland Security which issued a bulletin under the National Terrorism Advisory System summarizing the heightened risk of potential cyber and physical attacks by Iran against the United States. The notice outlines steps firms may consider taking to be prepared and respond to any cyber attacks and other business disruptions that may occur.
FINRA is conducting a retrospective review of Rule 4530 (Reporting Requirements) to assess its effectiveness and efficiency. FINRA encourages all interested parties to comment. Comments must be received by March 9, 2020. FINRA believes that it is appropriate, after a reasonable period of time, to look back at its significant rulemaking to determine whether a FINRA rule or rule set is meeting its intended investor-protection objectives by reasonably efficient means. FINRA further believes that a retrospective review should include an assessment not only of the substance and application of a rule or rule set, but also FINRA's processes to administer the rules. FINRA conducts retrospective rule reviews on an ongoing basis to ensure that its rules remain relevant and appropriately designed to achieve their objectives, particularly in light of regulatory, technological or other environmental changes.
Midway through 2020, investment professionals must comply with the SEC's much ballyhooed-and criticized-rulemaking package on conduct standards and disclosures. The package includes, among other requirements, Regulation Best Interest (Reg BI). With compliance due in about five months, now is a good time to take a look at the long and winding road that led us to this point, and to take a quick look ahead.
Gearing up for the June 30, 2020 compliance date, the SEC has published a series of responses to frequently asked questions (FAQs) about its Regulation Best Interest. The online FAQs were prepared by the staff of the SEC's Division of Trading and Markets. They include responses to 13 FAQs addressing investment recommendations, as well as disclosure, care and conflict of interest obligations.
On January 9, 2020, FINRA released its 2020 Risk Monitoring and Examination Priorities Letter, highlighting new priorities as well as identifying areas of ongoing concern that FINRA will continue to focus on in the coming year. New for this year is a focus on Regulation Best Interest (Reg BI) and Form CRS (Client Relationship Summary). In the first part of the year, FINRA will review firms' preparedness for Reg BI to gain an understanding of implementation challenges they may face. After the June 30, 2020 compliance date, FINRA will examine firms' compliance with Reg BI, Form CRS and related U.S. Securities and Exchange Commission guidance and interpretations.
