Individual liability is quickly rising to the forefront of the radar of the Securities and Exchange Commission. In fact, over the last five years, 80% of SEC enforcement cases have involved charges being brought against individuals. In a recent speech, Andrew Ceresney explained this increased focus stating “Holding individuals accountable for their wrongdoing is critical to effective deterrence and, therefore, the Division considers individual liability in every case”. In a separate speech also highlighting individual liability, Mr. Ceresney noted that many of the recent enforcement cases brought against individuals make it clear that the SEC will “aggressively pursue business line personnel and firms who mislead or deceive”.
As such, the beginning of each year provides a great opportunity for investment advisers to review their compliance policies and procedures as well as review deadlines to ensure an enforcement- free year ahead.
Below we will discuss important deadlines that CCOs should calendar.
FINRA Annual Entitlement Certification
On an annual basis, investment advisers are required to login to the IARD system and complete the FINRA Entitlement Certification and must be completed by the adviser’s Super Account Administrator (“SAA”). The purpose behind this annual certification process is to ensure proper and secure access to FINRA Web Application(s). These web applications include those for filing Form ADV, Form PF, Form U4/U5, funding and debiting the IARD account, among others. According to FINRA , the FINRA Entitlement User Accounts Certification Process was established “as part of its ongoing efforts to protect the integrity and confidentiality of regulatory, proprietary and personal information maintained by FINRA. Additionally the certification requirement supports each organization’s compliance with the management of authorized users on FINRA systems. The process provides a formal review of all user accounts in the FINRA Entitlement Program administered by an SAA.” This certification must be completed by the designated SAA by February 11, 2016.
Annual Updating Amendment
Investment advisers registered with the Securities and Exchange Commission (the “SEC”), and those advisers registered as Exempt Reporting Advisers, are required to amend their Form ADV each year within 90 days after the end of their fiscal year electronically on the Investment Adviser Registration Depository (“IARD”) system. For those advisers with a fiscal year end of December 31, the 2016 filing deadline is March 30.
Part 1 of Form ADV and the Firm Brochure (Part 2A), are filed electronically through the IARD system and are publicly available. Part 2B, the brochure supplement highlighting individual firm personnel employment and disciplinary history, is not required to be filed with the SEC, but must be kept and be readily accessible by the SEC if requested. Advisers are well advised to remember that the IARD system will not accept any annual updating amendment filing without an updated Part 2A (to include any material changes and must reflect current regulatory assets under management (“RAUM”) information). It is important to note that exempt reporting advisers are only required to provide specific information on their annual Form ADV amendment.
The annual updating amendment filing requires a fee, dependent upon calculated RAUM. Prior to making this filing, advisers must sufficiently fund their IARD account to cover these investment adviser registration fees. For investment advisers registered with the SEC making the annual ADV update filing, the applicable fees are: $40 for advisers with assets under management below $25 million; $150 for advisers with assets under management of at least $25 million but less than $100 million; and $225 for advisers with assets under management of $100 million or more. Exempt reporting advisers are required to pay a $150 fee.
Investment Advisers registered with the SEC should also be cognizant of the requirement to deliver their Form ADV 2A to their clients within 120 days of its fiscal year end. Advisers must deliver to their clients either its updated Part 2A brochure and a summary of material changes to the brochure, if any; or a summary of material changes, if any, along with an offer to provide the complete updated brochure.
In May 2015, the SEC proposed amendments to Form ADV and would require registered investment advisers to provide new information, including additional disclosure relating to separately managed accounts (“SMAs”) similar to the information currently required for private funds under Form PF. These changes have not been formally approved, but advisers should be aware of the potential for change in the 2017 Form ADV filing season.
Annual CPO/CTA Certification
Fund managers relying on the exemption from registration as a commodity pool operator (“CPO”) with the Commodity Futures Trading Commission (“CFTC”) are claimed under Rule 4.13(a)(3) or Rule 4.14(a)(8) must annually reaffirm their claim of exemption or exclusion from registration. The annual affirmation is completed through the NFA’s Exemption System and must be made within 60 days of the end of the calendar year. For 2016, fund managers must complete the affirmation process by March 2. Failure to submit an affirmation by this deadline will result in a withdrawal of the exemption from registration.
Registered investment advisers registered who manage private funds and have at least $150 million in regulatory assets under management falling under the “private fund assets” definition are required to file Form PF through the IARD website within 120 of their fiscal year end. For 2016, private fund managers must complete Form PF prior to April 29, 2016. The information contained in Form PF is primarily used to aid in determining risk within the U.S financial system by the Financial Suitability Oversight Council (“FSOC”). Form PF is filed with the SEC via the Private Fund Reporting Depository (“PFRD”) electronic filing system and is not publicly available.
SEC3 can assist your firm in completing these required filings. For further information, please contact your SEC3 representative or contact us at firstname.lastname@example.org.