United States

New Conference, More Rulemaking?

May 22 2023

At the Conference On Emerging Trends In Asset Management sponsored by the US Securities and Exchange Commission (SEC) and held 19 May 2023, Chair Gary Gensler, and Director of the SEC’s Division of Investment Management, William Birdthistle, called for greater discourse with industry participants and highlighted the strengths of recent rulemaking activities of the SEC.

Mr. Birdthistle kicked off the conference by referring to funds and investment advisers as “critical agents” in the investment management industry and in advancing the SEC’s mission. He also acknowledged the need for the SEC and its staff to be open to different opinions. He did not, however, indicate how such different views have been—or would be—addressed in the rulemaking process or otherwise.

SEC Charges Two Broker-Dealers with Record Retention Violations

May 16 2023

By: Neil T. Smith, Hayley Trahan-Liptak, and Christopher F. Warner

In November 2022, The Securities and Exchange Commission (SEC) Chair Gary Gensler stated that the SEC was only just getting started in its efforts to ensure firms were properly retaining business-related communication occurring over off-channel mediums. Two settled orders against two prominent broker-dealers released 11 May 2023 emphasize that point.

As with the SEC’s December 2021 and September 2022 settlements with major Wall Street firms, the 11 May 2023 settlements find violations of the record keeping requirements of Exchange Act Rule 17a-4 based on the firms’ failures to retain off-channel business-related communication. In the orders, which closely track the September 2022 orders, the SEC emphasized that the broker-dealers engaged in “pervasive off-channel communication” that occurred at all firm levels. The SEC continued to identify discussions about clients, client meetings, investment strategy, and communication regarding market color, trends, and events as “concerning” the broker-dealers’ respective businesses.

The May 2023 and September 2022 orders diverge with the discussion of cooperation. The SEC emphasizes in the recent orders that it considered the broker-dealers’ self-reporting, immediate remedial action, and cooperation with the SEC’s ensuing investigation when assessing penalties. Ultimately, the SEC ordered penalties of US$15 million and US$7.5 million, a fraction of the US$50 to US$125 million penalty range assessed in most prior similar orders.

It is clear the SEC’s investigatory efforts into record retention are in full swing. In fact, since the Fall of 2022, a myriad of firms have publicly announced that they are under investigation by the SEC in connection with potential record retention issues. It is likely additional formal charges are on the horizon.

United States: SEC Adopts Amendments to Form PF and Significantly Expands Reporting Requirements

May 04 2023

By: Pablo J. Man, Ruth E. Delaney, Matthew F. Phillips, and Gustavo De La Cruz Reynozo

On May 3, 2023, the Securities and Exchange Commission (“SEC”) approved amendments to Form PF, the confidential reporting form required to be filed by private fund advisers. The amendments expand the scope of Form PF’s disclosure obligations to require large hedge fund advisers to file new “current” reports and all private equity fund advisers to file new quarterly reports upon the occurrence of certain events. Large private equity advisers will also be required to provide new information in their annual updates.

The amended Form PF will require:

Current Reporting Requirements for Large Hedge Fund Advisers. In addition to their existing quarterly filing obligations, advisers with at least $1.5 billion in assets under management (“AUM”) attributable to hedge funds will be newly required to report certain events—such as extraordinary investment losses, significant margin and default events, and large withdrawal and redemption requests—as soon as practicable, but no later than 72 hours, after they occur.

Quarterly Reporting for Private Equity Fund Advisers. Within 60 days of the end of each fiscal quarter, each private equity fund adviser will be required to report any completion of an advisor-led secondary transaction or investor elections to remove a fund’s general partner or to terminate a fund’s investment period during the preceding quarter.

Additional Reporting for Large Private Equity Fund Advisers. Advisers with $2 billion or more of private equity fund AUM will be required to disclose a range of new information in their annual updates to Form PF, including: (a) information about the implementation of general partner and limited partner clawbacks; (b) details about a fund’s investment strategies; (c) additional information about fund-level borrowings; (d) more granular information about the nature of reported events of default; (e) additional identifying information about institutions providing bridge financing; and (f) information about a fund’s greatest country exposures.

The new “current” reporting and quarterly event reporting requirements take effect six months following publication of the final rule in the Federal Register. The other amendments take effect one year following publication of the final rule in the Federal Register.

UNITED STATES: Goodbye M&A Brokers No Action Letter, Hello Federal Exemption

Mar 30 2023

By Eden L. Rohrer and Jessica D. Cohn

On 29 March 2023, the federal exemption from securities broker registration for qualifying mergers and acquisitions brokers (M&A brokers) became effective. That exemption was signed into law on 29 December 2022 as a policy rider to the Consolidated Appropriations Act of 2023 (H.R. 2617) (the M&A Brokers Exemption) and was described in our previous blog post and client alert.

The M&A Brokers Exemption can now be found in subsection (13) “Registration Exemption for Merger and Acquisition Brokers” of Section 15(b) of the Securities Exchange Act of 1934.

United States: SEC Proposes Amendments to Broaden the Scope of Regulation S-P in Response to Digital Communications and Risks to Customer Personal Information

Mar 17 2023

By: Trayne S. Wheeler, Brian Doyle-Wenger, and Gustavo De La Cruz Reynozo,

On March 15, 2023, the U.S. Securities and Exchange Commission (“SEC”) proposed amendments to Regulation S-P. The proposed amendments would require covered institutions to enhance protections of consumer information by requiring the adoption of written policies and procedures for an incident response program. The amendments would expand the scope of Regulation S-P by requiring covered institutions to provide timely notifications to individuals affected by data breaches and by extending the definition of the information covered by the regulation.

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