On October 19, 2012, the U.S. Securities and Exchange Commission (“SEC”) issued a release indicating that the SEC intended to cancel the registrations of approximately 300 investment advisers due to failure to file an amendment to their Form ADV in the first quarter of 2012 indicating whether the firm remained eligible for registration with the SEC or who submitted an amended Form ADV indicating that they are no longer eligible to remain registered with the SEC as an investment adviser but have not filed the Form ADV-W to withdraw their registration.
Category Archives: SEC
Conducting a Risk Assessment of an Investment Adviser
October 23, 2012
Under 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 adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act and the rules that the SEC has adopted under the Investment Advisers Act. Well-designed policies and procedures should also be able to detect violations that have occurred and to promptly correct any violations that have occurred. Most state securities regulators have adopted similar rules requiring investment advisers to develop and implement written compliance policies and procedures. As an investment adviser, the first step in developing written policies and procedures should be to identify the areas of risk related to the investment adviser’s practice and business model. This process of identifying risks that make the investment adviser vulnerable to violations of the Investment Advisers Act is often referred to as a “Risk Assessment,” a “Gap Analysis,” or the compilation of a “Risk Inventory.”
Mid-Sized Investment Advisers Required to Register with the SEC Rather than New York Investor Protection Bureau
August 31, 2012
New York City houses one of the financial epicenters of the world so many may find it surprising that investment advisers with their principal office and place of business in New York are not subject to an examination by the New York Investor Protection Bureau. The New York Investor Protection Bureau is charged with enforcing the New York State securities laws and requires investment advisers to register with the New York Attorney General’s Office. Because the New York Investor Protection Bureau does not conduct examinations of investment advisers with a principal office and place of business who are registered with the New York Attorney General’s Office, the U.S. Securities and Exchange Commission (“SEC”) will handle the registration and examination of mid-sized investment advisers (investment advisers with between $25 million and $100 million of assets under management) with a principal office or place of business in New York.
Bachus Shuts Down SRO Bill for Investment Advisers
August 02, 2012
Last week, U.S. House Financial Services Committee Chairman Spencer Bachus (R – AL), decided to at least temporarily put the Investment Adviser Oversight Act of 2012 (“Investment Adviser Oversight Act”) on hold. This decision came on the heels of Representative Maxine Waters’ (D – CA) introduction of the Investment Adviser Examination Improvement Act of 2012 (“Investment Adviser Examination Improvement Act”).
Illinois Becomes Third State to Pass Privacy Law Conflicting with SEC Social Media Compliance Regulations for Investment Advisers
August 01, 2012
Today Illinois Governor Pat Quinn signed a new law that makes it unlawful for employers to request passwords to social media accounts or from demanding access to social media accounts from potential and current employees. Illinois became the third state to pass such legislation after Maryland and Delaware recently adopted similar laws in May and July. After signing the law Governor Quinn said, “Members of the workforce should not be punished for information their employers don’t legally have the right to have. As use of social media continues to expand, this new law will protect workers and their right to personal privacy.”
Representative Maxine Waters (D – CA) introduced the Investment Adviser Examination Improvement Act of 2012 (“Investment Adviser Examination Improvement Act”) on July 25, 2012. The Investment Adviser Examination Improvement Act enables the U.S. Securities and Exchange Commission (“SEC”) to charge user fees from investment advisers. The Investment Adviser Examination Improvement Act is a response to the Dodd-Frank Wall Street Reform and Consumer Protection Act which requested more stringent and frequent examination of investment advisers.
Bi-Partisan Senate Bill Seeks to Give SEC Power to Levy Tougher Fines on Investment Advisers
July 26, 2012
U.S. Senators Jack Reed (D – RI) and Chuck Grassley (R – IA) introduced the Stronger Enforcement of Civil Penalties Act (“SEC Penalties Act”) on Monday to “strengthen the U.S. Securities and Exchange Commission’s (“SEC”) ability to crack down on securities laws violations.” The SEC Penalties Act could have a serious impact on investment advisers and broker/dealers who violate securities laws.
Dale Brown, President and CEO of the Financial Services Institute (“FSI”), wrote a letter to Representative John Kline, (R – MN) Chairman of the U.S. House Education and Workforce Committee and to ranking member George Miller, (D – CA) in response to comments made by Phyllis Borzi, Assistant Secretary of the Department of Labor, (“DOL”) in a letter to the same members of the Committee. Borzi told the ranking members she was disappointed with the lack of participation in the DOL’s request for data as part of its “effort to expand the definition of fiduciary under the Employee Retirement Income Security Act of 1974 (“ERISA”).”In Brown’s letter he is critical of DOL Assistant Secretary Borzi for what he calls an impractical request.
States Passing Privacy Laws that Conflict with FINRA and SEC Social Media Compliance Regulations
July 17, 2012
Keeping up on the new rules and regulations regarding social media use can be a difficult task for investment advisers and broker-dealers. Recently, the U.S. Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) have each issued alerts and notices to investment advisers and broker-dealers offering guidance on social media use. The SEC issued an alert in January of this year and FINRA has issued Regulatory Notice 10-06 and Regulatory Notice 11-39; these alerts and notices generally require investment advisers and broker/dealers to monitor and archive any business communications their employees have with clients. Now, many states and even the federal government have bills under consideration that would limit employers’ access to its employees’ social media accounts. If these laws are passed they could make it even more difficult for investment advisers and broker-dealers to keep adequate records and ensure compliance with the social media rules and regulations.
New Suitability Rule for Broker-Dealers is Similar to Fiduciary Duty of Investment Advisers
July 16, 2012
There has been a lot of discussion over the last year on the different standards for broker-dealers and investment advisers. Under current regulatory requirements, broker-dealers do not have a fiduciary duty to their clients. Broker-dealers must abide by the anti-fraud provisions of the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”) and must follow rules instituted by exchanges they are members of and the rules of the Financial Industry Regulatory Authority (“FINRA”). Investment advisers are largely governed by the Investment Advisers Act of 1940 (“Investment Advisers Act”), rules promulgated under the Investment Advisers Act, and state laws. Pursuant to the Investment Advisers Act, investment advisers have a fiduciary duty to their clients. Having a fiduciary duty to clients means that by regulation investment advisers are held to a higher standard than the standard that applies to broker-dealers. A study conducted by the U.S. Securities and Exchange Commission (“SEC”) in 2011 found that the average investor did not understand the difference between a broker-dealer and an investment adviser.
