Recent changes to Chinese law have broad implications on cross-border data transfer in the course of investigations conducted by non-Chinese regulators. Clients work closely with counsel to navigate potential legal landmines in any defense of an investigation involving data from China.
Just over six months ago, on March 24, 2020, the People’s Republic of China’s (PRC) revised Securities Law (revised on December 28, 2019) (中华⼈民共和国证券法（2019年修订) went into effect. While the revised Securities Law affects many aspects of China’s securities law framework (including the registration of new securities for initial public offerings, disclosure requirements, and investor protection rules), a new “blocking” provision is particularly notable. Specifically, Article 177 of the revised Securities Law prohibits non-Chinese securities regulators from conducting investigations within China and prevents Chinese individuals and entities from providing information to such regulators without first receiving approval from the China Securities Regulatory Commission and/or other competent departments under the State Council.
Insider trading and the potential misuse of material nonpublic information (MNPI) have long been areas of intense focus of the U.S. Securities and Exchange Commission’s (the SEC) examination and enforcement programs. Recent SEC actions reflect a trend toward increased scrutiny of the potential for investment advisers to receive — and possibly to misuse — MNPI as a result of frequent interactions with the issuers in their investment portfolios, even where there is no evidence of misuse. Even in instances where the SEC does not allege that insider trading actually occurred, these actions reflect that investment advisers may face challenging regulatory examinations, enforcement actions and civil money penalties if the SEC alleges that an investment adviser’s policies and procedures were not adequately and effectively designed, implemented and enforced to address the potential for such misconduct. Accordingly, we suggest best practices with respect to the design and implementation of policies and procedures relating to the treatment of MNPI.
On October 16, 2018, the U.S. Securities and Exchange Commission (SEC) took the unusual step of issuing a Report of Investigation cautioning public companies that they should consider cyber threats and related human vulnerabilities when designing and implementing their internal accounting controls. The report is an outgrowth of an investigation conducted by the SEC’s Enforcement Division into whether certain public companies that were victims of cyber fraud complied with the federal securities laws requiring public companies to implement and maintain internal accounting controls. The controls provided by these provisions must be sufficient to provide reasonable assurances that transactions occur (e.g., purchasing equipment), and access to assets is permitted (e.g., checking accounts, warehouses), only in accordance with management’s authorization.
On February 7, 2018, the Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and Exchange Commission (the Commission) released its annual National Exam Program Examination Priorities (Exam Priorities).1 As has been widely reported, the Exam Priorities’ general focus areas include:
- retail investors
- compliance and risks in critical market infrastructure
- oversight of the Financial Industry Regulatory Authority (FINRA) and Municipal Securities Rulemaking Board (MSRB)
- anti-money laundering (AML) programs
The majority of these Exam Priorities are not surprising because they reflect the Commission’s continued focus on retail investors, conflicts of interest, fee disclosure, cybersecurity, cryptocurrency and AML programs.2 The Exam Priorities can serve as a roadmap for firms to assess their policies, procedures and compliance programs, and to prepare for OCIE exams. This post outlines and elaborates on each of the Exam Priorities. (more…)