As the developments affecting the investment management industry continue to unfold, we have once again prepared our semiannual compendium of relevant Sidley Updates for our investment fund and adviser clients and friends.
The compendium includes a summary of each Sidley Update year-to-date, in reverse chronological order, along with a link to its full text. We have included all of the updates, making the compendium repetitive in instances where we revisited a topic to report on emerging information and breaking news in the industry.
If you would like additional information on any of these topics, please contact the Sidley lawyer with whom you usually work.
December 19, 2019
CFTC and NFA Update Rules Affecting Investment Managers
On November 25, the Commodity Futures Trading Commission (CFTC) finalized a number of changes to its regulations applicable to commodity pool operators (CPOs) and commodity trading advisors (CTAs). The rule changes follow an initial rulemaking proposal that the CFTC issued in October 2018 (the Proposal). The CFTC amendments implement most of the changes described in the Proposal, but with several important differences. The primary result of these amendments is to codify and simplify regulatory positions that the CFTC staff had previously taken via no-action letters and guidance. The amendments provide CTAs and CPOs with increased regulatory certainty, simplify registration and reporting requirements and harmonize CFTC regulations for CTAs and CPOs with parallel regulations of the Securities and Exchange Commission (SEC).
Reversing a lower court decision, the First Circuit recently held that two private equity funds did not create an implied partnership-in-fact constituting a controlled group, and therefore, the funds could not be held liable for their bankrupt portfolio company’s multimillion-dollar multiemployer pension plan withdrawal liability. In reaching this decision, the court acknowledged a tension between, on the one hand, maximizing recovery under Employee Retirement Income Security Act (ERISA) controlled group liability principles and, on the other, construing the reach of the Multiemployer Pension Plan Amendment Act broadly in a way that was not clearly consistent with statutory intent and that may discourage private investment in troubled companies with unfunded pension liabilities. Albeit limited in scope, this ruling provides helpful guidance for funds navigating issues of potential exposure for pension obligations at portfolio companies.
December 17, 2019
Court Finds Fund a “Beneficial Owner” Subject to Section 16 Despite Delegation to Investment Adviser
A federal district court found a private fund to be a “beneficial owner” subject to Section 16 of the Securities Exchange Act of 1934, even though the fund had delegated voting and investment power to its investment adviser. Private funds have relied on delegation in taking the position that the fund is a not a “beneficial owner” subject to Section 16. This ruling is likely to attract the interest of the Section 16(b) plaintiff’s bar, which reviews SEC filings for potential theories of private litigation.
December 10, 2019
Fund Managers Targeted in Sophisticated Cyberattacks
In the Global Risks Report 2018, the World Economic Forum anticipated that cybercrime would cost businesses US$8 trillion over the next five years. In this year’s report, “technological vulnerabilities” are cited as among the top five global risks, alongside key environmental and societal risks, such as “extreme weather events” and “weapons of mass destruction.”
December 3, 2019
Securities and Futures Commission Licensing Requirements for Private Equity and Venture Capital Firms in Hong Kong
Hong Kong is consistently ranked among the world’s leaders in terms of asset management, stock market capitalization, initial public offering fundraising and banking. As at the end of 2018, the total capital under management by approximately 520 private equity and venture capital firms operating in Hong Kong reached roughly HK$1.21 trillion (US$154 billion).
November 27, 2019
Hong Kong Regulator Imposes New Conditions to Regulate Outsourcing Arrangements for Cloud Storage
The Securities and Futures Commission of Hong Kong (SFC) issued new guidance to regulate the use of external electronic data storage providers by licensed firms that intend to keep (or have previously kept) records or documents required to be maintained pursuant to the statutory recordkeeping rules and anti-money-laundering regime in an online environment. The new guidance and related FAQs released October 31, while extensive and significant, confirm the Hong Kong regulator’s willingness to provide firms with a degree of flexibility in complying with the statutory recordkeeping obligations and clarify the baseline obligations when entering into outsourcing arrangements for the storage of records in electronic format with third-party vendors.
November 14, 2019
Proposed HSR Rule Changes Would Require Reporting of Some Currently-Exempt Foreign Acquisitions
The U.S. Federal Trade Commission recently published a notice of a proposed rulemaking that would change the definitions of U.S. and foreign persons and issuers in the premerger notification rules under the Hart-Scott-Rodino Act. These amendments may limit the existing exemptions for acquisitions of non-U.S. companies, particularly those made by other non-U.S. companies. Comments on the proposal are due December 30.
November 13, 2019
SEC Proposes Amendments to Advisers Act Advertising and Cash Solicitation Rules
On November 4, the SEC proposed amendments to modernize the rules under the Investment Advisers Act of 1940 (the Advisers Act) addressing investment adviser advertisements and payments to solicitors. The proposed amendments are intended to update these rules to reflect changes in technology, the expectations of investors seeking advisory services and the evolution of industry practices. The rules apply to all investment advisers registered, or required to be registered, with the SEC.
November 12, 2019
SFC Gives Green Light to Regulation of Virtual Asset Trading Platforms in Hong Kong
The SFC has issued a position paper (Position Paper) on the regulation of virtual asset trading platforms (Platforms), confirming that it is willing to license and regulate Platforms on an opt-in basis. The Position Paper includes a detailed framework for the regulation of Platforms (Regulatory Framework). The Position Paper and the Regulatory Framework, released November 6, are the culmination of the SFC’s observations of, and discussions with, Platforms in the 12-month period following release of the SFC’s conceptual framework for the potential regulation and licensing of Platforms in November 2018. Although the requirements for Platforms under the Regulatory Framework are extensive and significant, the long-awaited and much-anticipated confirmation from the SFC that it is willing to license and regulate Platforms is nonetheless expected to boost Hong Kong’s burgeoning virtual assets market and facilitate the development of secondary market liquidity for tokenized securities.
October 16, 2019
U.S. Financial Regulators Clarify Oversight of AML/CFT Obligations in Connection With Digital Asset Activities
On October 11, the leaders of the CFTC, the Financial Crimes Enforcement Network and the SEC issued a joint statement highlighting the application of anti-money-laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA) to persons engaged in activities involving digital assets. On the same day, the SEC filed an emergency action to halt a digital asset distribution, citing BSA/AML concerns.
October 15, 2019
New Proposed Regulations Provide Much-Needed Guidance on U.S. Tax Consequences of Replacing LIBOR and Other Interbank Offered Rates
On July 27, 2017, the UK Financial Conduct Authority, the UK regulator tasked with overseeing the London interbank offered rate (LIBOR), announced that all currency and term variants of LIBOR, including U.S.-dollar LIBOR (USD LIBOR), may be phased out after the end of 2021. This announcement followed the UK’s adoption of the European Union Benchmark Regulation in 2016, which imposed regulatory oversight of certain interbank offered rates (IBORs), including USD LIBOR. The sudden cessation of this reference rate in 2021 has the potential to cause considerable disruption in the marketplace and may adversely affect the normal functioning of a variety of markets in the United States due to the prevalence of USD LIBOR as a reference rate in a broad range of financial instruments.
October 3, 2019
New IRS Rules Fix Only Collateral Damage of CFC “Downward Attribution” Changes
The U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) on October 1 released proposed regulations and a revenue procedure relating to the repeal of Section 958(b)(4) of the Internal Revenue Code by the Tax Cuts and Jobs Act.
September 19, 2019
Treasury Releases New Proposed Regulations for Committee on Foreign Investment in the United States
On September 17, Treasury issued proposed regulations to implement the Foreign Investment Risk Review Modernization Act of 2018, which expands the jurisdiction of the Committee on Foreign Investment in the United States to review foreign investments and mitigate any potential national security concerns.
The proposed regulations were issued in two parts: One part covers investments in real estate, while the other covers other kinds of investments. The interim pilot program rules pertaining to foreign investments in U.S. critical technology companies remain in place for the time being.
September 17, 2019
Ninth Circuit Sides With Web Scrapers
September 16, 2019
California AB 5 Changes the Landscape for Use of Contractors
On September 10, the California Senate passed Assembly Bill 5 (AB 5). The California Assembly passed AB 5 on September 11, and Gov. Gavin Newsom is expected to sign it into law in the coming days. Once signed, AB 5 will take effect January 1, 2020.
Although the media’s focus has been on AB 5’s impact on ride hailing companies, AB 5 will have significant consequences for any hiring entity that uses independent contractors in California, including, for example, those in the entertainment, trucking and, of course, gig economy business.
September 11, 2019
SEC Grants No-Action Relief Relating to Status of Certain Mortgage Servicing Rights and Cash Proceeds under Section 3(c)(5)(C) of the Investment Company Act
On August 15, the Division of Investment Management of the SEC issued to Redwood Trust, Inc., a mortgage finance real estate investment trust, a no-action letter (the Redwood No-Action Letter). The Redwood No-Action Letter may make it easier for certain entities to satisfy the asset composition test required by the SEC staff (the Staff) in its interpretation of Section 3(c)(5)(C) (Section 3(c)(5)(C)) under the Investment Company Act of 1940 in respect of their holdings of certain mortgage servicing rights and cash proceeds. The Staff also continued its trend of granting principles-based relief in the context of Section 3(c)(5)(C) and expanding the assets that satisfy the asset composition test by focusing on their indicia of engaging in a real estate finance business.
August 29, 2019
Substantive Changes to EU Solvency II Remuneration Requirements on the Horizon
On July 25, the European Insurance and Occupational Pensions Authority published a consultation paper, “Draft Opinion on the Supervision of Remuneration Principles in the Insurance and Reinsurance Sector” (Draft Opinion). The Draft Opinion provides guidance on the application of the existing Solvency II remuneration requirements. If finalized in its current form, the Draft Opinion will require insurers and reinsurers subject to Solvency II to review and, in many cases, substantially overhaul their existing remuneration policies.
August 27, 2019
SEC Publishes New Guidance on Investment Advisers’ Proxy Voting Responsibilities and Reliance on Proxy Advisors
Last week, the SEC published (i) guidance to assist investment advisers in fulfilling their proxy voting responsibilities, particularly when relying on proxy advisors such as ISS or Glass Lewis, and (ii) a new interpretation and related guidance regarding the applicability of the federal proxy rules to proxy voting advice furnished by proxy advisers. The new guidance was approved by a 3-2 vote along party lines at an open meeting on August 21.
August 9, 2019
SEC Issues Concept Release on Harmonization of Securities-Offering Exemptions
The Securities Act of 1933 requires that all securities offerings in the U.S. be registered with the SEC unless an exemption is available. The exempt offering framework is complex, having evolved over time through successive legislative developments, Commission rulemaking and guidance, court cases and industry practices. On June 18, the Commission issued a concept release to solicit feedback “on possible ways to simplify, harmonize, and improve the exempt offering framework to promote capital formation and expand investment opportunities while maintaining appropriate investor protections.” Although the concept release does not propose specific rule changes, input provided to the Commission will likely play a significant role in shaping future proposed rulemaking.
July 11, 2019
Digital Asset Securities: Joint SEC and FINRA Statement Aimed at Broker-Dealer Custody
On July 8, the long-awaited statement on custody of digital asset securities was released jointly by the staffs of the SEC Division of Trading and Markets and the Financial Industry Regulatory Authority (FINRA).
July 11, 2019
Proposed PFIC Regulations Released
On July 10, the IRS and Treasury released proposed regulations relating to passive foreign investment companies (PFICs) that will be of keen interest to foreign insurance companies and their investors, insurance-linked securities funds and other participants in transactions involving foreign insurers. The proposed regulations provide guidance relating to changes in the PFIC regime made by the 2017 Tax Cuts and Jobs Act, address the application and interaction of certain “look-through” rules contained in the Internal Revenue Code and introduce new rules relating to the determination of the “active conduct” test.
July 1, 2019
Financial Action Task Force Guidance Regarding Digital Asset Exchanges, ICOs, DApps, Wallets and More
On June 21, the Financial Action Task Force published several documents (Release) that, according to Treasury Secretary Steve Mnuchin, will require virtual asset service providers to implement the same AML/CTF requirements as traditional financial institutions. The Release includes three binding documents and nonbinding guidance.
June 19, 2019
Proposed Regulations Provide Relief from GILTI and Subpart F Income Inclusions from CFCs for Private Equity Funds
On June 14, the IRS and Treasury published proposed regulations (Proposed Regulations) addressing (i) phantom income inclusions under both the subpart F income rules and the global intangible low-taxed income (GILTI) rules by investors who invest in non-U.S. corporations through U.S. partnerships and (ii) a new “high-tax kick-out” for active business income under the GILTI rules. The Proposed Regulations provide immediate welcome relief from certain adverse tax consequences to private equity funds and their sponsors caused by 2017 U.S. tax reform.
June 13, 2019
SEC Adopts Regulation Best Interest and Form CRS; Issues Investment Advisers Act Interpretations
On June 5, the SEC, by a 3-1 vote, adopted two rules and two interpretations related to the standard of conduct requirements for broker-dealers and investment advisers:
1.Regulation Best Interest (Regulation BI), a new rule imposing a “best interest” standard of conduct on broker-dealers making recommendations to retail clients (compliance date: June 30, 2020)
2. Form CRS Relationship Summary and Form ADV Amendments, a new rule requiring both broker-dealers and investment advisers to provide retail clients with information about the nature of their relationship (compliance date: June 30, 2020)
3. Standard of Conduct for Investment Advisers, a new interpretation clarifying an investment adviser’s fiduciary duty to its clients (effective upon publication in the Federal Register, expected June 2019)
4. Broker-Dealer “Solely Incidental” Exclusion, a new interpretation of Section 202(a)(11)(C) of the Advisers Act, which excludes from the definition of “investment adviser” any broker or dealer that provides advisory services when such services are “solely incidental” to the conduct of the broker or dealer’s business and when such incidental advisory services are provided for no special compensation (effective upon publication in the Federal Register, expected June 2019)
June 11, 2019
Taxpayer Friendly Proposed Regulations Clarify FIRPTA Exemption for Non US Pension Plans
On June 6, the IRS and Treasury published proposed regulations (Proposed Regulations) concerning the exemption from the Foreign Investment in Real Property Tax Act (FIRPTA) rules of the Internal Revenue Code of 1986, as amended, set forth in Sections 897 and 1445 for certain qualifying non-U.S. pension plans (each a qualified foreign pension plan). The Proposed Regulations provide taxpayer-friendly clarifications concerning (i) the scope of the exemption, (ii) the key definition of “qualified foreign pension plan,” (iii) certification of status as a qualified foreign pension plan and (v) the application of the withholding tax rules to qualified foreign pension plans. The Proposed Regulations provide welcome certainty regarding this important FIRPTA exemption and should permit significantly greater certainty for non-U.S. pension plans to structure their U.S. real estate investments in reliance on such exemption.
May 29, 2019
SEC Proposes Regulatory Changes for Cross-Border Security-Based Swap Transactions
On May 10, the SEC proposed rule changes and interpretive guidance related to the treatment of security-based swaps (SB swaps) that have certain cross-border characteristics. Most important, the SEC is reconsidering the treatment of SB swaps that are “arranged, negotiated or executed” by U.S.-based personnel of non-U.S. dealers. The SEC had addressed that subject through rulemaking in February 2016.
May 15, 2019
In ERISA “Plan Assets” Case, Court Orders Limited Discovery Relating to Debt Status of RMBS Notes
A federal judge in the Southern District of New York has issued a ruling in a case brought by pension plans alleging violations of ERISA by the servicers in two residential mortgage-backed securitization (RMBS) transactions. The plaintiffs had bought notes that had investment-grade ratings when issued and had an intended ERISA and federal income tax characterization of debt. Certificates issued to other investors in the transaction were the intended equity for such purposes and were subject to ERISA-related ownership and transfer restrictions. However, the plaintiffs’ case, which they brought in 2018, depends in part on a finding that the notes were in fact equity, not debt, for ERISA purposes. A finding of equity status would mean that the assets of the RMBS issuers were “plan assets” subject to ERISA and that the servicers were ERISA fiduciaries with respect to the plaintiffs and any other ERISA investors in each issuer. The case has attracted attention as an exceptional challenge to intended ERISA debt status in a prominent court, and the ruling has likewise attracted attention. However, the ruling breaks no new ground as to the characterization of “debt for tax” securitization notes for ERISA purposes.
May 15, 2019
A New Roadmap: CFTC Releases Its First-Ever Public Enforcement Manual
On May 8, the CFTC Division of Enforcement (DOE or Division) released its first publicly available Enforcement Manual. The manual provides an overview of the Division and sets out the general policies and procedures that guide its staff in detecting, investigating and prosecuting violations of the Commodity Exchange Act and commission regulations. According to its simultaneous press release, in publishing the manual the CFTC intends to “increase transparency, certainty, and consistency, and, more generally, to advance the rule-of-law principles that underpin all DOE and CFTC enforcement actions.”
May 14, 2019
IRS Issues Proposed Regulations Regarding Withholding Tax Obligations on Transfers of Partnership Interests
On Tuesday, May 7, the IRS released proposed regulations under Section 1446(f) of the Internal Revenue Code of 1986, as amended, and certain related sections (the Proposed Regulations). The Proposed Regulations would supersede existing interim guidance provided by Notice 2018-08 and Notice 2018-29.
May 6, 2019
Monetary Authority of Singapore Issues Further Consultation on Variable Capital Companies Regime
On October 1, 2018, the Variable Capital Companies Act was passed and enacted, setting out the overarching features and requirements of the variable capital company (VCC). The VCC is essentially a Singapore-domiciled investment company that can operate as an open-ended or closed-ended fund entity, with the option to be set up as a standalone fund or an umbrella fund with separate subfunds.
On April 30, 2019, the Monetary Authority of Singapore (MAS) issued a consultation paper on the proposed regulations for the VCC regime and other proposed amendments to the existing rules and regulations to facilitate the implementation of the same. The consultation paper covers the operational aspects of the VCC framework, including the incorporation of a VCC, the registration of subfunds and the redomiciliation process to Singapore of foreign corporate entities as VCCs.
Separately, the MAS issued another consultation paper on the proposed notice on AML/CFT for VCCs. The consultation paper and the proposed notice sets out the AML/CFT requirements for VCCs and draws reference from international best practices and the standards set by the Financial Action Task Force.
May 2, 2019
DOJ Publishes New Guidance on Evaluating Corporate Compliance Programs
On April 30, the Criminal Division of the U.S. Department of Justice (DOJ) released a new guidance document titled “The Evaluation of Corporate Compliance Programs,” which updates a prior version of the guidance first issued in February 2017 (previously analyzed here). The new guidance provides additional insights into how DOJ will assess the effectiveness of a company’s overall compliance program in an enforcement action, focusing on the program’s design, implementation and effectiveness.
May 2, 2019
SEC Proposes Offering Reforms for Business Development Companies and Registered Closed-End Funds
The SEC has proposed rule and form amendments intended to improve access to capital and facilitate investor communications by business development companies and registered closed-end investment companies. The proposed rule and form amendments would enable eligible business development companies and closed-end funds to use securities offering rules that are currently available only to certain operating company issuers.
May 2, 2019
D.C. Circuit Tells SEC That a Negligent Omission Can’t Be Willful
A decision this week by the U.S. Court of Appeals for the D.C. Circuit rejected the traditional approach of the SEC that “willful” conduct is a low standard that simply means that a respondent knows what he or she is doing. On April 30, in The Robare Group, LTD. v. SEC, No. 16-1453 (D.C. Cir., Apr. 30, 2019), the court held that an adviser’s negligent failure to disclose conflicts under Section 206(2) of the Advisers Act cannot also support a finding of willfulness under Section 207 of the Advisers Act because “willful” requires an intent to omit the information that constituted the disclosure violation. This result could have a significant effect on the SEC staff’s ability to allege or prove violations as “willful,” which could affect when the commission can impose administrative sanctions in an administrative proceeding (e.g., pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act) or Section 203(e) or (f) of the Advisers Act) as well as limit circumstances where SEC registrants may otherwise be subject to collateral consequences for negligent conduct alone.
April 26, 2019
SEC FinHub’s Digital Asset Framework: A Guide for Issuers and Secondary Trading Markets
On April 3, the SEC’s Strategic Hub for Innovation and Financial Technology (FinHub or Staff) released its much-anticipated guidance, the Framework for “Investment Contract” Analysis of Digital Assets (Framework), regarding its views on factors to consider in applying the Howey test to digital assets. In conjunction with the Framework, the SEC’s Division of Corporation Finance published its first no-action letter in connection with the sale of digital assets, providing relief to TurnKey Jet, Inc., for its proposed token sale.
Chambers Investment Funds 2019 Guide: USA
Sidley has a premier, global practice in structuring and advising investment funds and advisers. The Investment Funds practice group serves virtually every type of investment fund and investment manager as well as many other market participants. The group has approximately 130 corporate, securities and derivatives lawyers dedicated to investment funds, investment management and derivatives work worldwide, with lawyers practicing in New York, Chicago, Boston, Los Angeles, San Francisco, London, Munich, Hong Kong, Singapore, Shanghai and Tokyo.
March 28, 2019
New Swaps Proficiency Requirements for All Swap-Related Associated Persons
On March 25, the NFA published amendments to NFA Bylaw 301 and Compliance Rule 2-24 to require all associated persons of registered swap dealers, major swap participants, futures commission merchants, CPOs, CTAs and introducing brokers who engage in or supervise activities involving swaps to satisfy new swaps proficiency requirements.
March 13, 2019
EMIR REFIT: Impact on Asset Managers
Key changes to the scope of the European Markets Infrastructure Regulation (EMIR) that asset managers should be aware of as a result of EMIR Regulatory Fitness and Performance (REFIT) are
- a broadening of the definition of a “financial counterparty” (FC), such that all non-European Union (EU) funds will be categorized by EU dealers as third-country entity FCs (as opposed to third-country entity nonfinancial counterparties) and
- the introduction of an exemption from the clearing obligation for FCs below a certain threshold
February 15, 2019
2019 Update for Investment Advisers — Important Annual Requirements; 2019 SEC Exam Priorities; Recent SEC Enforcement Initiatives
Investment advisers registered with the SEC are subject to certain annual requirements under the Advisers Act; some of these requirements also either apply to exempt reporting advisers (each, an ERA) or warrant consideration as best practices for ERAs. This Sidley Update alerts investment advisers to certain annual regulatory and compliance obligations, including a number of significant 2019 reporting or filing deadlines.
This Sidley Update also reminds advisers that are registered as CPOs or CTAs with the CFTC and members of the NFA of certain CFTC and NFA reporting requirements.
February 14, 2019
Blockchain Technology: SEC Commissioner Peirce Presents an Opportunity to Rethink Regulation
On February 8, SEC Commissioner Hester Peirce delivered a speech addressing the relationship between technological innovation and regulation, in particular addressing some of the pending regulatory challenges surrounding blockchain and digital assets. The key takeaways from Commissioner Peirce’s speech, titled “Regulation: A View From Inside the Machine,” are these:
- Not all digital assets are securities. The sale of digital assets to raise financing is a securities offering, while digital assets sold for use in a functioning or decentralized blockchain network are not investment contracts that are within the definition of securities.
- Notwithstanding SEC enforcement actions related to digital asset securities, regulatory uncertainty remains as to the treatment of digital assets. Regulatory clarity will need to come from either SEC guidance or legislative action.
- Digital asset trading platforms present novel regulatory considerations for secondary trading and custody.
February 13, 2019
NFA Creates New Internal Controls Requirements for CPO Members
Effective April 1, NFA members that are CPOs will be required to implement internal controls systems designed to (i) protect customer funds, (ii) maintain accurate books and records and (iii) assure compliance with all requirements of NFA and the CFTC. The new internal controls requirements are set forth in Interpretive Notice 9074 (Interpretive Notice), which NFA released on January 31 in a notice to members. These requirements are a component of each NFA member’s broader obligation under NFA Compliance Rule 2-9 to diligently supervise its employees and agents in their commodity futures activities on behalf of the member.
In the Interpretive Notice, NFA acknowledges that the standards for assessing the adequacy of a CPO’s internal control system may vary according to the size and complexity of the member’s operations. NFA also recognizes that certain CPOs may be subject to similar requirements of other regulators, compliance with which may satisfy the CPO’s obligations under the Interpretive Notice. However, NFA sets forth a series of key components that must be incorporated into the CPO’s internal control system.
January 29, 2019
SEC Goes Back to Work, but Slow Response Times Are Expected
SEC employees are returning to work, but response times may take longer than usual. Unless there is an articulated need for expedited treatment, the SEC expects to address matters in the order in which they were received. It is too soon to quantify the anticipated duration of any delays or when the SEC will clear the backlog of requests contributing to delays.
January 23, 2019
U.S. House Introduces Bipartisan Bill to Restrict Rule 10b5-1 Trading Plans
The Democratic and Republican leaders of the House Committee on Financial Services announced last week the introduction of a bipartisan bill to try to ensure that issuers and their insiders cannot indirectly engage in illegal insider trading through adopting or changing their trading plans. On Friday, January 18, Chairwoman Maxine Waters, D-Calif., and Ranking Member Patrick McHenry, R-N.C., introduced HR 624, the Promoting Transparent Standards for Corporate Insiders Act, to require the SEC to explore and possibly implement amendments to SEC Rule 10b5-1 concerning what are commonly called Rule 10b5-1 trading plans.
January 16, 2019
Investment Funds — Year-End Recap of Our 2018 Client Updates
Dear Clients and Friends,
As the developments affecting the investment management industry continue to unfold, we have once again prepared our annual compendium of relevant Sidley Updates for our investment fund clients and friends.
The compendium includes a summary of each 2018 Sidley Update, in reverse chronological order, along with a link to its full text. We have included all of the Updates, making the compendium repetitive in instances where we revisited a topic to report on emerging information and breaking news in the industry.
If you would like additional information on any of these topics, please contact the Sidley lawyer with whom you usually work.
January 9, 2019
SEC Announces Examination Priorities for 2019
On December 20, 2018, the Office of Compliance Inspections and Examinations (OCIE) of the SEC released its report setting forth its list of examination priorities for 2019 (the Exam Priorities). OCIE announces its exam priorities annually to provide insights into the areas it believes present potentially heightened risk to investors or the integrity of the U.S. capital markets. The Exam Priorities can serve as a roadmap to assist advisers in assessing their policies, procedures and compliance programs; testing for and remediating any suspected deficiencies related to the Exam Priorities; and preparing for OCIE exams.
January 3, 2019
First Criminal Charge of U.S. Broker-Dealer for Bank Secrecy Act Violation Highlights Importance of Anti-Money-Laundering Controls
On December 19, 2018, federal prosecutors in the Southern District of New York announced the first-ever criminal charge against a U.S. broker-dealer for a BSA violation. The charge against Central States Capital Markets, LLC (CSCM), which the government agreed to dismiss upon completion of a deferred prosecution agreement, stems from serious gaps in CSCM’s AML compliance program: CSCM failed to follow its own customer due diligence procedures, ignored known red flags when opening accounts and failed to adequately employ its monitoring system to capture and report suspicious transactions.
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