United States – Page 3 – Global Investment Law Watch

United States: Missouri Anti-ESG Rules Struck Down

Aug 15 2024

Yesterday, 14 August 2024, a United States District Court issued a decision in Securities Industry and Financial Markets Association vs. Ashcroft finding that a pair of “anti-ESG” regulations promulgated by the Missouri Securities Division were both preempted by federal law and unconstitutional. While specifically applicable only to the Missouri regulations, this decision sets new guardrails for existing and future state regulation of federally-registered broker-dealers and investment advisers both generally and relating to environmental social and governance (ESG) investing.

United States: CME Group Clarifies and Emphasizes the Duty to Supervise Trading on its Markets

Aug 09 2024

By: Clifford Histed and Cheryl Isaac

If you or your company trades on CME, CBOT, NYMEX or COMEX (CME Group exchanges, collectively referred to herein as “CME”), you will need to take note of CME’s new Market Regulation Advisory Notice (MRAN), which became effective on 16 July. The new MRAN is called “Supervisory Responsibilities for Employees and Agents” and should be reviewed closely to understand CME’s expectations related to diligent supervision, including policies, trainings, monitoring, remediation and sanctions.

United States: Child’s Play: Congress Proposes Allowing Sandboxes for AI Within the Financial Services Industry

Aug 07 2024

By Matthew J. Rogers and Maxwell J. Black

A bipartisan group in the US Congress has introduced legislation that aims to foster artificial intelligence (AI) innovation within the financial services industry by creating regulatory sandboxes. This new bill marks a significant step toward a unified, nationwide framework for regulating AI in the financial services industry.

United States: PFAR Appeal Timeline Runs Out

Jul 24 2024

By: Ed Dartley and Jamie M. Robinson

The clock ran out Monday, 22 July 2024 for the SEC and its timeline to appeal the unanimous decision of the US Court of Appeals for the Fifth Circuit to vacate the Private Fund Adviser Rules (PFAR). The 2023 August adoption of PFAR and the Fifth Circuit’s 2024 June subsequent decision to vacate, has caused both controversy and compliance confusion across the private fund sector over the last few years. Even in the absence of an appeal, open questions remain surrounding the implications of future rulemaking under Section 206(4) of the Advisers Act and the SEC’s stated goal to enhance transparency in the private funds space.

While the next steps for the SEC remain to be seen, managers and investors alike will still need to gauge market reaction to the core principles of PFAR and how they may drive industry initiatives separate and apart from any future regulatory efforts. For example, Institutional Limited Partners Association (ILPA) continues to adjust the parameters of the “Quarterly Reporting Standards Initiative” which was launched in early 2024 and proposes model reporting forms that are substantively similar to what was proposed in the Quarterly Statements provision of PFAR. Now that the “wait and see” attitude on PFAR is past us, it can be expected that private fund industry participants will continue to explore the parameters of the goals that PFAR tried to achieve.

United States: ISDA Publishes Framework to Facilitate Close-Out of Derivatives Contracts

Jul 08 2024

By: Kenneth Holston, Cheryl L. Isaac, Matthew J. Rogers, Jordan A. Knight, and Bradley D. Bostwick

On 27 June 2024, ISDA published the ISDA Close-out Framework, an interactive decision tree that market participants can use to help prepare for potential terminations of collateralized derivatives contracts that are documented under an ISDA Master Agreement. The ISDA Close-out Framework was launched in response to the March 2023 failures of Signature Bank and Silicon Valley Bank, which shed light on the complexities of terminating swaps and other over-the-counter derivatives in the multifaceted post-financial crisis swap regulatory regimes. ISDA designed this framework in response to feedback from the derivatives industry that factors such as segregated margin and stays on the exercise of termination rights and remedies makes terminating and closing out derivatives contracts increasingly complex.

United States: Next Regulator Up: Treasury Department Explores AI in the Financial Sector

Jun 11 2024

By: Matthew J. Rogers and Maxwell J. Black

On 6 June 2024, the Department of the Treasury (the Treasury) published a request for information on the use of artificial intelligence (AI) in the financial services sector, with the goal of gathering input from a wide range of stakeholders. This request follows soon after the Treasury’s report on AI and cybersecurity.

Like other US regulators, including the Commodity Futures Trading Commission (CFTC), the Treasury is interested in understanding the opportunities and risks posed by AI, including the potential impact on consumers, investors, financial institutions, and businesses. Specifically, the Treasury is seeking feedback on the definition of AI under President Biden’s Executive Order on Safe, Secure, and Trustworthy Development and Use of AI, the types of AI models and tools used by financial institutions, and the general accessibility of AI.

Of particular interest is the Treasury’s query regarding a potential “human capital shortage” in financial organizations. This concerns the scenario where companies utilize AI tools without sufficient employees that fully understand their mechanisms. Additionally, the request solicits perspectives on model risks, operational risks, compliance risks, and third-party risks, among others.

This request for information shows that the Treasury is looking to augment the efforts of the CFTC, Securities and Exchange Commission (SEC), and banking agencies, which have also requested similar AI-related information. It remains to be seen the extent to which federal agencies such as the Treasury coordinate their rulemaking processes and how any such rules will fit together.

United States: 5th Circuit Vacates the Private Fund Adviser Rules in Full

Jun 05 2024

By: Pablo J. Man, TJ Bright, Kenneth Holston, Christopher W. Phillips-Hart, and Tristen C. Rodgers

Earlier today, 5 June 2024, the US Fifth Circuit Court fully vacated the Private Fund Adviser Rules (PFAR) in a unanimous and highly anticipated decision curbing the Securities and Exchange Commission’s authority to regulate private funds. Absent a successful appeal of the decision, the PFAR will not come into effect.

United States: NFA Announces Effective Date for New Compliance Rule 2-52 and Related Guidance Re: Member Questionnaire

May 22 2024

By: Clifford C. Histed, Cheryl L. Issac, Matthew J. Rogers, and Wiley F. Cole

On 20 May 2024, the National Futures Association (NFA) announced that its recently finalized Compliance Rule 2-52, related Interpretive Notice 9082 and amended Bylaw 301 will go into effect on 15 October 2024. NFA members will be required to submit their Member Questionnaire (formerly, the Annual Questionnaire) at least annually, and sometimes more frequently, as required by the NFA. If an NFA member’s business operations materially change rendering previously provided information inaccurate or incomplete, the NFA member will be required promptly to update its Member Questionnaire. While NFA members may use their discretion to determine what constitutes a material change, Interpretive Notice 9082 provides illustrative guidance on this point.

United States: SEC Adopts Enhanced Privacy Safeguards

May 17 2024

By: Rich Kerr, Sasha Burstein, and Brian Doyle-Wenger

On 16 May 2024, the US Securities and Exchange Commission (SEC) adopted amendments to Regulation S-P’s safeguards and disposal rules. The amendments are designed to address the expanded use of technology and corresponding risks that have emerged since the original adoption of Regulation S-P in 2000. The amendments expand the scope of information and broaden the number of customers protected under both rules. The safeguards and disposal rule will apply to “customer information”, which includes records that contain “nonpublic personal information” as defined in the existing rule. Additionally, the amended rule expands the applicability of the safeguards rule to include transfer agents, and the disposal rules to include all transfer agents including those registered with appropriate regulatory authorities other than the SEC.

United States: 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).

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