June 2017

The June 2017 issue of Fund Forum focuses on recent developments from the Securities and Exchange Commission

3 min

This issue of Venable's Fund Forum includes recent developments from the Securities and Exchange Commission (SEC), including:

  • SEC focus on anti-money laundering
  • SEC comments on standards of conduct for investment advisers and broker-dealers
  • SEC's division of investment management updates to form ADV FAQs
  • SEC's guidance update on "inadvertent custody"
  • Executive Order 13789 – identifying and reducing tax regulatory burdens
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SEC Focus on Anti-Money Laundering Continues

The SEC recently charged a Salt Lake City brokerage firm with securities law violations for "routinely and systematically" failing to file suspicious activity reports (SARs) for suspicious stock transactions it had flagged. The SEC further alleged that the SARs the firm did file "frequently omitted the very information that formed the bases for [the firm] knowing, suspecting, or having reason to suspect that a transaction was suspicious." The firm's alleged failure to file SARs related to its "alleged practice of clearing transactions for microcap stocks that were used in manipulative schemes to harm investors." In terms of assessing risk for the marketplace, the SEC's complaint charged the firm with thousands of securities law violations. To access the complaint, click here.

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SEC Comments on Standards of Conduct for Investment Advisers and Broker-Dealers

SEC Chairman Jay Clayton recently commented on the Department of Labor's "Fiduciary Rule." In that context, Chairman Clayton stated that "clarity and consistency – and, in areas overseen by more than one regulatory body, coordination – are key elements of effective oversight and regulation." In terms of serving the interests of retail investors, the SEC is soliciting public comment prior to further SEC action in this area. Their list of questions provides some insight into the SEC's focus.

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The SEC's Division of Investment Management Updates Form ADV FAQs

The SEC recently updated the frequently asked questions (FAQs) on Form ADV. Many of these updates provide guidance relating to form amendments set forth in Release No. 4509 (August 25, 2016). In that regard, FAQs were added to the followings items on Form ADV: Items 1.I, 1.J, 5.D, 5.K, and 7.B and Schedule R. Item 1.0 also has been updated. In particular, the staff is withdrawing its response to Question 4 of its January 18, 2012 letter addressed to the American Bar Association, Business Law Section, given that this FAQ has been superseded by the SEC's adoption of amendments to Form ADV codifying umbrella registration for certain advisers ("relying advisers") to private funds. For the full text of the IM Information Update, click here.

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Inadvertent Custody: Don't Let It Happen to You!

Earlier this year, the SEC's Division of Investment Management issued a Guidance Update regarding "inadvertent custody." It's important, so we thought it made sense to provide a Fund Forum refresher. The staff warns that investment advisers may have custody of client funds or securities because of provisions in a separate custodial agreement between its advisory client and a qualified custodian. Unlikely? It would seem so, but read on.

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Executive Order 13789 – Identifying and Reducing Tax Regulatory Burdens

In Executive Order 13789 of April 21, 2017, 82 F.R. 19317, President Donald J. Trump ordered the Treasury Secretary to review all significant tax regulations issued on or after January 1, 2016, and identify all such regulations that (i) impose an undue financial burden on taxpayers, (ii) add undue complexity to the federal tax laws, or (iii) exceed the statutory authority of the IRS. The Executive Order requires the Treasury Secretary to submit an interim report to the President identifying all such regulations no later than June 20, 2017.

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Read past issues of Venable's Fund Forum.