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Adviser Regulatory & Compliance News

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New Update to Form CRS FAQs

July 2, 2020

In early July, the SEC's staff added additional information to the FAQs for Form CRS to clarify that a broker-financial adviser must deliver an additional Form CRS (i) for its broker-dealer if it is not affiliated with its investment adviser; (ii) when converting an advisory account to a brokerage account; and (iii) when offering a new type of service that relates to a customer’s investment options. The additional FAQs provide additional information on wrap programs, prospective customers, and broker-adviser record keeping. Finally, the Staff reminds advisers and brokers of the disclosure focus of Form CRS, noting that it “is designed to serve as disclosure, rather than marketing material....” Please click on the headline to this summary to access the FAQs.

Risk Alert: Observations from Examinations of Investment Advisers Managing Private Funds

June 24, 2020

On June 23, 2020, OCIE issued a Risk Alert which provides an overview of certain compliance issues it has observed in examinations of registered investment advisers that manage private equity funds or hedge funds (collectively, “private fund advisers”). The Risk Alert is intended to assist private fund advisers in reviewing and enhancing their compliance programs, and also to provide investors with information concerning private fund adviser deficiencies. Deficiencies fall into three categories as detailed in the Risk Alert: Conflicts of interest; Fees and expenses; and Codes of Ethics. Each of these areas have proven nettlesome to private fund advisers and been the source of numerous deficiency letters and some enforcement actions. The complete Risk Alert is available by clicking on the headline to this summary.

Is ESG Investing OK under ERISA?

June 24, 2020

That's the question the Dept. of Labor is trying to address in a newly proposed rule. ESG has been a hot investment mandate for many investors including pension funds. Many believe it is appropriate to balance greater social goods and needs with investment needs and performance. The DOL proposal reminds pension fund managers and plan providers that in light of their fiduciary duties it may be illegal under ERISA to sacrifice performance or assume additional risk through ESG investments. As noted in the press release announcing the proposal, "The proposal is designed, in part, to make clear that ERISA plan fiduciaries may not invest in ESG vehicles when they understand an underlying investment strategy of the vehicle is to subordinate return or increase risk for the purpose of non-financial objectives." The press release can be accessed by clicking the headline to this summary. The full proposal is forthcoming.

LIBOR Transition Readiness—OCIE Exam Alert

June 19, 2020

LIBOR was for many years the go-to reference interest index rate or benchmark for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other derivatives. After it was found that various banks conspired to manipulate the LIBOR rate to their advantage, the industry and regulators agreed to transition away from LIBOR. That transition is set to start in 2021 and will be completed after that. The SEC's OCIE has determined that LIBOR transition is a key risk for most financial institutions including advisers and brokers. In a June 18, 2020 Risk Alert they alerted the industry that they will be conducting targeted exams to test for LIBOR readiness. The Alert contains a sample document request that is very helpful to understand the nature of what will be examined and what is entailed to prepare for LIBOR transition. Please click the headline to this summary to access the Risk Alert.

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