Archive:February 2024

1
Congress Criticizes VC Investments in China, Suggesting Broader Investment Restrictions Into China
2
Modernized SBIC Program Hits Milestones
3
Australian Business Registry Services Engages with Directors to Apply for Identification Numbers
4
CFTC Proposes Rule to Address Margin Adequacy and Treatment of Separate Accounts by FCMs
5
Not Done Yet: Australia’s Odyssey Into Regulating Artificial Intelligence (AI)
6
FinCEN Proposes AML Requirements on Registered Investment Advisers (including Exempt Reporting Advisers)
7
Australia: Internal Dispute Resolution (IDR) Reporting Due for Financial Services Licensees
8
Fifth Circuit Court of Appeals Hears Oral Arguments in Industry Groups’ Ongoing Petition to Vacate Private Fund Adviser Rules
9
Europe: Agreement on EU ESG Ratings Regulation
10
SEC Expands Definition of Dealers and Government Securities Dealers

Congress Criticizes VC Investments in China, Suggesting Broader Investment Restrictions Into China

By: Jamie L. Jackson and Yuki Sako

The House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party (Select Committee) issued a bipartisan report criticizing investments made by US venture capital firms (VC), as well as US institutional investors as limited partners (LP), into companies in the People’s Republic of China (PRC) in artificial intelligence (AI) and semiconductor sectors (Report). In line with the Select Committee’s previously released report strategizing how to reset the United States’ economic and technological competition with China, the Report signals Congress’ intensified interest in curtailing the unintentional flow of US investments into China’s military industrial complex.   

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Modernized SBIC Program Hits Milestones

By: TJ Bright, Matt F. Phillips, and Tristen C. Rodgers

For the past two decades, the Small Business Investment Company (SBIC) program (the SBIC Program) has primarily offered one type of government-guaranteed loan to private investment funds holding an SBIC license (SBICs): the “Standard SBIC Debenture.” This loan requires private funds to pay the U.S. Small Business Administration (SBA) interest semi-annually, which closely aligns with the cash flow patterns of mezzanine debt and private credit funds. As a result, the ecosystem of debt-focused SBICs has thrived. However, the SBIC Program has been less attractive to funds with equity-oriented strategies.

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Australian Business Registry Services Engages with Directors to Apply for Identification Numbers

By: Jim Bulling and Laura McFadzean

The Australian Securities and Investments Commission (ASIC) through the Australian Business Registry Services (ABRS) is actively engaging with directors who have not yet obtained a director identification number (DIN).

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CFTC Proposes Rule to Address Margin Adequacy and Treatment of Separate Accounts by FCMs

By: Matthew Rogers and Benjamin Skillin

On February 20, 2024, the CFTC approved a proposed rule that would apply a margin adequacy requirement to all futures commission merchants (FCMs), with respect to their customers. The new requirement—titled Regulation 1.44—is designed to ensure that an FCM does not permit a customer to withdraw funds from its account if the remaining balance would be insufficient to meet the customer’s initial margin requirements.

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Not Done Yet: Australia’s Odyssey Into Regulating Artificial Intelligence (AI)

By: Daniel Knight and Jack Clark

On 31 January 2024, ASIC Chair Joe Longo outlined ASIC’s position on Australia’s AI regulatory landscape: while current laws offer some regulation, they fall short in effectively addressing the risks associated with AI.

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FinCEN Proposes AML Requirements on Registered Investment Advisers (including Exempt Reporting Advisers)

By: Richard F. Kerr, Jennifer L. Klass, and Annabelle H. North

On 13 February 2024, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking (NPRM) that would impose anti-money laundering (AML) and counter-terrorist financing (CFT) requirements on Securities and Exchange Commission-registered investment advisers (the SEC, and such investment advisers, RIAs) and exempt reporting advisers (ERAs). FinCEN previously made similar rule proposals in both 2003 and 2015, which were never finalized.

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Australia: Internal Dispute Resolution (IDR) Reporting Due for Financial Services Licensees

By: Daniel Knight and Laura McFadzean

All Australian financial services licensees with a retail authorisation, Australian credit licensees and certain unlicensed entities and superannuation trustees (eligible entities) are required to report IDR data to ASIC by 29 February 2024 at 11:59 PM.

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Fifth Circuit Court of Appeals Hears Oral Arguments in Industry Groups’ Ongoing Petition to Vacate Private Fund Adviser Rules

By: TJ Bright, Annabelle H. North, and Bradley D. Bostwick

On 5 February 2024, the US Fifth Circuit Court of Appeals heard oral arguments from the Securities and Exchange Commission (SEC) and industry groups representing private investment fund sponsors, in the industry groups’ ongoing petition to vacate the new private fund adviser rules (PFAR) adopted by the SEC on 23 August 2023.

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Europe: Agreement on EU ESG Ratings Regulation

By: Hilger von Livonius and Philipp Riedl

On 5 February 2024, the EU Council and the EU Parliament agreed on a provisional text for the ESG Ratings Regulation (the Regulation).

Under the Regulation, in-scope EU providers of ESG ratings will require a licence from, and be supervised by, European Securities and Markets Authority (ESMA).

In-scope ESG ratings will provide an opinion on a company’s or a financial instrument’s sustainability profile, by assessing its exposure to sustainability risk and its impact on society and the environment.

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SEC Expands Definition of Dealers and Government Securities Dealers

By: Richard F. Kerr, Eden L. Rohrer, Jessica D. Cohn, and Raymond F. Jensen

On 6 February 2024, the US Securities and Exchange Commission (SEC) adopted two new rules – Rules 3a5-4 and 3a44-2 of the Securities Exchange Act of 1934 (the Act) – that significantly expand the definitions of a “dealer” and “government securities dealer.” The new rules define the phrase “as a part of a regular business” in Sections 3(a)(5) and 3(a)(44) of the Act to determine if a person is engaged in a “regular pattern of buying and selling securities that has the effect of providing liquidity to other market participants.” Such persons would be required to register as “dealers” or “government securities dealers” under Sections 15 and 15C of the Act, respectively.

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