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
SEC Adopts Regulation S-P Amendments to Enhance Protection of Customer Information
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
Highlights from SEC Speaks 2024
Chair/Commissioner Remarks and Litigation and Enforcement Trends
The U.S. Securities and Exchange Commission (the “SEC”) held its annual SEC Speaks conference—after a hiatus in 2023—on April 3 and 4, 2024 in Washington, D.C. The conference featured remarks from Chair Gary Gensler, Commissioner Hester Peirce, Commissioner Mark T. Uyeda, and Director of the Division of Enforcement (the “Division”) Gurbir S. Grewal, as well as panel discussions addressing current SEC initiatives, priorities, and enforcement trends for the upcoming year. The conference speakers and panels also provided an update on litigation, judicial, and legislative developments.Continue Reading Highlights from SEC Speaks 2024
March 2024 Investment Services Regulatory Update
Our Investment Services team just published its March 2024 Regulatory Update, analyzing a wide selection of federal agency enforcement actions and initiatives in Q1. You can access the articles below.
FinCEN Proposes Rule to Address Anti-Money Laundering Risks to Registered Investment Advisers and Exempt Reporting Advisers
On February 13, 2024, the Financial Crimes Enforcement Network (FinCEN) issued a proposed rule1 that would extend certain anti-money laundering/countering the financing of terrorism (AML/CFT) program requirements to investment advisers registered with the Securities and Exchange Commission (SEC) and exempt reporting advisers (ERAs) with the SEC.
The proposed rule would require certain covered advisers
SEC Releases Enforcement Highlights for Fiscal Year 2023
On November 14, 2023, the Securities and Exchange Commission (the “SEC” or the “Commission”) announced its enforcement results for fiscal year (“FY”) 2023, which ended on September 30, 2023. The SEC’s FY 2023 results continued to reflect an aggressive approach to enforcement, reaching record highs in multiple enforcement metrics. Specifically, the SEC announced that it brought 784 total enforcement actions, obtained orders totaling nearly $5 billion in financial remedies, and distributed nearly $1 billion to harmed investors.
SEC Chair Gary Gensler referred to the SEC’s Division of Enforcement as a “cop on the beat” that provided benefits to the investing public, while applauding the Division of Enforcement’s “effectiveness” during FY 2023. Director of the Division of Enforcement Gurbir Grewal noted that the Division achieved results by “leveraging risk-based initiatives, seeking robust remedies, rewarding cooperation, protecting whistleblowers, or returning nearly a billion dollars to harmed investors.” Continue Reading SEC Releases Enforcement Highlights for Fiscal Year 2023
SEC Settles Enforcement Proceedings Against Nine Advisers for Alleged Marketing Rule Violations
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
SEC Adopts New Private Fund Adviser Rules
A divided SEC adopted numerous reforms for private fund managers on August 23, 2023. These reforms represent the largest regulatory change for private fund managers since Dodd-Frank. The SEC’s stated purpose is to bring “transparency” to the operation of private funds by, among other things, restricting or requiring disclosure of preferential terms such as those
Regulatory Scrutiny of “Off-Channel” Communications Continues: 11 Wall Street Firms Agree to Pay the SEC $289 Million in Civil Money Penalties for Recordkeeping Violations
On August 8, 2023, the United States Securities and Exchange Commission (the “SEC” or the “Commission”) announced that 11 Wall Street firms (10 broker-dealer firms and one dually-registered investment adviser) agreed to settle charges for failing to properly maintain and preserve electronic communications relating to firm business. This included text messages and other messages sent through applications contained on personal devices of employees and not subject to firm record retention systems (referred to as “off-channel communications”). The announcement underscores that regulatory scrutiny of recordkeeping obligations remains a high priority for the SEC’s Division of Enforcement. Specifically, the SEC continues to focus on holding registered entities accountable for failing to maintain and preserve off-channel communications pursuant to statutory requirements. As part of the settlements, the firms agreed to pay combined penalties of $289 million, admit liability, and implement improvements to their respective compliance policies and procedures.Continue Reading Regulatory Scrutiny of “Off-Channel” Communications Continues: 11 Wall Street Firms Agree to Pay the SEC $289 Million in Civil Money Penalties for Recordkeeping Violations
SEC Dismisses 42 Enforcement Actions Because of Its Own Internal Control Deficiencies
On June 2, 2023, the United States Securities and Exchange Commission (“SEC”) dismissed 42 administrative enforcement actions and vacated 48 collateral industry bars because its Division of Enforcement (“Enforcement”) staff improperly had access to memoranda prepared to assist SEC Commissioners in deciding those matters.
The SEC investigates potential violations of the federal securities laws and is authorized by law to prosecute civil enforcement actions in its own in-house administrative courts or in federal court. The investigative and prosecutorial responsibilities are carried out by Enforcement staff and are required to be kept separate from the SEC’s in-house adjudication function. However, on April 5, 2022, the SEC issued a statement disclosing that it identified a “control deficiency” in which certain SEC databases improperly allowed Enforcement staff to have access to memoranda prepared by the Office of the General Counsel Adjudication Group (“Adjudication Group”) to advise Commissioners in making decisions in administrative proceedings. Continue Reading SEC Dismisses 42 Enforcement Actions Because of Its Own Internal Control Deficiencies