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The BD/IA Regulator

Providing securities regulatory, enforcement and litigation trends for broker-dealers, investment advisers and investment funds

IAWatch Webinar – CCO Liability: What Risks Remain and What You Can Do to Minimize Them

Posted in Events, SEC Enforcement

Tuesday, July 25, 2017
2:00 p.m. – 3:00 p.m. EDT

Some signs from the SEC suggest compliance officers now have less to worry about in terms of being named in an enforcement action than they have had for years. But others warn the threat of CCOs being named in enforcement actions hasn’t disappeared. Where do things stand, and what does it all mean for you?

Of Counsel Kelley Howes will participate in this IAWatch webinar which will examine key SEC cases targeting CCOs and take the current temperature regarding your risks. Topics will include:

  • Key takeaways for CCOs from two prominent SEC enforcement cases;
  • An assessment of the current threat environment and whether it’s changing;
  • Insights into what the SEC expects of compliance officers;
  • Do’s and don’ts for CCOs – protect yourself by knowing the legal boundaries; and
  • Timeless tips that can mitigate your risks.

For more information, or to register, please click here.

2017 Independent Counsel Roundtable

Posted in Events, Fund Independent Directors, Fund Regulation

Monday, July 24, 2017

Investment Company Institute
1401 H St. NW
David Silver Conference Room
Suite 1200
Washington, DC 20005

IDC and ICI will host the annual Independent Counsel Roundtable, an informal discussion on the issues most important to the independent director community. The following topics will be on the agenda—litigation, governance, data security, business trends, valuation and liquidity, ETF boards, and the SEC.

Of Counsel Kelley Howes will speak on a panel entitled “ETF Boards.” Topics will include:

  • Create a new board for ETFs?;
  • Issues when one board oversees ETFs and other funds;
  • Unique issues for ETF boards; and
  • Liquidity risk management rule.

For more information, please click here.

FINRA Publishes “Frequently Asked Questions” on New Pricing Disclosure Rules for Securities Confirmations

Posted in Broker-Dealer Regulation, FINRA Enforcement

On July 12, 2017, FINRA issued guidance on its recent amendments to Rule 2232. The new requirements, which are scheduled to take effect on May 14, 2018, apply to transactions with retail (and not institutional, as defined in Rule 4512(c)) customers in corporate and agency debt securities. Beginning on the effective date, FINRA will require confirmation disclosure of additional transaction-related information, including mark-ups and mark-downs, time of execution, and a hyperlink to a webpage containing information about the securities being traded. The goal of these new rules is to help retail customers better understand and compare the transaction costs for these transactions.

Specifically, the amended rule provides that, if a member firm executes an offsetting principal trade in a particular security, the firm must disclose the amount of mark-up and mark-down from the prevailing market price for trades with retail customers on the same trading day in the same corporate or agency debt securities. This requirement applies only where the firm’s offsetting principal trade(s) equal or exceed the size of its trade with the retail customer. Additionally, for all retail customer transactions in corporate and agency securities, Rule 2232 will require disclosure of a reference (and hyperlink when confirmation is electronic) to TRACE (FINRA’s Trade Reporting and Compliance Engine) containing the publicly available trading data for the relevant securities. Finally, the execution time, expressed to the second, must be disclosed for all corporate and agency security transactions with retail customers.

In order to help member firms understand these new disclosure requirements, FINRA published answers to Frequently Asked Questions (“FAQ”) about the forthcoming changes.¹ The publication covers a number of different subject areas concerning the new rules, including:

  • the circumstances under which the new requirements are triggered;
  • which types of securities and transactions are subject to the new requirements;
  • the format and content of the disclosures required under the new rules; and
  • the methods to determine the relevant pricing information.

FINRA indicated that it plans to update the FAQ periodically. FINRA is also accepting suggestions for additional topics and questions to be included in the FAQ in the future.

The FAQ can be accessed on FINRA’s website here.

We previously described the rule changes in more detail in the following MoFo publications here and here.

[1] The Municipal Securities Rulemaking Board (the “MSRB”) issued a set of  its own substantially similar FAQs, which may be found here.

DOL Issues Request for Information Regarding Fiduciary Rule

Posted in Broker-Dealer Regulation, Investment Adviser Regulation

On June 29, 2017, the Department of Labor (“DOL”) issued a Request for Information (“RFI”) in connection with its examination of the Final Fiduciary Rule, which was published on April 8, 2016, and became applicable on June 9, 2017.  The Best Interest Contract (“BIC”) Exemption and Principal Transaction Exemption also became applicable on June 9, 2017; however, most of the compliance requirements for such exemptions were postponed.  Fiduciaries only need comply with the impartial conduct standards in order to utilize these exemptions during a transition period currently set to expire on January 1, 2018.

The RFI was issued in response to President Trump’s February 3, 2017, memorandum directing the DOL to prepare an updated analysis of the likely impact of the Fiduciary Rule on access to retirement information and financial advice.

The RFI was released in the same week that Secretary Acosta of the DOL and Chairman Clayton of the SEC pledged to work together to address the Fiduciary Rule.

The RFI poses two sets of questions.  The first set of questions asks whether an extension of the applicability date beyond January 1, 2018, for full implementation of the BIC and Principal Transaction Exemptions would reduce burdens on financial service providers and benefit retirement investors by allowing a more efficient implementation or whether such a delay would carry any risk.

The DOL has asked that comments to this set of questions be submitted on or before the date that is 15 days after the date of publication of the Request in the Federal Register.

The second set of questions is broader and focuses on the substantive issues raised in the Presidential memorandum.  These questions include the following:

(a)     What actions have already been implemented by the regulated community in order to comply with the Fiduciary Rule and related exemptions, and are there are any market innovations the DOL should consider?

(b)     Whether the Fiduciary Rule and related exemptions appropriately balance the interests of consumers while protecting them from conflicts of interest, and effectively allow a wide range of products to meet the needs of investors?

(c)      To what extent the costs of the exemption conditions exceed their benefits, and whether there are better approaches?

(d)     What are the likely implications of eliminating or substantially revising the contract and warranty requirements currently included in the BIC and Principal Transaction Exemptions?

(e)      Would mutual fund “clean” shares allow financial institutions to develop policies and procedures that avoid compensation incentives to favor one mutual fund over another? What are the legal and practical impediments financial institutions face in adding clean shares to their product offerings?

(f)      How would advisers be compensated for selling fee-based annuities?

(g)     Are there innovations other than clean shares, T-shares and fee-based annuities that hold similar potential to mitigate conflicts and increase transparency?

(h)     Should the DOL base a streamlined exemption on a model set of policies and procedures?

(i)      Could a streamlined exemption or other changes be developed for advisers who comply with any updated standards of conduct adopted by the Securities and Exchange Commission?

(j)      Whether the Principal Transaction Exemption could be improved to better serve investor interests and provide flexibility?

(k)     How could the BIC Exemption disclosures be simplified?  Should the DOL develop model disclosure provisions?

(l)      Should recommendations to make or increase contributions to a plan or IRA be expressly excluded from the definition of investment advice?

The DOL has requested a response to the second set of questions on or before the date that is 30 days after the date of publication of the Request in the Federal Register.

The U.S. Chamber of Commerce has asked the DOL for an extension of the second set of questions to 60 days following publication of the RFI in the Federal Register.

The broad range of the questions under the RFI, and the likely significant amount of industry and investor comments that will be provided, call into question whether we are truly close to having a final set of rules around which the financial industry can effectively plan.

House Passes Regulatory Reform That Would Loosen Restrictions on BDCs and Other Funds

Posted in Investment Adviser Regulation

On June 8, 2017, the U.S. House of Representatives, by a vote mostly along party lines, approved a bill that would repeal many of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) requirements and significantly reduce the regulatory burden for financial institutions. If enacted in its current form, the Financial CHOICE Act of 2017 (the “CHOICE Act”) would also alter the regulatory landscape for business development companies (“BDCs”), investment companies and investment advisers. Among other things, the CHOICE Act would:

  • Loosen some restrictions on BDCs concerning leverage, preferred stock, proxy procedures and investments;
  • Tighten the burden of proof for plaintiffs suing investment advisers for breach of fiduciary duty;
  • Broaden the exemption from the definition of an “investment company” available to venture capital funds; and
  • Streamline the process for investment companies and investment advisers to obtain exemptive orders.

The CHOICE Act, which passed 233-186, was sent to the Senate for consideration on June 12, 2017. Here is a summary of key provisions of the CHOICE Act that affect BDCs, investment companies and investment advisers.

Read our client alert.

PLI Webinar – Packaged Retail and Insurance-based Investment Products: Final Preparations

Posted in Events

Wednesday, July 26, 2017
12:00 p.m. – 1:00 p.m. EDT

After one false start, the PRIIPs Regulation will finally become effective at the beginning of 2018 and will herald a new approach for pre-contractual disclosure in the form of a Key Information Document (“KID”) in relation to retail packaged investment products.  The Regulation will impact upon many different types of product including transferable securities, derivatives, funds, structured products and insurance-based products.  Although many firms have already undertaken significant work to be ready to comply with the new rules in 2018, significant challenges remain. Not least of these, the “level 3” guidance, to be in the form of Q&As, which is expected to provide important assistance in the preparation of KIDs, has not yet been published.

During the presentation, we will highlight:

  • principal issues in connection with the implementation of the PRIIPs Regulation including its scope;
  • challenges in completing the KID, particularly in relation to complex products; and
  • its impact on secondary sales of relevant products.


PLI will provide CLE credit.

For more information, or to register, please click here.

IFLR Webinar – Regulatory Burden Relief: What to Anticipate

Posted in Broker-Dealer Regulation, Events, Investment Adviser Regulation

Tuesday, July 25, 2017
10:00 a.m. – 11:30 a.m. EDT

Join us as presenters share their views and predictions regarding:

  • the Presidential Orders relating to deregulation;
  • the Treasury Department’s initial report regarding the core principles of financial regulation;
  • the Financial CHOICE Act and its principal provisions;
  • the areas of regulatory reform as to which compromise may be possible; and
  • the likely path forward for regulatory reform and what you should expect in 2017.


  • Oliver Ireland
    Partner, Morrison & Foerster LLP
  • Paul Kupiec
    Resident Scholar, American Enterprise Institute
  • Anna Pinedo
    Partner, Morrison & Foerster LLP

CLE credit is pending for California and New York.

For more information, or to register, please click here.