Conduct of business – Page 3 – Global Investment Law Watch

Go Ahead and Take a CIP: SEC and Treasury Department Propose New Regulations for Investment Advisors

May 15 2024

By: Richard F. Kerr, Jennifer L. Klass, C. Todd Gibson, and Kenneth Holston

On 13 May 2024, the Securities and Exchange Commission (SEC) and the Department of the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) jointly proposed rulemaking to implement section 326 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (CIP Rulemaking), which would require SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish written customer identification programs (CIP).

CFTC Releases Artificial Intelligence Report

May 09 2024

By: Matthew J. Rogers and Maxwell J. Black

On 2 May 2024, the Commodity Futures Trading Commission’s (CFTC) Technology Advisory Committee (Committee) released a report entitled Responsible AI in Financial Markets: Opportunities, Risks & Recommendations. The report discusses the impact and future implications of artificial intelligence (AI) on financial markets and further illustrates the CFTC’s desire to oversee the AI space.

Japan: FSA Requires Real Estate Funds Take Additional Safeguards Against Conflicts of Interest

May 08 2024

By: Tsuguhito Omagari, Yuki Sako, Jason Nelms and Charmaine Mok

Financial Services Agency of Japan (FSA) proposed amendments to its supervisory guidelines applicable to managers of investment trust (toshin) funds and real estate funds, and is currently accepting comments until May 13. Of those, amendments relating to real estate funds would require managers to take additional measures to manage transactional conflicts of interest, specifically:

Don’t Bank on it: FDIC Board Withdraws Asset Manager Bank Control Proposals

Apr 26 2024

By: Grant F. Butler and Yuki Sako

Two proposals regarding oversight of the control of banks by asset managers were withdrawn at the 25 April board meeting of the Federal Deposit Insurance Corporation (FDIC). These proposals were a result of increasing concern by bank regulators regarding concentration in control of banks by institutional investors, particularly index funds.

FTC Ban on Non-Competes Could Be Challenging to Asset Managers

Apr 26 2024

By: Ed Dartley and Robert H . McCarthy, Jr.

On 23 April 2024, the Federal Trade Commission (FTC) voted 3-2 to approve a rule that will prohibit for-profit employers from either entering into non-compete clauses with workers or enforcing existing non-compete clauses against most workers (the Non-Compete Rule). Initially proposed in January 2023 (and discussed here), the Non-Compete Rule’s impact on asset managers will be significant if and when it becomes effective, which is currently scheduled to be in August 2024.

Europe: Research Cost Re-Bundling – Is the UK Going Back to the Future?

Apr 23 2024

By: Andrew Massey, Philip Morgan, and Omega Modi

The UK’s FCA has published consultation paper 24/7: Payment optionality for investment research. It proposes a new, more flexible, way to charge third-party investment research to clients.

The new payment option would sit alongside the two existing options under which research costs are either paid by firms from their own resources or charged to clients through a research payment account. The latter approach has not been popular because of its operational complexities, so research has been an out-of-pocket expense for many UK asset managers.

Kicked Out of the Club: NFA Orders Commodity Pool Operator Not to Reapply for NFA Membership

Apr 18 2024

By: Matthew J. Rogers and Benjamin C. Skillin

On 10 April 2024, the National Futures Association’s (NFA) Business Conduct Committee (BCC) issued an order against 50.ai Investments LLC, a former NFA Member commodity pool operator and forex firm. The order stipulates that 50.ai Investments may not reapply for NFA membership or act as a principal of an NFA Member at any time in the future due to violating a suite of NFA compliance rules.

SEC Risk Alert Offers Initial Observations on Compliance

Apr 18 2024

By: Michael S. Caccese and Lance C. Dial

On 17 April 2024, the Securities and Exchange Commission (SEC) Division of Examinations issued a risk alert entitled “Initial Observations Regarding Marketing Rule Compliance” (the Alert). The Alert reflected the SEC examination staff’s preliminary observations coming from its examination program and noted that compliance with Rule 206(4)-1 (the Marketing Rule) continues to be a priority for the SEC staff.

Marketing Rule Enforcement Remains Priority: SEC Charges Five Advisers for Marketing Rule Violations

Apr 15 2024

By: Lance C. Dial, Pablo J. Man, Pamela A. Grossetti, and Bradley D. Bostwick

On 12 April 2024, the SEC announced the settlement of charges against five registered investment advisers for violations of Rule 206(4)-1 under the Advisers Act (Marketing Rule). The allegations in these settlements will be familiar: the SEC determined that the five firms advertised hypothetical performance to the general public on their websites. As noted in prior settlements, the SEC takes the view that hypothetical performance should not be included on a firm’s public website, because public website disclosure does not allow firms to ensure that (through the adoption and implementation of policies and procedures) the hypothetical performance is “relevant to the likely situation and investment objectives of each advertisement’s intended audience”, as required under the Marketing Rule.

SEC Fines Adviser for Off-Channel Communications

Apr 05 2024

By: Lance C. Dial and Pablo J. Man

On 3 April 2024 the SEC announced the first off-channel communications settlement with a registered investment adviser who was not otherwise affiliated with a broker-dealer. This settlement provides new insight into how the SEC views adviser’s recordkeeping obligations, which are narrower than broker-dealer regulatory requirements.

Tag:Conduct of business