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Nathaniel Segal is a Shareholder at Vedder Price and is a member of the Investment Services group.

On May 22, 2024, the SEC announced the settlement of administrative proceedings against a U.S. securities exchange and certain of its subsidiaries for their alleged failure to timely inform the SEC of a systems intrusion in violation of Rules 1002(b)(1) and 1002(b)(2) of Regulation Systems Compliance and Integrity (Regulation SCI). The rules require that covered entities notify the SEC of a system disruption or intrusion within 24 hours unless the covered entity immediately determined that the disruption or intrusion would have no or a de minimis impact on operations or market participants.Continue Reading SEC Settles Charges Against Exchange for Alleged Failure to Inform SEC of Cyber Intrusion

On May 21, 2024, the SEC announced the settlement of administrative proceedings brought against a dually-registered broker-dealer and investment adviser for its alleged failure to address conflicts of interest in compliance with Rule 15l-1(a) of the Securities Exchange Act of 1934 (Regulation Best Interest) and the Investment Advisers Act of 1940.Continue Reading SEC Settles Charges Against Dually-Registered Broker-Dealer and Adviser for Alleged Failure to Address Conflicts of Interest

On May 1, 2024, the Financial Industry Regulatory Authority (FINRA) proposed a new series of rules—FINRA Rule 6500 Series—regarding reporting of securities lending transactions pursuant to the requirements under new Rule 10c-1a under the Securities Exchange Act of 1934 which the SEC adopted on October 13, 2023. Rule 10c-1a requires “covered persons” to report specified information about “covered securities loans” (as these terms are defined in Rule 10c-1a) to FINRA by the end of the day on which a loan is made or modified, in accordance with rules that FINRA is required to adopt by May 2, 2024 and that detail the format and manner by which the loan information is reported. Continue Reading FINRA Proposes Rules Regarding SEC-Mandated Reporting of Securities Lending Transactions

On May 13, 2024, the SEC and FinCEN jointly proposed a new rule under the Bank Secrecy Act (BSA) that would impose new customer identification program (CIP) requirements on registered investment advisers and exempt reporting advisers.Continue Reading SEC and FinCEN Propose Customer Identification Program Requirements for Investment Advisers

On May 16, 2024, the SEC adopted amendments to Regulation S-P to enhance and modernize consumer privacy protections in light of technological developments in how individuals’ personal information is collected, shared and maintained. Regulation S-P applies to broker-dealers (including funding portals), investment companies, registered investment advisers and transfer agents (“covered institutions”) and currently requires (1) covered institutions (excluding transfer agents) to adopt written policies and procedures that address administrative, technical and physical safeguards for the protection of customer records and information (the “safeguards rule”), and (2) covered institutions (including transfer agents) to properly dispose of consumer report information (the “disposal rule”). The amendments are described below.Continue Reading SEC Adopts Regulation S-P Amendments to Enhance Protection of Customer Information

On April 17, 2024, the SEC’s Division of Examinations issued its latest risk alert regarding Rule 206(4)-1 of the Investment Advisers Act of 1940, known as the Marketing Rule. Following the examinations staff’s June 2023 and September 2022 risk alerts regarding areas of emphasis in examinations focused on compliance with the Marketing Rule, the latest risk alert highlighted initial observations from examinations of investment advisers’ compliance with the Marketing Rule and related rules under the Advisers Act. The risk alert focused on compliance with the Marketing Rule’s general prohibitions, Rule 206(4)-7 (the Compliance Rule), Rule 204-2 (the Books and Records Rule), and Form ADV disclosure requirements.Continue Reading SEC Staff’s Latest Marketing Rule Risk Alert Highlights Initial Observations from Examinations

On September 11, 2023, the SEC announced the settlement of administrative proceedings brought against nine registered investment advisers for disseminating hypothetical performance returns on their public websites without adopting required policies and procedures required by Rule 206(4)-1 under the Investment Advisers Act of 1940, known as the Marketing Rule.

Among other things, the Marketing Rule prohibits advisers from using hypothetical performance information in advertising material unless they have adopted and implemented policies and procedures to ensure that the information is relevant to the likely financial situation and investment objectives of the advertisement’s intended audience. Hypothetical performance information includes the performance of model portfolios and backtested performance returns derived from applying a strategy to historical data from periods when the strategy was not actually employed. In addition, Rule 204-2(a)(11) under the Advisers Act requires advisers to maintain copies of all advertising material disseminated directly or indirectly. The SEC alleged that all nine advisers failed to adopt and implement the requisite policies and procedures, resulting in the dissemination of hypothetical performance information to mass audiences through their websites. In addition, the SEC alleged that two of the advisers failed to maintain the required copies of their advertising material.Continue Reading SEC Settles Enforcement Proceedings Against Nine Advisers for Alleged Marketing Rule Violations