Rule 204-(2)(a)(7) of the Investment Advisers Act of 1940 (“Investment Advisers Act”) requires investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”), to preserve “all written communications received and copies of all written communications sent by such investment adviser relating to (i) any recommendation made or proposed to be made and any advice given or proposed to be given, (ii) any receipt, disbursement or delivery of funds or securities, or (iii) the placing or execution of any order to purchase or sell any security . . . .” The SEC has stated that electronic communications are considered written communications and are subject to the supervisory and record keeping requirements. Most books and records requirements for state registered investment advisers are the same as or similar to the SEC requirements, but each state registered investment adviser needs to make sure that it familiarizes itself with the requirements of its securities regulator.
Category Archives: SEC
The SEC Urged to End Mandatory Arbitration Clauses within Investment Advisory Client Agreements
June 04, 2013
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), which was signed into law on July 21, 2010, provides the U.S. Securities and Exchange Commission (“SEC”) with the authority under the Investment Advisers Act of 1940 to prohibit or impose conditions upon the use of pre-dispute, mandatory arbitration clauses within investment advisory client agreements.
As Regulators Prepare to Conduct More Examinations, Registered Investment Advisers Should Make Sure They are Prepared
May 29, 2013
Registered investment advisers must make sure that they have strong compliance programs in place and they are prepared for regulatory examinations as regulators expect to increase the number of examinations being conducted. In recent testimony before the U.S. House of Representatives Committee on Financial Services, Chairman Mary Jo White of the U.S. Securities and Exchange Commission (“SEC”) discussed some of the recent activities of the SEC. The testimony addressed several key areas of SEC oversight and focus including the areas of SEC enforcement and the SEC’s inspection and examination program. During the testimony, Chairman White stated, “the [SEC] needs to further strengthen the enforcement and examination functions of the SEC. Strong enforcement of the securities laws is necessary for investor confidence and is essential to the integrity of our financial markets. Successful enforcement actions result in sanctions that deter and punish wrongdoing and protect investors, both now and in the future. Similarly, our National Examination Program is critical to improving compliance by regulated entities, preventing and detecting fraud, and monitoring market risks.”
A Registered Investment Adviser Needs to Ensure that Power of Attorney Over Client’s Account is Limited
May 08, 2013
In order to trade or otherwise access a client’s account held by a custodian, a registered investment adviser must be granted written authorization by the client. Such authorization is generally granted in the form of a power of attorney. Although a power of attorney over a client’s account is necessary for a registered investment adviser to manage the client’s account, it is important for an investment adviser to ensure that the power of attorney is limited to only the functions actually intended by the client and the investment adviser.
The U.S. Securities and Exchange Commission (“SEC”) recently released the final rules and guidelines for Identity Theft Red Flags Rules. Some investment advisers will be affected by the new Identity Theft Red Flags Rules and will be required to develop and implement a written identity theft prevention program.
SEC Releases New Identity Theft Red Flag Rules that Will Affect Certain Registered Investment Advisers
April 16, 2013
As information technology and electronic communication continue to expand, identity theft poses an increasingly common threat to individuals. On April 10, 2013, the U.S. Securities and Exchange Commission (“SEC”) voted unanimously to adopt rules requiring broker-dealers, mutual funds, investment advisers, and certain other entities regulated by the SEC to adopt programs to detect red flags and prevent identity theft. These rules, jointly adopted with the Commodity Futures Trading Commission (“CFTC”), were adopted in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), which amended the Fair Credit Reporting Act of 1970 (“FCRA”) to add the SEC to the list of federal agencies that must jointly adopt and individually enforce identity theft red flags rules.
In a release issued by the SEC on October 9, 2012, the U.S. Securities and Exchange Commission (“SEC”) announced “Presence Exams” for certain newly-registered investment advisers (investment advisers registered after July 21, 2011). The presence exams are to be conducted by SEC’s Office of Compliance Inspections and Examinations (“OCIE”) through the new National Exam Program (“NEP”) initiative. These “focused, risk-based examinations” will be conducted of investment advisers to private funds registered with the SEC. These Presence Exams will take place over a two-year period and have three primary phases:
On February 21, 2013, the U.S. Securities and Exchange Commission (“SEC”) released its examination priorities for 2013 for the National Examination Program (“NEP”) of the Office of Compliance Inspections and Examinations. The release states that the NEP published these examination priorities to communicate with investors and SEC registered investment advisers about areas that are perceived by NEP staff to have heightened risk, and to support the SEC’s mission “…to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” The 2013 examination priorities “…are aligned with the SEC’s mission by seeking to improve compliance, prevent fraud, inform policy, and monitor firm-wide and systemic risk.”
Note to SEC Registered Investment Advisers Concerning Form ADV Annual Updating Amendments
February 06, 2013
On February 06, 2013, the U.S. Securities and Exchange Commission (“SEC”) released an important notice concerning Form ADV Annual Updating Amendment for December fiscal year end advisers. According to the notice, those investment advisers registered with the SEC with a fiscal year end of December 31, 2012, are required to file their annual updating amendment within 90 days after their fiscal year end, thus, by March 31, 2013. As March 31, 2013, falls on a Sunday and because the IARD system will be closed on Friday, March 29, 2013, investment advisers with a December 31, 2012, fiscal year end will be allowed to file their annual updating amendments no later than Monday, April 1, 2013. The SEC adds: “Rule 0-4 under the [Investment Advisers Act of 1940] provides that fillings (sic) required to be made through the IARD system on a day that the IARD system is closed will be considered timely filed with the commission if filed through the IARD system no later than the following business day. (see Title 17: Commodity and Securities Exchanges Part 275 – Rule and Regulations, Investment Advisers Act of 1940.)”
Conducting an Annual Review of a Registered Investment Adviser
November 01, 2012
Under SEC Rule 206(4)-7 of the Investment Advisers Act of 1940 (“Investment Advisers Act”), investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”) are required to maintain written policies and procedures reasonably designed to prevent and detect violations of the Investment Advisers Act and the SEC’s related rules by the investment adviser or any of its supervised persons. Many state securities regulators have similar requirements regarding written policies and procedures. As part of developing the investment adviser’s written policies and procedures, the investment adviser should identify the areas of risk that need to be addressed.
