Conduct of business – Page 5 – Global Investment Law Watch

Securities Lending Reform: Daily Public Reporting of Aggregate Loan Amounts in 2026

Oct 17 2023

By: Stacy Fuller, Kristina Zanotti, and Chase Ponder

On 13 October 2023, the US Securities and Exchange Commission (SEC) adopted new rule 10c-1a under the Securities Exchange Act of 1934. The new rule is intended to shine light on the securities lending market by providing the SEC with detailed information about most securities loans and making public, including to boards of trustees who oversee registered funds that engage in securities lending, sufficient information about such loans and Loan Rates (defined below) that they may evaluate the fairness of the loans in which funds engage.

Brokers Beware – The Massachusetts Fiduciary Rule is Here to Stay

Aug 28 2023

On 25 August 2023, the Massachusetts Supreme Judicial Court reversed a Massachusetts Superior Court ruling and denied Robinhood Financial LLC’s attempt to block the implementation of Massachusetts’s unique fiduciary duty rule, adopted in February 2020 within weeks of the final adoption of the SEC’s Regulation Best Interest, which imposes the duties of care and loyalty on broker-dealers (Fiduciary Rule). A summary of the Fiduciary Rule is available here. Robinhood’s action to overturn the Rule was brought after the Commonwealth of Massachusetts brought an administrative action accusing Robinhood of violating Fiduciary Rule with its video game-like design and marketing tactics.

United States: SEC Charges 11 Firms with Record Retention Violations

Aug 11 2023

By: Neil Smith , Hayley Trahan Liptak and Peter Shanley

For over twenty months, the U.S. Securities and Exchange Commission (SEC) has steadily announced settled orders against broker-dealers and investment advisers for failure to retain business-related communication. On 8 August 2023, the SEC released another round of settled orders with 11 firms for violation of Exchange Act Rule 17a-4 for failing to retain off-channel business-related communication. One dually registered broker-dealer and investment adviser was also charged with violating recordkeeping provisions of the Investment Advisers Act of 1940. The content of the orders, and the firms involved, show the SEC’s attention may be shifting from wide-spread violations at large institutions to more limited compliance failures at firms of differing sizes. The assessed penalties, although still considerable, are consistent with this shift.

United States: We’re Not in Kansas Anymore: The SEC Proposes Rules for the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers

Jul 27 2023

By: Richard Kerr and Matthew Rogers

On July 26, 2023, the Securities and Exchange Commission (“SEC”) proposed new rules (“Proposal”) intended to address certain conflicts of interests associated with the use of “Covered Technology” (defined below) by broker-dealers and investment advisers (“firms”) in investor interactions. If adopted as proposed, firms will be required to (i) identify conflicts of interests when using Covered Technology in interactions with investors, and (ii) adopt policies and procedures to eliminate or neutralize those conflicts of interests.

United States: SEC Charges Investment Adviser for Inadequate Policies and Procedures Regarding Valuation of Private Fund Assets

Jun 12 2023

By Todd Gibson, Annabelle North, and Aster Cheng

On 24 May 2023, the US Securities and Exchange Commission (SEC) announced the settlement of charges against Sciens Investment Management, LLC and Sciens Diversified Managers, LLC (collectively, Sciens) related to the valuation of certain private fund portfolio investments (Order). The SEC cited the often-used violations of Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7, finding that Sciens failed to implement adequate policies and procedures to properly value certain private fund investments.

United States: SEC’s Stunning Enforcement Actions Against Binance and Coinbase

Jun 08 2023

By Rich Kerr, Eden Rohrer, and Max Black

In a stunning move, over the last two days, the Securities and Exchange Commission (SEC) has filed back-to-back enforcement actions against major crypto exchanges Binance (See here) and Coinbase (See here). This clearly indicates that the SEC is flexing its enforcement power over both international exchanges as well as those exchanges with a focus on the United States. Please visit the K&L Gates Fintech and Blockchain Law Watch to see commentary about these developments from our Digital Assets team.

United States: SEC Charges Two Broker-Dealers With Record Retention Violations

May 16 2023

By: Neil T. Smith, Hayley Trahan-Liptak, and Christopher F. Warner

In November 2022, The Securities and Exchange Commission (SEC) Chair Gary Gensler stated that the SEC was only just getting started in its efforts to ensure firms were properly retaining business-related communication occurring over off-channel mediums. Two settled orders against two prominent broker-dealers released 11 May 2023 emphasize that point.

As with the SEC’s December 2021 and September 2022 settlements with major Wall Street firms, the 11 May 2023 settlements find violations of the record keeping requirements of Exchange Act Rule 17a-4 based on the firms’ failures to retain off-channel business-related communication. In the orders, which closely track the September 2022 orders, the SEC emphasized that the broker-dealers engaged in “pervasive off-channel communication” that occurred at all firm levels. The SEC continued to identify discussions about clients, client meetings, investment strategy, and communication regarding market color, trends, and events as “concerning” the broker-dealers’ respective businesses.

The May 2023 and September 2022 orders diverge with the discussion of cooperation. The SEC emphasizes in the recent orders that it considered the broker-dealers’ self-reporting, immediate remedial action, and cooperation with the SEC’s ensuing investigation when assessing penalties. Ultimately, the SEC ordered penalties of US$15 million and US$7.5 million, a fraction of the US$50 to US$125 million penalty range assessed in most prior similar orders.

It is clear the SEC’s investigatory efforts into record retention are in full swing. In fact, since the Fall of 2022, a myriad of firms have publicly announced that they are under investigation by the SEC in connection with potential record retention issues. It is likely additional formal charges are on the horizon.

Europe: Significant Changes Proposed to Market Abuse Regulation in the UK

Apr 11 2023

By Michael Ruck and Aurelija Grubytė

HM Treasury and the FCA have completed their joint review of the criminal market abuse regime, and published a joint statement on 24 March 2023. Their observations are relevant to both the criminal and civil market abuse regimes in the UK. Most notably:

Europe: Here’s Your Chance to Improve the UK’s Senior Managers and Certification Regime

Apr 04 2023

By Samuel Gordon

The FCA, PRA and UK Government are looking for feedback by 1 June 2023 to guide potential changes to the Senior Managers and Certification Regime (SMCR), the UK’s regime designed to improve individual accountability and conduct standards of (mostly) senior personnel in financial services firms. To this end, the FCA and PRA jointly published a discussion paper on 30 March and HM Treasury published a call for evidence.

United States: Goodbye M&A Brokers No Action Letter, Hello Federal Exemption

Mar 30 2023

By Eden L. Rohrer and Jessica D. Cohn

On 29 March 2023, the federal exemption from securities broker registration for qualifying mergers and acquisitions brokers (M&A brokers) became effective. That exemption was signed into law on 29 December 2022 as a policy rider to the Consolidated Appropriations Act of 2023 (H.R. 2617) (the M&A Brokers Exemption) and was described in our previous blog post and client alert.

The M&A Brokers Exemption can now be found in subsection (13) “Registration Exemption for Merger and Acquisition Brokers” of Section 15(b) of the Securities Exchange Act of 1934.

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