To mark the new year, registered investment advisers and funds should take a look back at the activity undertaken by the Securities and Exchange Commission (SEC) and its staff during 2019 and carefully consider steps to be taken to implement new and amended regulations adopted by the SEC throughout the year. The start of a new year is also a good time to evaluate what remains on the SEC's regulatory agenda.
The Financial Industry Regulatory Authority (FINRA) recently released its 2019 Report on Examination Findings and Observations. The report intends to reflect key findings and observations identified in FINRA's recent examinations of broker-dealers. The report also describes practices that FINRA has deemed to be effective and that could help firms to improve their compliance and risk management programmes.
The Securities and Exchange Commission recently charged a Switzerland-based securities dealer for offering and selling unregistered security-based swaps to US investors using bitcoins and for failing to transact its swaps on a registered national exchange. This case illustrates that the use of new technology and terminology does not exempt investment-product dealers from having to comply with US federal securities laws.
The Supreme Court recently granted a writ of certiorari to address whether the Securities and Exchange Commission (SEC) may obtain disgorgement in civil injunctive actions filed in the federal courts. How the court resolves this question may have a significant impact not only on the SEC's enforcement programme, but also on a wide array of other federal regulators that rely on courts invoking similar equitable authority to fashion remedies.
The Financial Industry Regulatory Authority recently censured and fined a Florida-based broker-dealer, including for failing to reasonably supervise sales of complex securities such as structured products and leveraged, inverse and inverse-leveraged exchange-traded funds. This case illustrates the need for broker-dealers to establish and enforce proper surveillance systems and written procedures to ensure the suitability of their sale recommendations.
The North American Securities Administrators Association recently issued a report that provided a warning as to the risks of leveraged or inverse exchange-traded funds. The report urges broker-dealers to tailor their supervisory procedures if they allow exchange-traded fund (ETF) transactions in these products. Among other things, the report concludes that broker-dealers should carefully consider whether to permit purchases of leveraged or inverse ETFs in retail customer accounts.
The Securities and Exchange Commission (SEC) recently proposed amendments to the description of business, legal proceeding and risk factor disclosures that are required pursuant to Regulation S-K. While the SEC's concept release dealt with a wide variety of topics, these latest proposals represent a more measured approach towards modernising and simplifying such disclosure requirements.
Blockstack Token LLC, a wholly owned subsidiary of Delaware public benefit corporation Blockstack PBC, recently became the first company to have an offering of digital assets qualified by the Securities and Exchange Commission under Regulation A. Although Blockstack's is the first Regulation A token offering to be qualified, it demonstrates the potential for other blockchain-based companies to use Regulation A as a viable capital-raising tool.
The Securities and Exchange Commission (SEC) recently requested public comment on ways to simplify, harmonise and improve the registration exemptions under the Securities Act. In its concept release, the SEC identified numerous topics to be addressed, such as evaluating the framework and coverage of existing registration exemptions. Any developments in this area will be of interest to the structured products industry.
The Securities and Exchange Commission recently issued an interpretive release designed to reaffirm, and in some cases clarify, the standard of conduct that investment advisers owe to their clients. While the interpretive release includes no new regulation, it clarifies the type of disclosure, policies and procedures that advisers should adopt to ensure that they continue to operate in a manner that is consistent with their fiduciary obligations.
The Securities and Exchange Commission (SEC) recently proposed amendments to the 'accelerated filer' and 'large accelerated filer' definitions adopted under the Securities Exchange Act 1934. The SEC believes that it can promote capital formation for smaller reporting issuers by more appropriately tailoring the types of issuer that are included and revising the transition thresholds for accelerated and large accelerated filers.
The Securities and Exchange Commission (SEC) recently adopted rule amendments to modernise and simplify certain disclosure requirements in Regulation S-K and related rules and forms. These amendments were adopted pursuant to a 2015 Fixing America's Surface Transportation Act (FAST Act) directive and are based in part on the SEC's report to congress under the FAST Act. The amendments will require issuers' immediate attention as they prepare for upcoming filings.
The Securities and Exchange Commission (SEC) recently announced settlements with 79 investment advisers who self-reported violations of the Investment Advisers Act in connection with the SEC Division of Enforcement Share Class Selection Disclosure Initiative. The advisers collectively agreed to return more than $125 million in fees and prejudgment interest to clients.
The Securities and Exchange Commission recently proposed a rule and related amendments under the Securities Act that would permit issuers to engage in oral or written communications with potential investors that are, or are reasonably believed to be, qualified institutional buyers or institutional accredited investors, either prior to or following the filing of a registration statement, to determine whether such investors have an interest in a contemplated securities offering registered under the Securities Act.
In a recent interpretative letter, the Financial Industry Regulatory Authority (FINRA) provided guidance to a registered broker-dealer as to the use of pre-inception index performance data relating to a proprietary index. The letter restates and updates FINRA's prior guidance as to the use of back-tested index information, including its historic position that the use of this type of information is inappropriate in communications provided to retail investors.
The Financial Industry Regulatory Authority (FINRA) recently issued its 2019 Risk Monitoring and Examination Priorities Letter. The letter addresses a variety of issues that all broker-dealers must address, whether they offer structured products or not. The letter clarifies that sales of complex products, including structured products, must be reviewed to see whether they comply with FINRA's suitability rules.
The Securities and Exchange Commission recently amended the Securities Exchange Act to implement Section 955 of the Dodd-Frank Act. Among other requirements, companies that are not foreign private issuers, listed closed-end investment companies, smaller reporting companies or emerging growth companies must now comply with the new hedging disclosure requirement in proxy or information statements with respect to the election of directors during fiscal years beginning on or after 1 July 2019.
The end of 2018 was notable for two Securities and Exchange Commission (SEC) enforcement actions against private equity fund managers for violations of the Investment Advisers Act. The actions demonstrate the SEC's continued focus on private equity fund managers' use of operating partners or consultants and the particular issue of how the expenses of such operating partners or consultants are allocated.
The Securities and Exchange Commission (SEC) Division of Corporation Finance recently provided guidance for issuers regarding the approach that the division will take in processing filings, submissions and other requests for action by its staff. Issuers should carefully consider their plans with respect to registration statements, particularly given that it is possible that another government shutdown could commence if an appropriations bill funding the SEC's operations is not enacted prior to the current deadline.
The Financial Industry Regulatory Authority (FINRA) recently published its 2019 Risk Monitoring and Examination Priorities Letter. Unlike previous letters, the 2019 letter focuses primarily on priorities that FINRA considers to be materially new. The first highlighted priority, online distribution platforms, will be of particular interest to the growing number of companies providing financial services through online platforms.