On March 29, 2021, the U.S. Securities and Exchange Commission (SEC) Division of Examinations (EXAMS) issued a risk alert to remind broker-dealers of their obligations related to anti-money-laundering (AML) rules and regulations as well as to provide the staff’s observations of compliance items related to those obligations. The risk alert also is designed to assist broker-dealers with reviewing and enhancing their AML programs. The staff noted that mutual funds may benefit from the examination observations.
This is the latest EXAMS announcement of its expansion deeper into AML issues. This expansion further demonstrates that broker-dealers need to be prepared to address questions and concerns from both the SEC and the Financial Industry Regulatory Authority (FINRA) in a coordinated and efficient matter even if these overlap.
This Sidley Practice Note highlights certain key disclosure considerations for preparing your annual report on Form 10-K for fiscal year 2020, including recent amendments to U.S. Securities and Exchange Commission (SEC) disclosure rules and other developments that will affect 2020 Form 10-K filings as well as certain significant disclosure trends and current areas of SEC staff focus for disclosures. Appendix A to this Practice Note sets forth a summary checklist of significant Regulation S-K amendments affecting 2020 Form 10-K filings, which are discussed in further detail. As always, we invite you to contact us with any questions on these topics or any other SEC reporting and compliance matters.
Sidley Partners Nathan J. Greene and Colleen Theresa Brown are co-authors of a new chapter of the PLI treatise Investment Adviser Regulation: A Step-by-Step Guide to Compliance and the Law focusing on legal and compliance considerations for use of Big Data. The chapter examines the expanding range of topics facing investment management lawyers and compliance professionals, as well as the attendant legal and operational risks. The chapter includes an introduction to the concepts of data, alternative data, big data and artificial intelligence; examples of an organization’s data users, likely sources of data, and organizational controls for data collection and processing; and a review of the ways different types of data are regulated.
Recent communications from the U.S. Securities and Exchange Commission (SEC) indicate that the SEC is again considering registration of advisers located in the UK. The SEC had delayed approving UK and European Union (EU) investment managers’ applications for registration since the adoption of the EU’s General Data Protection Regulation (GDPR), due to concerns that the GDPR would impede the SEC’s ability to collect data from, and supervise, these UK and EU investment managers.
On September 25, the U.S. Securities and Exchange Commission (SEC)’s Division of Trading and Markets issued its first no-action letter (Letter) to the Financial Industry Regulatory Authority, Inc. (FINRA),1 related to digital asset securities. Based on the Letter, the SEC staff (Staff) would not recommend enforcement action pursuant to SEC Rule 15c3-3 (the Customer Protection Rule) under the U.S. Securities Exchange Act of 1934 (Exchange Act) if a registered broker-dealer operates a noncustodial alternative trading system (ATS) that trades digital asset securities issued and/or transferred using blockchain technology, subject to certain conditions. The Letter elaborates on the July 28, 2019, joint statement (Joint Statement) issued by the staffs of the SEC and FINRA,2 which discusses a broker-dealer’s ability to comply with the Customer Protection Rule with respect to digital asset securities and outlines potential noncustodial broker-dealer models for digital assets, including operating an ATS3 that only matches buyers and sellers of digital asset securities but does not custody such securities for the account of customers.
*This article was adapted from “Global Overview,” appearing in The Privacy, Data Protection and Cybersecurity Law Review (7th Ed. 2020)(Editor Alan Charles Raul), published by Law Business Research Ltd., and first published by the International Association of Privacy Professionals Privacy Perspectives series on September 28, 2020.
Privacy, like everything else in 2020, was dominated by the COVID-19 pandemic. Employers and governments have been required to consider privacy in adjusting workplace practices to account for who has a fever and other symptoms, who has traveled where, who has come into contact with whom, and what community members have tested positive or been exposed.
As a result of all this need for tracking and tracing, governments and citizens alike have recognized the inevitable trade-offs between exclusive focus on privacy versus exclusive focus on public health and safety.
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.
The U.S. Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE) and the Financial Industry Regulatory Authority (FINRA) recently published their examination priorities (together, the Examination Priorities) for the 2020 calendar year.1 In general, the 2020 Examination Priorities continue recurring themes from recent prior years.
OCIE’s 2020 Examination Priorities for broker-dealers and investment advisers include the protection of retail investors (including compliance with new standard of care requirements and interpretations), cyber and information security risks, anti-money laundering compliance, firms engaging in the digital asset space and the provision of electronic investment advice.
FINRA’s 2020 Examination Priorities for member firms include those generally identified by OCIE for registered broker-dealers, as well as cash management and bank sweep programs, initial public offerings, liquidity management, trading authorizations and order routing and vendor display rule requirements, among others.
This Sidley Update summarizes selected aspects of the Examination Priorities that may be of particular interest to broker-dealers and investment advisers. As always, firms should use the 2020 Examination Priorities to review their compliance and supervisory procedures carefully and make any necessary revisions. Firms also should be prepared to explain their compliance and supervisory policies in these areas in their upcoming SEC and/or FINRA examinations, as applicable, and provide documentation of relevant reviews.
On February 6, 2020, U.S. Securities and Exchange Commission (SEC or Commission) Commissioner Hester M. Peirce (Commissioner Peirce) gave a speech describing the need for more clarity on application of the securities laws to the offer and sale of blockchain tokens or digital assets. As part of the speech, she proposed a safe harbor (Proposal or Safe Harbor) exempting certain tokens from the registration requirements of the Securities Act of 1933 (Securities Act) and Securities Exchange Act of 1934 (Exchange Act), including an exemption for persons engaging in certain transactions with respect to such tokens from the definitions of “exchange,” “broker” and “dealer” under the Exchange Act. The Proposal is of significance to any existing or future blockchain development team considering the distribution of tokens, as well as any digital asset exchange or over-the-counter desk that facilitates transactions in digital assets, blockchain tokens or virtual currencies.
The U.S. Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) released a report on Cybersecurity and Resiliency Observations based on practices seen in prior exams. OCIE published the overview of practices to help market participants when considering “how to enhance cybersecurity preparedness and operational resiliency,” while acknowledging that there is not a “one-size fits all” approach. The report links cybersecurity to resiliency and business continuity planning, explicitly merging two concepts on which the OCIE has previously focused into a single topic.