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The BD/IA Regulator

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

Toronto Seminar Series – April 4

Posted in Events

Tuesday, April 4, 2017
10:30 a.m. – 1:30 p.m.

The Fairmont Royal York
100 Front Street West
Toronto, ON M5J 1E3

We invite you to join us for a series of presentations addressing the following:

  • The U.S. Federal Reserve Board’s final long-term debt, TLAC and clean holding company rules and changes impacting capital-raising by covered bank holding companies, including required changes to indentures, the use of finance subsidiaries, and the IRS’s guidance on internal TLAC for foreign bank holding companies subject to the rules;
  • Should you really expect a roll-back of the Dodd-Frank Act?  Anticipated regulatory relief for banks as reflected in the CHOICE Act (2.0);
  • Regulatory accountability, the “two-fer” order and other initiatives;
  • What to expect as far as US tax reform; and
  • Rule 144A offerings and recent SEC Staff Guidance.


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

Is it Time to Streamline Financial Regulation?

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

A March 13, 2017 presidential order requiring a comprehensive plan to reorganize the executive branch could be the first step toward streamlining the financial regulatory structure.

The Executive Order requires the Director of the Office of Management and Budget to propose a plan within a year to reorganize government functions and eliminate unnecessary agencies, agency components, and programs. The stated goal is to “improve the efficiency, effectiveness and accountability” federal agencies.  It appears that the plan is to address the Fed, the SEC, the CFTC, and other independent agencies even though those agencies are not typically subject to Executive Orders.

Read our client alert.

Complimentary Teleconference: Current Practices and Issues for Foreign Broker-Dealers Under Rule 15a-6 in 2017

Posted in Broker-Dealer Regulation, Events

In an increasingly globalized securities market, Rule 15a-6 remains the primary avenue for foreign broker-dealers to conduct business in the United States. This presentation will address the requirements for compliance by foreign broker-dealers and their U.S. affiliates.

Tuesday, March 28, 2017, 1:00 p.m. – 2:00 p.m. EDT
To register, e-mail CMG-events@mofo.com.

Topics Will Include:

  • Summary of Rule 15a-6 requirements;
  • Risks and responsibilities of acting as a chaperoning broker;
  • Practical issues in intermediating Rule 144A and other transactions;
  • Benefits of an intermediary agreement; and
  • Dealing with retail customers under Rule 15a-6.


  • Hillel Cohn
    Senior Of Counsel, Morrison & Foerster LLP
  • Francois Cooke
    Managing Director, ACA Compliance Group

SEC Revisits Industry Guide 3 Disclosure Requirements

Posted in Broker-Dealer Regulation, SEC Enforcement

At an open meeting today, the SEC voted to issue a request for comment (RFC) on the disclosures required by Industry Guide 3, which applies to the description of business portions of bank holding company registration statements.

As the SEC noted, the financial industry has changed since Guide 3 was last updated in the 1970s.  The RFC will solicit comments with a view toward modernizing Guide 3’s requirements for today’s banking industry.  Quantitative and qualitative disclosures, and the current tabular disclosure format, will all be open to comment.

The RFC will address the disclosures required by Guide 3 and other disclosures to which bank holding companies are subject.  Some of the areas to be covered by the RFC are:

  • Is there overlap or duplication that can be eliminated?
  • Should other disclosure requirements applicable to financial companies, such as those required by Regulation S-K, be incorporated into Guide 3?
  • How should Guide 3 capture activities other than lending and deposit taking?
  • Should Guide 3 require disclosure of non-interest income?
  • Should the scope of Guide 3 be expanded to include public financial companies other than bank holding companies?
  • What other disclosures should be required to help investors make informed investment decisions?

SEC Staff Discusses Investment Company Reporting Modernization and Asset Management Industry Trends at SEC Speaks in 2017 Conference

Posted in Fund Regulation, Investment Adviser Regulation

On February 24, 2017, the U.S. Securities and Exchange Commission’s Division of Investment Management (the “Staff”) participated in a panel at the Practising Law Institute’s SEC Speaks in 2017 conference.  As part of the discussion, the Staff provided an update on the current initiatives relating to investment companies, as well as the Staff’s priorities for 2017, some of which are briefly summarized below.

Investment Company Reporting Modernization

The Staff discussed recently adopted rules, forms and amendments that, among other things, enhance transparency and modernize registration for registered funds.  The Staff stressed the importance of the new structured data format, and how it will help the Staff efficiently review and monitor investment companies.

  1. New Form N-PORT: New Form N-PORT requires “certain registered investment companies to report information about their monthly portfolio holdings to the SEC in a structure data format.”  Form N-PORT provides the Staff with monthly insight into investment companies’ holdings; however, public filings will remain quarterly in line with the requirements under Form N-Q.
  2. New Form N-CEN: New Form N-CEN requires “registered investment companies, other than face-amount certificate companies, to annually report census-type information to the SEC in a structured data format.”  Form N-CEN replaces N-SAR, which was required to be filed twice per year, because the form contains information that doesn’t change significantly from year to year.  Further, Form N-CEN eliminates data items that are no longer relevant, while also encompassing new data items that have appeared in recent years but were not previously covered.
  3. Amended Regulation S-X: The Staff adopted amendments to Regulation S-X that, among other things, requires standardized and “enhanced disclosure about derivatives in investment company financial statements.”

Asset Management Industry and Disclosure Trends

The Staff explained that the asset management industry was in a state of change throughout 2016.  The Staff saw a continuation of trends from previous years, including flows into fixed income funds, the evolution of robo-advisers, more complex strategies and new approaches to asset management.  The Staff noted that it reviewed more than 7,000 new product filings by funds in 2016, and highlighted the popularity of certain new products (e.g., smart-beta exchange-traded funds (“ETFs”)).

Furthermore, the Staff discussed the issue of strategy drift, which occurs when portfolio holdings change over time and leave registration statement disclosures inaccurate.  The Staff discussed the recently passed final rule that requires open-end mutual funds to have a liquidity risk management program, and highlighted that there are additional requirements for certain ETFs.  The Staff explained that the need for this rule was due in part to the fact that open-end funds have an obligation to provide redemption on demand.  Additionally, the Staff discussed the adopted amendments to Rule 22c-1 under the Investment Company Act of 1940, which permit swing pricing by registered open-ended management investment companies.  The Staff noted that the rule has a two-year delayed effective date, which will provide the industry with time to consider how swing pricing will be implemented.

The Staff responded to a question from former SEC Commissioner Steve Wallman, who asked about target-date mutual fund risk disclosure.  The Staff explained that, while such risk disclosures have been a topic of debate for several decades, it has proven to be very difficult to draft a measure, due to the differing views held within the industry.  Finally, the Staff discussed the trend of investors moving away prime money market funds into government-only money market funds, and noted that the Staff is closely monitoring this shift.

SEC Staff Discusses Current Initiatives Related to Investment Advisers at SEC Speaks in 2017 Conference

Posted in Investment Adviser Regulation

On February 24, 2017, the U.S. Securities and Exchange Commission’s Division of Investment Management (the “Staff”) participated in a panel at the Practising Law Institute’s SEC Speaks in 2017 conference.  As part of the discussion, the Staff provided an update on the current initiatives relating to investment advisers, as well as the Staff’s priorities for 2017, some of which are briefly summarized below.

Separately Managed Accounts

The Staff discussed the recently adopted amendments to Form ADV, which, among other things, enhances investment managers’ disclosure obligations regarding separately managed accounts.  Although the Staff does not define “separately managed accounts” in the recently adopted amendments, it considers, for the purposes of reporting on Form ADV, “advisory accounts other than those that are pool investment vehicles (i.e., registered investment companies, business development companies and pooled investment vehicles that are not registered (including, but not limited to, private funds)) to be separately managed accounts.”[i]  The Staff believes that the additional disclosures will enhance its “ability to effectively carry out [the Staff’s] risk-based examination program and other risk assessment and monitoring activities.”[ii]

Umbrella Registration

Additionally, amended Form ADV codifies umbrella registration for registered private fund advisers who operate a single advisory business through multiple legal entities (often for tax or business reasons).  The Staff explained that this discretionary rule will streamline the registration and reporting process, and provide additional and more consistent data about registered private fund advisers.


The Staff discussed the growing popularity of automated advisers, or “robo-advisers,” as well as the Staff’s work to monitor and engage with robo-advisers to ensure their compliance with the Investment Advisers Act of 1940, as amended (the “Advisers Act”).  Created by tech-minded individuals, robo-advisers “use innovative technologies to provide discretionary asset management services to their clients through online algorithmic-based programs.”[iii]  The Staff’s February 2017 Investor Bulletin and their Guidance Update stress that robo-advisers, as registered investment advisers, have fiduciary obligations to their clients and must comply with their legal obligations under the Advisers Act.

[i] Form ADV and Investment Advisers Act Rules, Release No. IA-4509; File No. S7-09-15.

[ii] Form ADV and Investment Advisers Act Rules, Release No. IA-4509; File No. S7-09-15.

[iii] Robo-advisers, IM Guidance Update No. 2017-02, February 2017.

Personal Advice for Robo-Advisers: Beef Up Disclosure and Compliance

Posted in Investment Adviser Regulation

Robo-advisers, those automated bots that offer up personalized investment advice with little, if any, human contact, face increased regulatory scrutiny as they grow more popular. After monitoring and engaging them for several months, the SEC’s Division of Investment Management lent a personal touch in guidance published in February 2017, urging robo-advisers to improve risk disclosures and compliance programs.

Recognizing that the appeal of robo-advisers has expanded beyond millennials to all age groups and classes of investors, the Division addressed the legal and practical challenges these automated advisers face as they apply new technology to deliver fiduciary services traditionally delivered face-to-face.

Read our client alert.