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Communiques

The latest compliance news from SEC3 and CCO3.

SEC to Conduct Second Phase of Cybersecurity Sweep

March 16, 2015

After completing a sweep of 100 firms focusing on preparedness concerning cybersecurity in 2014 and subsequently releasing their summary findings in February 2015, the SEC is poised to begin a second phase of their cybersecurity initiative this summer. This is in line with the 2015 exam priorities that included a continued focus on cybersecurity.

Read more: SEC to Conduct Second Phase of Cybersecurity Sweep

 

Permanent Bars as an Effective Deterrent

March 05, 2015

At the SEC Speaks 2015 Program on February 20, 2015, two SEC Commissioners gave their personal remarks on the Commission seeking permanent bars on wrongdoers to prevent further misconduct by such persons, and to deter future misconduct by others. SEC Commissioner Luis A. Aguilar set forth his views that one of his goals for 2015 is “for the Commission to bring more enforcement cases that have real impact—and that send the strongest message of deterrence.” Commissioner Aguilar stated that he had been a strong supporter of the Division of Enforcement, and had advocated “focusing on individual accountability, effective sanctions that deter and punish egregious misconduct, and policies designed to eradicate recidivism.”

Read more: Permanent Bars as an Effective Deterrent

 

Adviser Sanctioned for Inadequate Compliance Policies and Procedures

February 26, 2015

In January 2015, the SEC settled an action against a registered investment adviser who agreed to several findings of violations of the Investment Adviser Act of 1940 including:

  • failure to create and implement an adequate compliance manual
  • failure to conduct an annual review of the compliance policies and procedures
  • failure to conduct “best execution” reviews
  • failure to provide adequate compliance training to firm employees
  • failure to monitor employee personal trading
  • failure to amend their ADV
  • failure to deliver Form ADV to clients
  • failures by the CCO to review marketing materials
  • failure by the CCO to carry out few, if any compliance responsibilities, and having inadequate training and knowledge of the Advisers Act

The SEC also found that despite two examinations, one in 2004 and one in 2007, the firm did not adequately remedy the issues they were alerted to by the Staff. All of these violations were taken seriously by the Commission and resulted in a cease and desist order and a $50,000 civil money penalty.

While this action illustrates numerous compliance failures by the firm and its CCO, we think certain elements of the order are worth highlighting as they are often common situations, particularly with smaller or emerging managers.

Read more: Adviser Sanctioned for Inadequate Compliance Policies and Procedures

 

SEC Highlights Importance of Risk Assessments

February 21, 2015

The SEC stated in their 2015 Examination Priorities that, as was the case in prior years’ priorities, the Commission will conduct “focused, risk-based examinations”. This guidance confirms that investment advisers should be engaged in identifying risk areas and working to correct any deficiencies prior to the SEC conducting an examination. We have also recently seen a number of our client firms being requested by prospective investors to show them their risk assessments.

Read more: SEC Highlights Importance of Risk Assessments

 

SEC Issues Risk Alert with Cybersecurity Sweep Examinations Summary

February 04, 2015

On February 3, 2015, the SEC released their long-awaited Risk Alert reviewing the results of OCIE's cybersecurity sweep examinations in 2014 that followed their April 2014 Risk Alert on cybersecurity issues. OCIE's sweep examinations covered 57 registered broker-dealers and 49 registered investment advisers with respect to cybersecurity practices at those firms.

The Staff performed these examinations to better understand how broker-dealers and advisers address the legal, regulatory, and compliance issues associated with cybersecurity and to assess the examined firms' vulnerability to cyber-attacks.

Read more: SEC Issues Risk Alert with Cybersecurity Sweep Examinations Summary

 

SEC Announces Examination Priorities for 2015 - And New Year’s Resolutions for CCOs

January 14, 2015

As the SEC has been doing at the start of each year in recent years, the SEC announced its examination priorities for the new year. For 2015, the SEC’s priorities focus on three general areas: (i) protecting retail investors and investors saving for retirement; (ii) assessing market-wide risks; and (iii) using enhanced data analytics to identify illegal activity.

The SEC highlighted certain additional priorities, and of these we think the following are more noteworthy to our investment adviser and registered investment company clients:

Read more: SEC Announces Examination Priorities for 2015 - And New Year’s Resolutions for CCOs

 

Recent SEC Speech Highlights Continued Focus on Private Equity

December 05, 2014

In her recent keynote address at the Columbia Law School Conference on Current Issues in Securities Regulation (November 21, 2014), Commissioner Kara Stein stressed the importance of transparency in securities markets including private equity, a market in which, as she indicated, most of the investors are public and private pension funds, endowments, and foundations holding the money of teachers, policemen, firemen and public and private universities. Although these institutional investors are typically sophisticated, the degree of sophistication varies between investors representing small state plans as opposed to large university endowments. In addition, even institutional investors do not possess OCIE’s enhanced access to a registrant’s records, so they would all benefit from robust disclosure. Thus, transparency is an important investor protection tool. Commissioner Stein voiced her concern that disclosures in private equity lack rigor.

Read more: Recent SEC Speech Highlights Continued Focus on Private Equity

 

Annual ADV Registration Fee Deadline

November 12, 2014

Registered investment advisers with state filings are required to annually renew their state ADV registration or their state notice filings of their federal ADV. They are also required to annually renew the state registrations of their investment adviser representatives.

Read more: Annual ADV Registration Fee Deadline

 

Custody Rule Violations - Deliberate and Inadvertent

November 04, 2014

On October 29, 2014, the SEC charged a registered investment adviser, its two principals and the chief compliance officer with repeated violations of the Custody Rule (Rule 206(4)-2 under the Advisers Act). The advisory firm managed a number of pooled investment vehicles and failed to distribute audited financial statements to investors within the 120-day window from fiscal-year end as mandated by the Custody Rule.

Read more: Custody Rule Violations - Deliberate and Inadvertent

 

SEC Announces Record Number of Enforcement Cases in 2014

October 22, 2014

The SEC announced that for its fiscal year that ended in September, it filed a record 755 enforcement actions covering a wide range of misconduct, and obtained orders totaling $4.16 billion in disgorgement and penalties. By contrast, in FY 2013, the SEC filed 686 enforcement actions and obtained orders totaling $3.4 billion in disgorgement and penalties. In FY 2012, the SEC filed 734 enforcement actions and obtained orders totaling $3.1 billion in disgorgement and penalties.

Read more: SEC Announces Record Number of Enforcement Cases in 2014

 

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Get the latest compliance news and insights - delivered weekly. The SEC3 Communique covers all compliance topics. CCO3 focuses on Mutual Fund CCO topics.
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Communiques

SEC3 Newsletter

Commentary: How Compliance Officers & Firms Can Help Limit CCO Personal Liability This article originally appeared on the Thomson Reuters Regulatory Intelligence subscription service for compliance and risk professionals and is... read more »

Wishing One-and-All a Happy, Healthy and Prosperous New Year

We hope each of you found some peace and tranquility in the company of loved ones this holiday season and want to wish one-and-all a happy, healthy and prosperous New... read more »

Understanding How to Mitigate Liability and Navigate Insurance Options (Part II)

In June, we shared our thoughts around common insurance gaps and insurance riders that CCOs as well as managers should understand. One of the gaps we shared related to pre-claim... read more »

Cybersecurity - What have we learned and what have we done?

Regulatory Landscape In April 2015, the Securities and Exchange Commission ("SEC's") Division of Investment Management issued a guidance update, identifying cybersecurity as a critical issue. Several regulators are in fact focusing... read more »

Gatekeepers in SEC Crosshairs

Ever since the enforcement cases were announced as part of the SEC’s “Operation Broken Gate,” the SEC enforcement division has continued to ramp up scrutiny of gatekeepers including third-party service... read more »

Anna M. Bencrowsky, CRCP, CMFS Joins SEC3

We are pleased to announce that Anna M. Bencrowsky, CRCP, CMFS has joined SEC3 as a Senior Consultant. Prior to joining SEC3, Anna held several executive compliance positions. Anna recently retired... read more »

Events

May 23, 2017 - Webcast: WannaCry Ransomware: Were You Really Protected or Just L…

When: Tuesday, May 23rd, 2017 | Schedule: 12pm - 1pm EST Who: Paul Caiazzo, CEO and Co-Founder, TruShield Security Solutions Michael Brice, Founder, BW Cyber Services John Lukan, Managing Director, SEC Compliance Consultants, Inc. We...

June 14, 2017 - Compliance Breakfast Briefing

8:30-9:00am - Networking and Continental Breakfast 9:00-10:30am - Program Location: Willkie Farr & Gallagher LLP | 600 Travis Street | Suite 2310 | Houston, TX Barry Barbash from Willkie Farr & Gallagher LLP,...

June 13, 2017 - Compliance Breakfast Briefing

8:30-9:00am - Networking and Continental Breakfast 9:00-10:30am - Program Location: Haynes and Boone, LLP | 2323 Victory Avenue | Suite 700 | Dallas, TX 75219 Validated parking is available in the garage attached...

May 31, 2017 - Chicago

9:00-9:30 a.m - Networking and Continental Breakfast 9:30-11:00 a.m - Program Location: Baker & McKenzie LLP | 300 East Randolph Drive | Suite 5000 | Chicago, IL 60601 Kristin Gonzalez and Jerome Tomas...

May 17, 2017 (NYC WIMF)

This event is by invitation only. Please email info@seccc.com to learn more.

May 15, 2017 (NYC Chief Compliance Officer Roundtable)

9:00-9:30am - Networking and Continental Breakfast 9:30-11:00am - Program Location: Blank Rome LLP | The Chrysler Building | 405 Lexington Avenue | New York, NY 10174 | 22nd Floor Boardroom | Phone:...

Webcast: The Most Insidious Cybersecurity Threat Is Also The Least Understood

When: Tuesday, April 25th | Schedule: 12pm - 1pm EST Who: Paul Caiazzo, CEO and Co-Founder, TruShield Security Solutions Michael Brice, Founder, BW Cyber Services John Lukan, Managing Director, SEC Compliance Consultants, Inc. Ransomware, the...

CCO Liability (Part III): Managing Liability Webinar

In this webinar, panelists discuss indemnifications and insurance as potential remedies to address the direct financial risks to a CCO. Attendees will learn: What terms and conditions should Chief Compliance Officers be...

Webinar: CCO Liability (Part III): Managing Liability: Navigating Indemnities an…

When: Tuesday, February 21, 2017 Schedule: 11:00am ET / 10:00am CT / 9:00am MT / 8:00am PT / 7:00am AT Description of Webinar: The National Society of Compliance Professionals is pleased to host...

Webcast: SEC 2017 Examination Focus Area – Cybersecurity Testing

Penetration Testing & Vulnerability Assessments - Examining the SEC & FINRA Requirements When: Wednesday, January 25th | Schedule: 12pm - 1pm EST Who: Paul Caiazzo, CEO and Co-Founder, TruShield Security Solutions Michael Brice, Founder,...

Chief Compliance Officer Roundtable: Breakfast Briefing

When: October 20, 2016 Where: Blank Rome LLP | The Chrysler Building | 405 Lexington Avenue | New York, NY 10174 | 22nd Floor Boardroom | Phone: 212.885.5000 Thomas Westle and Janaya...

Practicing Law Institute - Hedge Fund Management 2016

When: September 15, 2016 Where: New York & concurrent webcast | 1177 Avenue of the Americas | New York, NY 10036 Schedule: 9:00 am – 5:00 pm Janaya Moscony, President of SEC3 will...

CHIEF COMPLIANCE OFFICER ROUNDTABLE: BREAKFAST BRIEFING

When: April 13, 2016 Where: Blank Rome LLP | The Chrysler Building | 405 Lexington Avenue | New York, NY 10174 22nd Floor Boardroom Thomas Westle and Janaya Moscony, along with industry experts,...

COMPLIANCE SCIENCE SUMMIT 2015

When: November 17, 2015 Where: Convene Midtown East | 730 Third Avenue | New York, NY 10017 Janaya Moscony, President, SEC Compliance Consultants, Inc. will be moderating a...

CHIEF COMPLIANCE OFFICER ROUNDTABLE: BREAKFAST BRIEFING

When: October 13, 2015 Where: Blank Rome LLP | The Chrysler Building | 405 Lexington Avenue | New York, NY 10174 22nd Floor Boardroom Thomas Westle and Janaya Moscony, along with...