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The Private Investment Funds Due Diligence Summit (September 22, 2014)

Name of Event:

The Private Investment Funds Due Diligence Summit

Date: September 22, 2014
Topic: Compliance and the Dangers of a Shifting Landscape
Sponsor:  Financial Research Associates, LLC
Location:  New York
Speaker:  Jeffrey Morton
Category: 2014 Speaking Engagements, Speaking Engagements

 

Reminder: New SEC Rules for Municipal Advisors Become Effective on July 1, 2014 (June 30, 2014)

This is a reminder that SEC Rules 15Ba1-1 through 15Ba1-8 and Rule 15Bc4-1 and Forms MA, MA-I, MA-W, and MA-NR become effective on July 1, 2014, which is the start of the permanent registration regime for municipal advisors. The registration process is staggered based upon the temporary registration number received when municipal advisors initially filed Form MA-T:

Temporary Registration Number Range

Period for Filing

866-00001-00 through 866-00400-00 7/1/2014-7/31/2014
866-00401-00 through 866-00800-00 8/1/2014 – 8/31/2014
866-00801-00 through 866-01200-00 9/1/2014 – 9/30/2014
After 866-01200-00 10/1/2014 – 10/31/2014

Form MA, and a Form MA-I for each natural associated person, must be submitted electronically through EDGAR. Firms that are not already authorized users of EDGAR must obtain authorization to become an EDGAR filer. Upon filing, the SEC will have up to 45 days to declare the registration effective.

In addition, the recordkeeping requirements set forth under Rule 15Ba1-8 will be effective on July 1, 2014, which requires registered municipal advisors to maintain certain records for at least five years, including incoming and outgoing communications relating to municipal advisory activities, policies and procedures, and any documents created that were material to making a recommendation to a municipal entity or obligated person or that memorializes the basis for that recommendation.

ACA’s Free Webcast on July 15

ACA Compliance Group is providing a free webcast on July 15, 2014 at 11:00 AM EDT to discuss SEC registration requirements and proposed MSRB rules for municipal advisors. If you are interested in participating, please click this link.

Contact ACA

For more information on how ACA Compliance Group can assist municipal advisors, please contact:

Dan Campbell
(404) 851-7547
dcampbell@acacompliancegroup.com

Luke Wilson
(312) 505-0307
lwilson@acacompliancegroup.com

Category: Compliance Alerts

 

AIFMD – Comply or Cease Fund Raising in Europe Next Month (June 26, 2014)

How time flies when you’re having fun. A year ago, nearly every EU member state made full use of the Transitional Provisions of the Alternative Investment Fund Managers Directive (“AIFMD”) to push implementation for most private fund advisers back 12 months.

That “pushback” expires in less than a month on July 21. From this date, alternative investment fund managers (“AIFMs”) based outside the EU that wish to continue using the National Private Placement Rules (“NPPR”) to market alternative investment funds (“AIFs”) into Europe will need to be, at minimum, compliant with Article 42 of the AIFMD. They will also need to register their AIFs with the national regulator of each EU member state in which they would like to market.

Here at ACA, we are often asked this question: “In terms of the AIFMD, what should I be doing right now?” The answer is simple: Embrace Article 42.

But Reverse Solicitation Is the Answer, Right?

Maybe, maybe not! The AIFMD does not apply to marketing in which prospective investors originate the first contact. No legal or regulatory precedent exists yet, so what amounts to reverse solicitation and evidence thereof is speculation at best. The position taken will vary across the EU, with many countries taking a very stringent approach to what constitutes an original approach initiated by the investor.

Free Put Option with Every Investment.

Without clarity over what constitutes true reverse solicitation, there is a very real risk of investors being able to rescind their investment in an AIF if they can show subsequently that entry into the fund was not done on the basis of reverse solicitation. Inadvertently providing this free exit option to investors should clearly be of concern and as a consequence, compliance with Article 42 of the AIFMD is, we believe, the safer route.

Article 42.
In the UK, the NPPR Article 42 filing is governed by Article 59 of the UK implementing legislation, the Alternative Investment Fund Managers Regulations 2013 (the “Regulations”).

One component of the UK’s Article 42 marketing notification involves the submitter confirming that the conditions set forth in section 59(2) of the Regulations have been met. The need to comply with Article 59(2)(b), stated below, is arguably the most complex of these requirements:

The AIFM complies with the requirements of Articles 22 to 24 of the directive [AIFMD] in so far as such provisions are relevant to the AIFM and the AIF to be marketed.

The Article 22 to 24 provisions are detailed and extensive. You will find them summarized in this note: Disclosure and Reporting Requirements under AIFMD. Essentially, to determine if these requirements have been met, a firm must conduct a gap analysis of the AIF disclosures necessary to meet the AIFMD’s transparency requirements.

ACA Support
ACA’s London office offers a comprehensive, cost-effective solution for the requirements described above, including a full Article 42 gap analysis and EU country registration service (in conjunction with our network of local counsels) to register funds for European distribution after July 21.

We believe that for many non-EU AIFMs, compliance with the Article 42 regime requires engagement, but is otherwise not unduly burdensome. To discuss how ACA can help you prepare for AIF distribution in the EU under the new AIFMD regime, please contact Kristina Staples in New York or Ron Weekes in London, or your regular ACA compliance consultant.

Category: Compliance Alerts

 

Goldman Sachs Hedge Fund Learning Series: Legal and Regulatory (July 24, 2014)

Name of Event: Goldman Sachs Hedge Fund Learning Series: Legal and Regulatory
Date:  July 24, 2014
Topic: Regulatory Exams: Getting Prepared
Sponsor:  Goldman Sachs
Location:  New York
Speaker:  Jeffrey Morton
Category: 2014 Speaking Engagements, Speaking Engagements

 

GIPS® Compliance Remains Strong Force; Two-Thirds of Investors and Consultants May Exclude Non-Compliant Managers from Searches (June 11, 2014)

ATLANTA, GA – June 11, 2014 – A just-released survey of institutional asset managers, consultants and investors shows that compliance with the Global Investment Performance Standards (GIPS®) remains a powerful force in asset manager selection. According to the survey, conducted by investment analytics firm eVestment and GIPS verification and consulting firm ACA Performance Services:

  • 2 out of 3 consultants/investors exclude managers from searches some or all of the time if they do not claim compliance with the GIPS standards;
  • 74% of asset management firms claim compliance with the GIPS standards;
  • 82% of firms claiming compliance receive a verification;
  • 64% of consultants/investors believe pension funds, foundations, endowments and other asset owners will claim compliance with the GIPS standards when new GIPS guidance is released for these entities; and
  • 76% of managers believe that consultants/investors will require hedge fund managers to comply with the GIPS standards.

Among those claiming compliance with the GIPS standards, marketing to institutional investors was the top reason for doing so at 82%. Recognition of the GIPS standards as an industry best practice came in second, at 80% (participants could choose more than one reason).

Among asset managers not claiming compliance, cost and time were noted as the No. 1 and No. 2 reasons for not doing so, at 43% and 39% respectively. The survey also found that smaller managers comply with the GIPS standards less frequently than larger managers. For instance, only 69% of asset managers with assets under management (AUM) of less than $500 million claimed compliance, while 88% of managers with AUM over $20 billion claimed compliance.

“The trends on compliance have remained relatively consistent for the three surveys we’ve conducted since 2010,” said Justin Guthrie, Partner at ACA Performance Services. To view the 2012 survey, please click here. “An interesting trend is seeing that a majority of investment managers believe hedge fund managers will be required to comply with the GIPS standards as more institutional investors look to fill alternative mandates that meet their investment criteria.”

“As consultants and investors take advantage of online tools more and more to narrow their manager searches, complying with the GIPS standards is one more way managers can make sure they are not being missed in database searches,” said eVestment Co-founder Heath Wilson. “If GIPS compliance can ensure inclusion in more searches, the time and effort in attaining compliance can be well justified.”

To download a full copy of the survey results, please click here.

About eVestment

eVestment provides a flexible suite of easy-to-use, cloud-based solutions to help the institutional investing community identify and capitalize on global investment trends, better select and monitor investment managers and more successfully enable asset managers to market their funds worldwide. With the largest, most comprehensive global database of traditional and alternative strategies, delivered through leading-edge technology and backed by fantastic client service, eVestment helps its clients be more strategic, efficient and informed.

About ACA Performance Services

ACA Performance Services, a division of ACA Compliance Group, offers GIPS verification and related services to investment managers across the globe. ACA Performance Services was formed in 2013 with the combination of ACA Beacon Verification Services and Vincent Performance Services. Globally, ACA Performance Services is the largest team of professionals solely dedicated to GIPS verification and related services.

Category: Compliance Alerts, Press Releases

 

ACA Compliance Group, Global Relay, and the NSCP Invite You to Participate in the 2014 Broker-Dealer Best Practices Survey (June 11, 2014)

ACA Compliance Group, Global Relay, and the NSCP Invite You to Participate in the 2014 Broker-Dealer Best Practices Survey

This year’s Broker-Dealer Best Practices Survey seeks information on trends in compliance resources, risk management, conflicts of interest management, sales practices, complex products, private placements, social media, operations, and other subject areas.

We hope you will take time to participate. The information you contribute will generate valuable feedback for you and your peer firms regarding broker-dealer compliance practices. The survey results will also provide insights that can be put to practical use at your firm.

As in prior years, this survey will be conducted “blind” to encourage candid answers – that is, you will not have to identify yourself or your firm. You may also skip questions at your discretion.

IMPORTANT: The survey CLOSES on Friday, July 11, 2014. You should complete your responses by this date to qualify for the complimentary follow-up webcast on August 12, 2014. Note that partially completed responses cannot be saved on the system, so please plan to finish the survey at one sitting. (Answering the questions should take approximately 10 to 15 minutes.) We also request that only one person per firm complete the survey. If you are not your firm’s Chief Compliance Officer, please check with him or her before taking the survey to avoid duplicate responses.

CLICK HERE TO TAKE THE SURVEY

 

ACA, Global Relay, and the National Society of Compliance Professionals will be sponsoring a webcast to discuss the results of the survey. During this event, our panelists, including Morgan Lewis’ Merri Jo Gillette, will discuss the survey results and highlight industry best practices. (Survey participants can register for the webcast via a link included in the questionnaire.)

If you have questions, please contact:

John Russo, Vice President, Global Relay
john.russo@globalrelay.net, (866) 484-6630

Dee Stafford, Director, ACA Compliance Group
dstafford@acacompliancegroup.com, (310) 322-8840

Lisa Crossley, Deputy Executive Director, NSCP
lisa@nscp.org, (860) 672-0843

Thank you in advance for your participation!

Category: Compliance Alerts

 

HFM Texas Operational Leaders Summit (June 5, 2014)

Name of Event: HFM Texas Operational Leaders Summit
Date: June 5, 2014
Topic: Building a compliance culture
Sponsor: HFM
Location: Rosewood Crescent Hotel
Dallas, TX
Speaker: Barry P. Schwartz
Category: 2014 Speaking Engagements

 

A Hard Line on Softing – The FCA Finalizes Updates to the UK’s Dealing Commission Regime (June 2,2014)

 

Last week, the United Kingdom’s Financial Conduct Authority (“FCA”) published its final updates to the UK’s Use of Dealing Commission (“Softing”) regime. The changes, as anticipated, are similar to what the FCA proposed in its consultation paper of November 2013 and form part of the FCA’s wider initiative to ensure that asset managers act in their customers’ best interest. Two central principles underpin these updates: investment managers must control costs as keenly as they pursue investment returns, and expenses borne by customers must deliver real value. These expectations echo those expressed by the U.S. Securities and Exchange Commission (“SEC”) in the reams of guidance clarifying its interpretation of Section 28(e) of the Securities Exchange Act of 1934 (“Section 28(e)”).

While the FCA insists the changes are primarily to clarify existing expectations, it is hard not to conclude that the updated regime, effective June 2, 2014, represents a shift in its approach, as well as another deviation from the current SEC interpretation of Section 28(e), to which US managers with UK operations should pay close attention.

The FCA argues that its existing rules had been stretched to the point of abuse by many investment managers and expects the new rules to put this right. Services eligible for purchase via dealing commissions must now be those for which the regulated firm can show positive evidence of compliance with the FCA’s definition of research or execution services (“eligible services”) and be in the best interest of the firm’s customers.

In this client alert, we focus on two significant aspects of the FCA updates that investment management firms must consider when spending and allocating customer dealing commissions in the UK.

  • Corporate Access – When the FCA published its original proposals, the headline grabber was the prohibition on using dealing commissions to pay for corporate access, defined as “a service of arranging or bringing about contact between an investment manager and issuer or potential issuer.” Not surprisingly, the FCA has proceeded with these proposals as intended. The revisions do not prohibit corporate access, but now firms must pay for it by means other than dealing commissions. For managers with operations in the US and the UK, this represents a challenge since corporate access, whether provided through brokers with whom the firm has a relationship or through expert network matching services, is a product frequently paid for via dealing commissions in the US.Similar to the Financial Services Authority’s (the FCA’s predecessor agency) approach adopted in 2006 with respect to research produced by full-service brokers, the FCA has tried to address the question of corporate access being provided as part of a wider or “bundled” service.1 Specifically, it expects investment managers to disaggregate or “unbundle” any ineligible services (e.g., corporate access) and to use dealing commissions only to pay for eligible services. And further echoing its predecessor, the FCA has declined to set a precise methodology for quantifying eligible and ineligible elements. Nonetheless, it requires investment managers to make a good faith assessment of a service’s cost, which may include using reasonable proxies such as comparable goods and services available elsewhere on the market or estimating their own costs in providing the service in-house. (This is similar to the SEC’s “mixed use” guidance.) Managers should be aware, however, that, based on the FCA’s guidance, the concept of bundled and mixed-use services applies to corporate access and to any other “bundled” services that may not meet the FCA requirements outlined under COBS 11.6. Consequently, this type of eligibility and cost analysis should also be employed with other products and services, including certain services provided by Bloomberg.
  • Substantive Research – The FCA’s definition of substantive research, which is stricter than the SEC’s definition of permissible research, remains largely unchanged. However, the FCA did add two conditions to the existing definition: (1) the investment manager must have reasonable grounds to believe the research will assist it in providing services to customers, and (2) the receipt of the research must not impair the manager’s obligation to act in its customers’ best interest. A rule breach is presumed if these conditions are not satisfied.By way of reminder for US managers, in the UK substantive research must, among other criteria that must be met, “present the investment manager with meaningful conclusions.” The research need not be written and the investment manager does not necessarily need to agree with the conclusions presented. However, the FCA changes explicitly require investment managers to keep clear records of the basis on which they determine whether a particular product or service is eligible for payment using dealing commissions.

Conclusion
It is hard to agree with the FCA that the dealing commission regime updates comprise mere clarifications. These changes will affect how UK investment management firms, and their U.S. counterparts, manage and disclose commission usage arrangements. U.S. managers with UK operations should carefully review their soft dollar and commission-sharing arrangements to identify whether the U.S. and UK operations have a distinct system (i.e., a process) to separate the commissions generated and products purchased between regulatory regimes jurisdictionally based on where commissions are generated and by which clients and where the products are purchased. If they do not have this system, then firms should review their current global approach to make sure only eligible services are being purchased using dealing commissions and that the services genuinely benefit customers. Some practical steps to consider for this review include the following:

  • Assess all products and services purchased using dealing commissions to ensure they meet the FCA requirements under the updated guidance. Also ensure that this assessment is documented in a reviewable form and periodically check that all products and services are included.
  • Ask your trading and investment team questions such as these:
    • Are they still using the products and services paid for by the firm?
    • How valuable is certain research to them in forming their trading decisions?
    • Has the use of the particular product or service changed over time such that it is no longer a permitted product or service? For example, certain components of the services provided by Bloomberg used historically under the banner of research, with the further clarity on what amounts to substantive research, may fall outside this exemption.
  • Determine whether your investment team is receiving any form of corporate access. If so, determine how often, in what form, and how is it being paid for. You may need to ascribe a reasonable value to that access, and any other ineligible services, and disaggregate these from the cost of other eligible services provided by the broker. You might ask the broker to price certain nonpriced components of bundled services to make this process easier and more transparent.
  • Verify that dealing commissions are not allocated based upon corporate access provided by a broker. If your firm has a broker review committee, examine the criteria it uses in evaluating brokers and the corresponding allocation of dealing commissions and make sure Compliance is represented at the committee meetings. Note also that the payment and allocation of dealing commissions to different counterparties is implicit with the firm’s monitoring of best execution.

Please contact Adam Palmer, Lynne Carreiro, or your regular ACA compliance consultant with any questions on this alert.


1 The FCA examples include an investment manager attending an investor conference arranged by a broker. The conference involved meetings with corporate issuers, which constitutes ineligible corporate access, and presentation of substantive research, which is eligible.

Category: Compliance Alerts

 

ACA Compliance Group and Stroz Friedberg to Provide Comprehensive Cybersecurity Services Tailored for Financial Services Firms (May 29, 2014)

ACA Compliance Group recently released a compliance alert summarizing the issues and concerns raised during the SEC’s March 2014 Cybersecurity Roundtable. The alert emphasized that cybersecurity is an overall concern for the financial industry, and encouraged firms to take a 24/7 approach to cybersecurity.

Regulatory agencies are taking action to help provide standards and guidance and share information on potential cyberattacks. FINRA plans to publish guidance on cybersecurity best practices – see “Targeted Examination Letters – Cybersecurity.” The SEC’s Office of Compliance Inspections and Examinations is conducting cybersecurity sweeps and has published a document request list that focuses on the following areas:

  • Identification of risks/cybersecurity governance
  • Protection of firm networks and information
  • Risks associated with remote customer access and transfer of funds requests
  • Risks associated with vendors and other third parties
  • Detection of unauthorized activity
  • Other areas, such as determining whether firms have experienced one or more cyber incidents and, if so, obtaining specific information about the incidents and the firms’ responses to those incidents

To help our clients address cybersecurity risks, ACA is pleased to announce its collaboration with Stroz Friedberg, an industry-leading technology and consulting firm in cybersecurity. Together, ACA and Stroz Friedberg can assist clients by assessing information security threats and vulnerabilities, conducting adversarial penetration testing, and producing a prioritized set of enhancements and recommendations to develop and enhance the firm’s information security strategy.

Specific cybersecurity services include:

  • Mock regulatory examinations of the firm’s cybersecurity program.
  • Benchmarking the firm’s cybersecurity program to peers.
  • Risk assessments relating to cybersecurity vulnerabilities.
  • Testing and auditing of cybersecurity response policies, backup systems, and compliance with information security policies.
  • Evaluation and recommendations for improvement of security of electronic information related to
    • network complexity,
    • web-based and custom applications,
    • third-party connectivity (transmission of trade data, performance information, custodial data, employee payroll, etc.),
    • user access to information both internally and externally to the firm, and
    • Internet monitoring for online threats.
  • Assessing physical security measures to protect information assets.
  • Training on information security risks and responsibilities.
  • Cybersecurity risk assessment of third-party service providers.
  • Strategic planning assistance and advice on cybersecurity issues similar to the role assumed by a Chief Information Security Officer (“CISO”).

For more information about ACA’s and Stroz Friedberg’s cybersecurity services, contact Damon Zappacosta at (212) 868-5940 or dzappacosta@acacompliancegroup.com.

Category: Compliance Alerts, Compliance Alerts 2014

 

What’s It Worth? Practical Thoughts on Valuation (May 2014)

Publication: NSCP Currents

Issue: May 2014

Author: Joel Stocksdale, Senior Principal Consultant, ACA Compliance Group

Click to view article.

Category: Compliance Articles

 

Dallas Compliance Roundtable: Recent Developments in SEC and NFA/CFTC Compliance (June 11,2014)

Title: Recent Developments in SEC and NFA/CFTC Compliance

Date: June 11, 2014

Time: 8 a.m. to 11 a.m.

Location: The Crescent Club, 200 Crescent Court, 17th Floor, Dallas, TX 75201

RSVP: RSVPs will be handled by Akin Gump. Click here to RSVP. Kindly respond by June 6.

Please join the Dallas investment management practice of Akin Gump Strauss Hauer & Feld LLP and ACA Compliance Group for a compelling presentation on recent SEC and NFA/CFTC regulatory compliance developments. This program is designed to help compliance professionals address today’s evolving regulatory challenges.

The panelists will discuss hot topics and real-time developments in the following areas:

  • Crossing the 4.13(a)(3) De Minimis threshold
  • CPO delegation
  • CPO/CTA minimum net capital proposal
  • Recordkeeping of oral communications of swaps transactions
  • SEC examination priorities and trends
  • SEC rulemaking and guidance update
  • Recent enforcement activity

Meeting Agenda:

8:00 a.m. Registration
8:30 a.m. CFTC and NFA Regulatory Updates Speakers
JP Bruynes
Partner
Akin Gump Strauss Hauer & Feld LLP

Brad Pugh
Counsel
Akin Gump Strauss Hauer & Feld LLP

Scott Brindley
Senior Principal Consultant
ACA Compliance Group

9:00 a.m. SEC Examination, Rulemaking, and Enforcement Update Speakers
James A. Deeken
Partner
Akin Gump Strauss Hauer & Feld LLP

Jason Daniel
Senior Counsel
Akin Gump Strauss Hauer & Feld LLP

Jami Jack
Senior Principal Consultant
ACA Compliance Group

9:45 a.m. Q&A Session

 

 

Category: Uncategorized

 

Shearman & Sterling LLP and ACA – Managing ‘40 Act Funds: A Legal and Compliance Workshop for Alternative Managers (May 16, 2014)

Speaker: Shannon Behara
Topic: ’40 Act

Location: NYC

Category: 2014 Speaking Engagements

 

AUM Roundtable (May 15, 2014)

Name of Event: AUM Roundtable
Date: 5-15-14
Topic: The Global Investment Performance Standards
Sponsor: Federated Investors
Location: NY, NY
Speaker: Karen Foley
Category: 2014 Speaking Engagements

 

ACA Offers Comprehensive Expense Allocation Reviews for Private Fund Advisers (May 12, 2014)

“Some of the common deficiencies from the examinations of these [private fund] advisers that the staff has identified included: misallocating fees and expenses; charging improper fees to portfolio companies or the funds they manage; disclosing fee monitoring inadequately; and using bogus service providers to charge false fees in order to kick back part of the fee to the adviser.”

- SEC Chairwoman Mary Jo White during testimony to the US House Committee on Financial Services, April 29, 2014


Dear Clients and Friends,

As you are aware, the SEC examination staff has been focusing on expenses billed to investors by hedge fund and private equity firms. Recent SEC exams of private equity firms have resulted in findings that firms charged “unjustified” fees and expenses, have not made proper disclosure to fund investors, and/or have charged inflated fees and expenses to portfolio companies. Accordingly, one of the key topics at the SEC’s January 2014 Compliance Outreach Program focused on “expense shifting,” meaning the practice of moving expenses out of the management company and into funds without proper disclosure and investor consent.

“By far, the most common observation our examiners have made when examining private equity firms has to do with the adviser’s collection of fees and allocation of expenses. When we have examined how fees and expenses are handled by advisers to private equity funds, we have identified what we believe are violations of law or material weaknesses in controls over 50% of the time.”

- Andrew Bowden, Director of the SEC’s Office of Compliance Inspections and Examinations, May 6, 2014

Although the SEC has made expense allocation review an examination priority, a recent ACA survey of private fund managers found that more than half of respondents had not conducted any testing of their expense allocation processes. These firms indicated that they had not tested the reasonableness of expense allocations or the consistency of expenses with disclosures in private fund offering or organizational documents.

In order to avoid increased scrutiny during SEC examinations, burdensome regulatory requests, and the potential refund of expenses to fund investors, ACA recommends that private fund managers review and test their expense allocation practices.

ACA offers assistance to managers seeking to conduct an expense allocation review. Our experienced team of consultants works with our client’s compliance, legal, and accounting teams to scale an appropriate review of their expense allocation practices. ACA’s expense allocation reviews include the following:

  • Scoping meeting with compliance, legal, and accounting teams, including an overview of relevant accounting systems
  • Review of fund governing documents, side letters, agreements with portfolio companies, and written policies and procedures
  • Review of management company financial ledgers
  • Review of financial ledgers for all or a sample of funds, including co-investment or other parallel fund vehicles
  • Sampling of expenses to confirm appropriate allocation between the management company and/or private funds and portfolio companies, as applicable
  • Review of fee income received from portfolio companies to determine whether it is consistent with relevant agreements
  • Sampling of expenses to determine whether they are consistent with relevant disclosures, including side letter provisionss

In addition to issues related to expense allocations and consistency with disclosures, ACA’s reviews also seek to assist our clients with identifying the following:

  • Misuse of travel and entertainment budgets
  • Issues related to compliance with the Foreign Corrupt Practices Act, U.K. Bribery Act, and U.S. pay-to-play rules
  • Gift and entertainment compliance
  • Unidentified conflicts of interest that may require disclosure

ACA is one of the largest employers of former SEC, FINRA, NFA, FSA, and state inspectors in the world. We provide compliance advice and assistance internationally to some of the most respected and well-known private fund managers. Our regulatory expertise can help keep your firm from attracting unwanted regulatory exposure.

For more information about ACA’s expense allocation review services, please contact Jack Rader at (973) 631-1085 or jrader@acacompliancegroup.com, or Kent Wegrzyn at (312) 201-9620 or kwegrzyn@acacompliancegroup.com.

Category: Compliance Alerts

 

Broker/Dealer Conference (May 8, 2014)

Name of Event: Broker/Dealer Conference
Date: May 8, 2014
Panel Discussion: Compliance from an Outsourced Perspective
Sponsor: NYC Society of CPAs and FAE
Location: New York
Speaker: Anthony Perez
URL: http://www.nysscpa.org/microsites/2014/broker/index.htm
Category: 2014 Speaking Engagements

 

Boston Investment Adviser Roundtable (May 7, 2014)

Name of Event:
Date:  May 7, 2014
Topic:
Sponsor:  ACA and Bingham McCutchen LLP
Location:  Boston
Speaker:  Mark Lawler
Category: 2014 Speaking Engagements

 

Goldman Sachs Cyber Security Webinar (May 6, 2014)

Name of Event: Goldman Sachs Cyber Security Webinar
Date: 5/6/2014
Topic: Cyber Security and the SEC
Sponsor: Goldman Sachs
Location: Webinar
Speaker: Ted Eichenlaub
Category: 2014 Speaking Engagements

 

PEI Private Fund Compliance Forum (May 6-7, 2104)

Name of Event: PEI Private Fund Compliance Forum
Date:  May 6-7, 2014
Topic:  compliance, cybersecurity
Sponsor: PEI
Location: New York
Speakers: Jeffrey Morton, Barry Schwartz
Category: 2014 Speaking Engagements

 

Goldman Sachs Hedge Fund Learning Series: Legal and Regulatory (May 5, 2014)

Name of Event: Goldman Sachs Hedge Fund Learning Series: Legal and Regulatory
Date:  May 5, 2014
Topic: Regulatory Exams: Getting Prepared
Sponsor:  Goldman Sachs
Location:  New York
Speaker:  Jeffrey Morton
Category: 2014 Speaking Engagements

 

GIPS Compliance for Credit Managers (April 30, 2014)

Name of Event: GIPS Compliance for Credit Managers
Date: 4/30/14
Topic: GIPS Compliance
Sponsor: Markit
Location: The Harvard Club, NYC
Speaker: Justin Guthrie, CFA
Category: 2014 Speaking Engagements

 

Independent Accountant Notification (April 29, 2014)

On April 4, 2014, the staff of the SEC’s Division of Trading and Markets provided guidance concerning the amendments to the broker-dealer reporting rule, Rule 17a-5 under the Securities Exchange Act of 1934. This alert specifically highlights the staff’s guidance with respect to amended Rule 17a-5(f)(2).

The amended rule requires all broker-dealers to file a notification with the SEC stating that they have entered into a written agreement with an independent public accountant to conduct their annual audit for the following year. The notice must also state that the agreement was dated on or before December 1 of the filing year. (For more information on the amendment and the filing deadlines, please see the SEC’s FAQs.)

According to the rule, the independent account agreement notification must contain the heading “Notice pursuant to Rule 17a-5(f)(2)” when submitted and disclose the following information:

  • The broker or dealer’s name, address, telephone number, and SEC and FINRA registration numbers
  • The accounting firm’s name, address, telephone number and Accountant’s State Registration number
  • The audit date covered by the agreement

Firms must file this notice in hard copy with the SEC’s headquarters in Washington, DC, the firm’s regional SEC office, and the regional office of the firm’s designated examining authority (i.e., FINRA).

For firms with fiscal years ending between June and December 2014, the statements must be filed on or before the 10th day of the month in which their fiscal year ends. For example, a firm with a fiscal year end of June 30, 2014, would need to file the statement no later than June 10, 2014. This notification will cover the accountant’s work for the 2014 fiscal year.

The amended rule also notes that firms with continuing agreements with their independent public accountant are not required to file new statements after their initial filing in 2014 unless the agreement is terminated or amended. If the 2014 agreement is for a single audit, firms with fiscal years ending between June and December 2014 must file their initial statement as described above and then submit a new statement for each subsequent year.

For more information on the independent public accountant agreement notification requirements under Rule 17a-5(f)(2 ), please contact your ACA consultant or Dee Stafford in the Los Angeles office at (310) 322-8840.

Category: Compliance Alerts

 

PEI Private Fund Compliance Forum (May 6-7, 2014)

Name of Event: PEI Private Fund Compliance Forum
Date:  May 6-7, 2014
Topic:  Cybersecurity
Sponsor: PEI
Location: New York
Speaker: Barry Schwartz
Category: Uncategorized

 

34th Annual South Florida FPA Conference 2014 (April 25, 2014)

Name of Event: 34th Annual South Florida FPA Conference 2014
Date: April 25, 2014
Panel Discussion: Be Ready for the Regulators
Sponsor: FPA of Greater Fort Lauderdale
Location: Fort Lauderdale, FL
Speaker: Moderator: Kimberly Daly
URL for event: http://www.southfloridafpa.org/Events/2014%20Conference/2014ConferenceMeetingRegistration.htm
Category: 2014 Speaking Engagements

 

Managing ’40 Act Funds: A Legal and Compliance Workshop for Alternative Managers (April 23, 2014)

Name of Event: Managing ’40 Act Funds: A Legal and Compliance Workshop for Alternative Managers
Date: 4/23
Topic: Alternative Mutual Funds
Sponsor: ACA/Shearman&Sterling
Location: Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
2nd Floor
Speaker: Nathan Green, Bryan Haft, Donald Delano, Michael Abbraino
Category: 2014 Speaking Engagements

 

NSCP Regional Compliance Conference (April 23, 2014)

Name of Event: NSCP Regional Compliance Conference
Date: April 23, 2014
Topic: Private Fund Examinations
Sponsor: NSCP
Location: Denver
Speaker: Ted McGrath, Brad Burgtorf
URL for event: http://www.cvent.com/events/2014-nscp-denver-meeting/event-summary-759f324715dc4b6a949a3c16e5bc8959.aspx
Category: 2014 Speaking Engagements

 

PLI Basics of Mutual Funds and Other Registered Investment Companies (April 23, 2014)

Location: NYC

Speaker: Shannon Behara

Category: 2014 Speaking Engagements

 

Key changes to New FINRA Supervisory Rules (April 17, 2014)

On December 23, 2013, the SEC approved new FINRA supervision rules 3110, 3120, 3150, and 3170 as part of FINRA’s rulebook consolidation process. The new rules amalgamate several existing NASD and NYSE rules and interpretations and become effective December 1, 2014. Some key aspects of the new consolidated rules include the following:

Supervision

  • Office Supervision – New Rule 3110(a)(4) establishes the presumption that an Office of Supervisory Jurisdiction (OSJ) will have an assigned on-site principal responsible for supervising that OSJ and no others. Should a firm decide that an on-site principal will supervise more than one OSJ, it must first have considered, at a minimum, the supervisor’s qualifications and workload capacity, his or her proximity to OSJ locations, whether he or she is a producing manager, the number of associated persons at each location, and the activities being conducted.
  • Annual Compliance Meeting Attendance – Under new FINRA Rule 3110.04, firms that conduct annual compliance meetings that do not require “in-person” attendance must be able to demonstrate that each registered individual was present at the meeting for its entirety.

Written Procedures

  • Transaction Reviews – New FINRA Rule 3110(b)(2) will require firms to evidence review by a registered principal of all transactions in writing. Notably, FINRA is also providing a provision in Rule 3110.5 that allows the firm to conduct the reviews using a risk-based approach. The methodology of the approach must identify and prioritize areas that represent the greatest risk of violations. If parameters are used for a technology-based approach, then the principal must document a review of the parameters that were established.
  • Written and Electronic Communications – Currently, NASD Rule 3010(d) requires each member to maintain procedures for the retention and review of correspondence for registered representatives. The newly consolidated FINRA Rule 3110(b) now requires each member to establish procedures for the review and supervision of internal communications and correspondence of all associated persons. In another area, FINRA Rule 3110.06 allows firms to adopt a risk-based approach for their correspondence and internal communications reviews. In addition, this rule requires correspondence reviews to be performed by a registered principal and evidenced in writing. Then, in Rule FINRA 3110.08, FINRA adds that a principal may delegate certain review functions to non-registered individuals. The rule also notes, however, that the principal retains responsibility for the performance of all necessary supervisory reviews, whether delegated or not.
  • Conflicts of Interest – New FINRA Rule 3110(b)(6) replaces the existing producing manager requirements related to potential conflicts of interest. FINRA is eliminating its requirement for heightened office inspections in cases where the individual conducting the inspection falls under FINRA’s current definition of a producing manager1. Instead, firms must now implement procedures to avoid conflicts that may arise due to the branch office location and other variables such as financial interests in the associated persons or business types being inspected.
  • Taping Rule – Currently, NASD Rule 3010(b) provides guidance with respect to implementing specific procedures for broker-dealers subject to taping rule provisions. FINRA has carved this section out of its supervision rule and created a new standalone rule: FINRA Rule 3170.

Internal Inspections

  • Office Inspection Schedules – New FINRA Rule 3110(c)(1) continues the requirement for OSJs to be inspected annually and nonsupervisory branch offices at least every three years. The new rule presumes that nonbranch locations will be inspected no less frequently than every three years. A firm that chooses to inspect nonbranch offices less often than this must document the factors underlying this decision.

Transaction Reviews

  • Insider Trading Reviews and Investigation – New FINRA Rule 3110(d) provides firms the opportunity to take a risk-based approach to reviewing the securities transactions in associated person covered accounts.

    A firm conducting investment banking activities must submit a report to FINRA within 10 business days of the end of each quarter describing each internal investigation initiated in the previous calendar quarter. The report must detail the firm’s internal investigation and any corrective or disciplinary actions taken. In light of this, members should ensure their written supervisory procedures address criteria for conducting investigations and meeting FINRA reporting obligations. In addition, should a firm identify a potential insider trading violation, it must file a written report to FINRA within five business days of the completion of the internal investigation. Both reporting requirements must be signed by a senior officer of the firm.

Supervisory Control System

  • Additional Reporting - Under new FINRA Rule 3120, members with $200 million or more in annual gross revenue must provide the following information to senior management on an annual basis:
    • Reports to FINRA of customer complaints and internal investigation
    • Compliance efforts made in the preceding year in the following areas:
      • Trading and markets
      • Investment banking
      • Antifraud and sales practices
      • Finance and operations
      • Supervision
      • Anti-money laundering
      • Customer Mail

Holding of Customer Mail

  • Holding Period – Currently, under NASD Rule 3110(i), firms may only hold a customer’s mail upon request for up to three months. New FINRA Rule 3150 permits customers to ask for a longer holding period. Under the new rule, firms must receive written instructions from customers that include the specified time period. Should the time be greater than three consecutive months, the customer’s instructions must include an acceptable reason for the request. Firms must also verify these customer instructions at reasonable intervals.

For more complete information on FINRA’s new supervisory rules, broker-dealers should review FINRA Regulatory Notice 14-10 (“Consolidated Supervision Rules”).

Please contact Dee Stafford in the Los Angeles office at (310) 322-8840 with any questions.

Best regards,

ACA Compliance Group

 


1 A producing manager is a branch office manager, sales manager, regional or district sales manager, or any person who performs a similar supervisory function AND who services customer accounts in a capacity requiring registration. Rule 3012 requires that producing managers be reviewed by a person who is senior to OR otherwise independent of the producing manager.

 

Category: Compliance Alerts

 

SEC Issues Guidance on Adviser Social Media Use (April 8, 2014)

On March 28, 2014, the Division of Investment Management (“Division”) released guidance for SEC-registered investment advisers on social media use and advertisements that appear on independent, third-party social media sites that feature commentary about them. The guidance expands the SEC staff’s position on the client testimonial prohibition in Rule 206(4)-1(a)(1) of the Investment Advisers Act of 1940 to such media use. The staff’s goal in issuing this guidance is to “clarify application of the testimonial rule as it relates to the dissemination of genuine third-party commentary that could be useful to consumers.” The Division also notes its intention “to assist investment advisers in developing compliance policies and procedures” addressing social media participation. Therefore, if advisers use, or intend to use, social media for marketing and advertising, they should assume the SEC staff will expect to see policies and procedures specifically governing these activities.

The March 28 guidance poses questions regarding and provides answers to issues frequently raised by advisers. These queries focus on various social media types and on identifying particular situations where advisers may exhibit commentary from the public without fear of the “testimonial” prohibitions. As described in the guidance, the SEC staff will apply a “facts and circumstances” test to determine whether an adviser’s reposting or reprinting of commentary obtained through social media outlets is a prohibited “testimonial.” Advisers should note that this guidance applies only to the use of information obtained from independent third-party social media outlets and to activities the adviser does not promote or solicit. There is little to no leeway granted to activities undertaken, sponsored, or solicited by the adviser or promoted on the adviser’s webpage or adviser-sponsored social media webpages.

The Division divides the scenarios and explanations provided in the guidance into four main categories: (1) inclusion of advertisements for registered advisers on independent social media sites, (2) inclusion of references to independent social media site commentary in non-social-media advertisements by registered advisers, (3) the use and publication of client/contact lists, and (4) the use of fan/community pages. Among the varying scenarios addressed, advisers will be especially relieved to have definitive guidance regarding reposting, publishing, or linking to third-party social media sites that may contain ratings or reviews of the adviser and/or its employees. Specifically, the Division indicated the following:

“[P]ublication of public commentary from an independent social media site would not raise any of the dangers that rule 206(4)-1(a)(1) was designed to prevent if:

  1. the independent social media site provides content that is independent of the investment adviser or IAR [“investment advisory representative”];
  2. there is no material connection between the independent social media site and the investment adviser or IAR that would call into question the independence of the independent social media site or commentary; and
  3. the investment adviser or IAR publishes all of the unedited comments appearing on the independent social media site regarding the investment adviser or IAR.”

For the full text of the guidance, click here.

For any questions regarding these examinations, please email Damon Zappacosta or contact him at (212) 868-5940.

Category: Compliance Alerts, Compliance Alerts 2014

 

Managing ’40 Act Funds: A legal and compliance workshop for alternative investment managers – Session 1 (April 23, 2014)

Date: April 23, 2014
Time: 8 a.m. to 10:30 a.m.

Location:
Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
2nd Floor

Speaker: Don Delano

About the program:

Following a successful January 2014 seminar on managing ’40 Act funds, Shearman & Sterling LLP and ACA Compliance Group invite you to attend a detailed legal and compliance workshop on ’40 Act funds for alternative managers. This roundtable workshop is intended to facilitate the exchange of ideas and best practices among firms that have entered, or plan to enter, the liquid alternatives space.

The legal and compliance workshop will focus on:

  • Planning your ’40 Act fund business approach, including fund structure
  • Legal and compliance issues relating to fund registration
  • Portfolio and operational issues, including investment risk oversight and valuation mechanics

The discussion will be led by:

Shannon Behara, Partner, ACA Compliance Group (May 16 Session)

Don Delano, Senior Principal Consultant, ACA Compliance Group (April 23 Session)

Nathan Greene, Partner and Practice Group Leader of Shearman & Sterling’s Investment Funds Group

Bryan Haft, Senior Vice President, Citco Mutual Fund Services

For more information about this event, please contact Kylene Austin at Shearman & Sterling LLP at kylene.austin@shearman.com or Sue Parsons at ACA Compliance Group at sparsons@acacompliancegroup.com.

The workshop will be presented on two days – April 23 and May 16. RSVP for the date that best suits your schedule.

Seating is limited. Note that discussion questions for the workshop may be submitted via the RSVP link prior to the event.

This program has been approved for newly-admitted and experienced lawyers and attendees will receive approximately 1.0 New York Professional Practice credits and 1.0 California General credits.

RSVP here.

Category: Uncategorized

 

The Guests that Wouldn’t Leave (April 9, 2014)

Location:
Sidley Austin
One South Dearborn
Chicago, IL 60603

Time: 8:00 a.m. to 11:30 a.m.

Description:

Insider Trading, Cybersecurity and other Compliance Challenges

You are invited to attend the latest in a series of interactive investment adviser
compliance roundtables. This unique series is designed to bring compliance
officers and others interested in adviser compliance issues in the Chicago metropolitan
area together periodically to share information and discuss hot topics.

At the Spring 2014 Roundtable, a panel of experts will discuss the latest
regulatory developments affecting investment advisers, including hedge fund
and private equity managers and family offices.

Topics include:

Update on Current Regulatory Environment: What are the SEC’s enforcement priorities? What’s new with FATCA?

Insider Trading: What is Insider Trading 2.0 and how does it affect me? What are the lessons from the latest insider trading trials? How have insider trading theories evolved? How do they differ across jurisdictions? What insider trading regulations are in store for the future?

AIFMD Update & Other UK and EU Regulatory Hotspots: What do I need to do to prepare for July 21st? How do I market an AIF in Europe under national private placement rules? How is “marketing” defined?

Cybersecurity and Other Privacy Issues: What is the NIST Cybersecurity Framework? How does it affect my firm? What type of information do I need to safeguard? What other privacy issues should I be worried about? What privacy-related testing should I be doing?

Trends from Recent Examinations: What are the most common deficiencies from recent exams? What are the current and future exam priorities?

Hot Topics Selected by Attendees

Click here to register.

Category: Uncategorized

 

SEC Cybersecurity Roundtable ‒ Issues and Concerns (April 2, 2014)

On March 26, 2014, the SEC hosted a roundtable on “cybersecurity and the issues and challenges it raises for market participants and public companies, and how they are addressing those concerns.” The event featured panels on “Cybersecurity Landscape,” “Public Company Disclosure,” “Market Systems,” and “Broker-Dealers, Investment Advisers, and Transfer Agents.”

The “Cybersecurity Landscape” panel recommended that firms take a 24/7 approach to monitoring cybersecurity that covers multiple levels and includes many stakeholders. Firms should adopt policies and procedures that include senior management accountability and firm-wide preparation and coordination. The panel noted two important questions firms need to ask themselves: “How do I know what information is leaving the company?” and “Do we have an up-to-date cyber-incident response plan?” It also encouraged management to create a culture of security that starts “at the keyboard.” Cybersecurity should not be one person’s or one department’s responsibility, it should be everyone’s responsibility. In this regard, training and “tone at the top” are critical. Firms should, when necessary, obtain outside expertise to augment internal resources.

The “Broker-Dealers, Investment Advisers, and Transfer Agents” panel pointed out that risks vary by type of firm. For example, for traditional investment advisers, the risk of account takeover is rising due to identity theft. In institutional wealth management firms and private funds, the risk comes more from hackers, denial of service attacks, and state-sponsored attacks. The panel also noted that internal risks (including rogue employees and employee mishaps like lost laptops) apply to all firms. It suggested that firms should focus on high risk areas and systemic risks. A more scattered strategy spreads resources too thin. In addition, the panel advised firms to implement formal written response plans that provide an organized “playbook” to follow should an incident occur. The “playbook” should address issues like remediation, customer notification, and regulatory reporting. The overarching message was that cybersecurity risks need to be managed actively over time and firms should implement a culture of security to mitigate it effectively. The panel stressed that firms need to recognize that cybersecurity is not just an IT issue, but an important area of concern for their overall risk management strategy.

The panel also pointed out the need for collaboration within the industry, as well as between the government and the industry. In short, cybersecurity is a team effort. It recommended that firms proactively share useful information on cybersecurity with the Financial Services ‒ Information Sharing and Analysis Center (“FS-ISAC”). Information sharing is important because it facilitates early warnings about potential cyber threats and the sharing of best practices. The panel emphasized the need for legislation to protect firms that share cybersecurity information and to delineate how firms can share information while respecting the privacy of customer information.

The panel discussed what role the SEC should play in the cybersecurity area. The panel stressed that any cybersecurity regulation should be principles-based, rather than proscriptive, and should take into account variables such as firm size and business model. It also suggested that the SEC should encourage information sharing and provide guidelines for the submission, processing and dissemination of cyber threat information.

A FINRA representative stated that cybersecurity is a focus area for the organization this year. Indeed, FINRA recently launched targeted examinations to better understand the different types of risk firms face, their risk appetites and vulnerabilities, and government involvement in solving cybersecurity problems. So far, FINRA has identified five key risk areas:

  • Operations (a top concern for 50% of firms), including actions by people and system failures
  • Hacker penetration of systems
  • Denial of service attacks
  • Phishing, including attacks targeting employees
  • Malware infections

FINRA intends to use the information it learns through the targeted examinations to publish guidance on cybersecurity best practices. For more on this FINRA initiative, see “Targeted Examination Letters ‒ Cybersecurity.

OCIE is now conducting similar cybersecurity sweep examinations that ACA believes are initially being conducted primarily as “correspondence exams” of registered investment advisers and broker-dealers. ACA and Sutherland Asbill & Brennan LLP (“Sutherland”) recently reviewed an OCIE document request list that focused on the following areas:

  • Identification of risks/cybersecurity governance
  • Protection of firm networks and information
  • Risks associated with remote customer access and funds transfer requests
  • Risks associated with vendors and other third parties
  • Detection of unauthorized activity
  • Other areas, such as determining whether firms have experienced one or more cyber incidents since January 2013 and if so, obtaining specific information about the incidents and the firms’ responses to those incidents

Investment advisers and broker-dealers should review the document request list, particularly the queries in each of the risk areas, and assess whether any of the described practices and controls should be part of their security measures. They should also be mindful that cybersecurity is a top priority issue for the regulators and, for that reason, consider incorporating an assessment of cybersecurity systems and procedures into future compliance program reviews.

For more information on these cybersecurity examinations, please contact your ACA consultant or Sutherland attorney. You may also contact the following individuals:

ACA Sutherland
Damon Zappacosta (212) 868-5940 Brian Rubin (202) 383-0124
Dee Stafford (310) 322-8840 Shanyn Gillespie (202) 383-0498
Category: Compliance Alerts

 

Markit and ACA Performance Services explore GIPS® compliance for credit asset managers (April 30, 2014)

Time:
Wednesday
April 30, 2014
8:30 a.m.    Registration
9:00 a.m.    Presentation
10:30 a.m.  Networking

Location:
Harvard Club of New York
35 West 44th Street
New York, NY 10036

Sponsors:
ACA Compliance Group and Markit

RSVP
Please note Markit will accept RSVPs.

Description:
oin ACA Performance Services and Markit for an interactive seminar focusing on GIPS compliance for credit asset managers. Due to demand from institutional investors, GIPS compliance is gaining significant traction with credit managers, and in many cases in the form of separate account mandates.

Listen as Matt Parham of Markit and Justin Guthrie of ACA Performance Services discuss the path to GIPS compliance for credit managers using the WSO system.

Topics of discussion include:

  • Recent trends and industry demand for GIPS compliance
  • Fundamentals of GIPS compliance
  • Calculation methodology within WSO
  • Distribution of performance and marketing implications
  • Time and resource considerations for GIPS compliance implementation

Guest Speakers:

  • Justin Guthrie, CFA, Partner, ACA Performance Services
  • Matt Parham, CFA, Vice President, Markit

To register for the event, please RSVP here.

For more information about the event, please contact Christie Dillard at cdillard@acacompliancegroup.com.

 

Category: Uncategorized

 

ACA Compliance Group and Sutherland present Atlanta Compliance Roundtable (April 30, 2014)

Time:
Wednesday
April 30, 2014
3:00 p.m. – 5:30 p.m.
Cocktail reception to follow.

Location:
Sutherland
999 Peachtree Street
NE #2300
Atlanta, GA

Sponsors:
ACA Compliance Group and Sutherland

RSVP

Description:

Join us in Atlanta on April 30, 2014 for our compliance seminar, designed to assist CCOs and other compliance professionals in addressing today’s evolving regulatory challenges.

Our panel will include representatives from ACA Compliance Group, Sutherland, and the Atlanta offices of the SEC and FINRA as well as CCOs from leading investment firms. The panel will discuss real-time developments in the following areas:

  • FINRA Hot Topics for 2014
  • Handling Customer Complaints and Complex Products Due Diligence/Litigation
  • SEC Examination Priorities
  • SEC Concerns Regarding Expense Allocations and Cybersecurity
  • Recent Enforcement Activity

For questions or more information about the event, please contact Gary Watkins at gwatkins@acacompliancegroup.com.

Category: Uncategorized

 

ACA’s Spring 2014 Compliance Conference (March 26, 2014)

Name of Event: ACA’s Spring 2014 Compliance Conference
Date: March 26
Topic: Compliance Testing: Electronic Communications
Sponsor: ACA
Location: Orlando
Speaker: Joshua Broaded, CFA
Category: 2014 Speaking Engagements

 

ACA Compliance Group Opens Office in San Francisco (March 19, 2014)

(New York, NY) March 19, 2014 - ACA Compliance Group, the nation’s leading regulatory and compliance consulting firm, today announced the opening of its newest office in San Francisco, California. The opening of ACA’s San Francisco office reflects ACA’s efforts to continue expansion to all U.S. cities with an SEC regional office. ACA will offer U.S.-related regulatory compliance consulting out of the San Francisco office.

“ACA is excited to expand our existing consulting practices to San Francisco. The opening of this office reflects our continued U.S. expansion and further dedication to our West Coast client base,” said ACA Los Angeles Partner, Dan Y. Smith.

ACA provides global compliance consulting services to investment advisers, private fund managers, commodity trading advisors, investment companies, and broker-dealers. ACA additionally provides GIPS verification services and a wide variety of compliance-related educational opportunities. ACA has offices across the U.S., Europe, and Asia, and a combined team of over 125 compliance and GIPS verification professionals, including more than 50 former regulators. The team offers the largest concentration of former SEC, FINRA, NYSE, NFA, CFTC and FSA regulators and senior compliance professionals in the industry.

Below is the information for the new San Francisco office:

ACA Compliance Group
250 Montgomery Street, Suite 780
San Francisco, CA 94104
415-653-0335

For more information, contact Damon Zappacosta at dzappacosta@acacompliancegroup.com or visit www.acacompliancegroup.com.

ABOUT ACA COMPLIANCE GROUP
Founded in 2002 by former federal and state regulators, ACA delivers the highest quality compliance consulting services with unquestionable integrity and unmatched dedication to its clients. With offices in New York, London, Hong Kong, Boston, Chicago, Los Angeles, San Francisco, and other cities, ACA features an experienced consulting team of former SEC, FINRA, FSA, NYSE, CFTC, NFA, and state regulators, as well as former senior in-house compliance professionals from prominent financial institutions.

ACA partners with clients in order to help them build and maintain a strong culture of compliance and sound infrastructure. ACA-developed compliance programs are premised on industry best practices, up-to-date compliance requirements, and robust oversight processes.

Category: Compliance Alerts, Press Releases

 

SEI Executive Conference (March 17, 2014)

Date: March 17, 2014

Location: Scottsdale, AZ

Sponsor: SEI

Speaker: Justin Guthrie, CFA

Topic: Navigating the New Operational Frontier

Category: 2014 Speaking Engagements

 

Compliance Survey for Alternative Fund Managers: Series Three (March 17, 2014)

Are you interested in how your firm’s approach to valuation of client assets compares to your peers’? Ever wonder what controls other private fund managers have implemented around their marketing and advertising efforts?

If these questions interest you, ACA Compliance Group invites you to participate in the third in our series of surveys focused on the compliance practices, processes, and procedures of private equity, real estate, and hedge fund managers. ACA conducted the first two of these surveys in 2013 and received nearly 200 responses to each. As with the previous assessments, at the conclusion of this third survey, ACA will host a free webcast solely for participants. During this event, our consultants will discuss the survey results and provide best practice tips based on our expert analysis of the information collected.

ACA has designed its alternative fund manager surveys to explore and explicate the unique, complex issues faced by private equity, real estate, and hedge fund compliance professionals. Our current survey covers these important topics:

  • Marketing and Advertising - In this area, the survey covers compliance controls and testing related to private fund advertising, compliance with relevant JOBS Act provisions, and potential broker-dealer registration.
  • Valuation – This segment centers on the use of formal valuation committees, valuation oversight in general, the use of third-party valuation agents, and ongoing compliance testing.
  • Transactions and Counterparties – Here the survey concentrates on factors considered in the selection of trading counterparties, policies and other considerations related to co-investment offerings, cross trades, and best execution assessments.

Your participation in our survey will have multiple benefits. Our past responders have said that answering the questions alone gave them valuable insight into how to apply various best practices to their compliance programs. In addition, the aggregate survey data will benefit everyone by providing up-to-date benchmarks for compliance controls and testing practices specific to the alternative fund management industry. This information will be useful for periodic and annual reviews. The results may also assist firms in assessing existing and potential regulatory requirement impacts on their businesses.

Important Information about the Current Survey

As mentioned above, after the survey closes, ACA will discuss the results in a free webcast for survey participants. This event will take place June 3, 2014. Participants receive a unique access code to sign on for the webcast when they complete the questions. PLEASE MAKE SURE YOU NOTE THIS ACCESS CODE.

The survey takes approximately 30 minutes. Partially completed responses cannot be saved, so please plan to answer all questions in one sitting.

The survey is open to compliance professionals at private equity, real estate, and hedge fund managers until April 17, 2014. We ask that only one person per firm participate. If you are not your firm’s Chief Compliance Officer, please check with him or her before taking the survey to avoid duplicate responses.

ACA conducts its surveys in a “blind” manner where all respondents remain anonymous. You will not be asked to identify yourself or your firm. All responses are strictly confidential. Responses may be shared with third parties at our discretion, however, they will remain anonymous and will not be attributed to the respondent.

Should any technical questions arise regarding the survey, please contact Jack Rader at (973) 631-1085.

Thank you in advance for your contribution.

Category: Compliance Alerts

 

Document Request List for Never-Before-Examined Advisers (March 14, 2014)

As a follow-up to our January 17, 2014 and February 13, 2014 Compliance Alerts on the SEC initiative to examine investment advisers that have never been examined, we note that the Office of Compliance Inspections and Examinations (“OCIE”) has issued a letter dated February 20, 2014, that further describes its examinations to these advisers.

The letter details how OCIE intends to achieve its initiative by completing two types of examinations. The first type involves a risk assessment designed to help OCIE better understand the investment adviser. The examination generally includes a high-level review of the adviser’s overall business activities with a focus on its compliance program and the documentation OCIE needs to assess representations made by the adviser in disclosure documents. The second type of examination involves conducting comprehensive, risk-based reviews of one or more of the following “higher risk” areas of the adviser’s operations as selected by OCIE:

  • Compliance program
  • Filings/disclosures
  • Marketing
  • Portfolio management
  • Safety of client assets

ACA recently reviewed an initial document request list used by OCIE in conducting the first type of examination described above. We noted the inclusion of general document requests related to the adviser’s clients, services, and compliance policies, as well as outstanding and pending litigation, client complaints, securities held in portfolios, financial records, trading records, and marketing activities.

None of the records or information included in the initial document request list should come as a surprise, given the broad risk assessments that OCIE completes during these examinations. Additionally, ACA’s experience so far with clients undergoing such reviews has not raised any concerns with regard to OCIE’s stated goals for the examinations. Nevertheless, never-before-examined investment advisers must prepare for such reviews to ensure they effectively convey to the SEC their investment advisory operations and the overall strength of their compliance programs.

For any questions regarding these examinations, please email Damon Zappacosta or call him at (212) 868-5940.

Category: Compliance Alerts

 

NCREIF Winter Conference (March 14, 2014)

Name of Event: NCREIF Winter Conference
Date: March 14, 2014
Topic: Roadmap for RE Managers claiming GIPS
Sponsor: N/A
Location: Phoenix, AZ
Speaker: Charlie Stout
URL for event: http://www.ncreif.org/event-details.aspx?event=42 
Category: 2014 Speaking Engagements

 

Karen Foley Joins ACA Performance Services as a Managing Director (March 12, 2014)

(New York, NY) March 12, 2014 - ACA Compliance Group is pleased to announce that Karen Foley has joined its ACA Performance Services team as a Managing Director. In her new role, Karen will provide ACA’s clients with a range of services relating to investment performance, including Global Investment Performance Standards (GIPS®) verifications, GIPS implementations, and other consulting and review services.

Prior to joining ACA, Karen worked for 13 years at Deloitte & Touche LLP, most recently serving as a Director leading that firm’s Investment Performance Services practice in the U.S.

Karen is an active volunteer with CFA Institute, where she serves as a member of the Verification/Practitioner Subcommittee of the GIPS Executive Committee. Through CFA Institute, Karen provides training on the GIPS standards and has participated in standard setting for the CIPM® program.

“ACA Performance Services continues to expand the depth of our offerings and GIPS expertise. Karen Foley is a great addition to our team. Her knowledge of the GIPS standards as well as her deep industry experience and commitment to client service will make her an invaluable resource to our clients,” said Justin Guthrie, Partner at ACA Performance Services. “Karen’s arrival, together with our recent combination with Vincent Performance Services, allows ACA to continue to expand our offerings globally to asset managers looking for sophisticated investment performance services.”

Karen will be based in New York.

ABOUT ACA PERFORMANCE SERVICES

ACA Performance Services, a division of ACA Compliance Group, offers GIPS verification and related services to investment managers across the globe. ACA Performance Services was formed in 2013 with the combination of ACA Beacon Verification Services and Vincent Performance Services (click to read the press release). Globally, ACA Performance Services is the largest team of GIPS professionals solely dedicated to GIPS verification and related services.

For more information regarding ACA Performance Services, contact Christie Dillard at cdillard@acacompliancegroup.com or visit www.acacompliancegroup.com/gips.

ABOUT ACA COMPLIANCE GROUP

ACA provides expert compliance consulting services to investment advisers, private fund managers, commodity trading advisors, investment companies, and broker-dealers. ACA additionally provides GIPS verification services and a wide variety of compliance-related educational opportunities.

ACA partners with clients in order to help them build and maintain a strong culture of compliance and sound infrastructure. ACA-developed compliance programs are premised on industry best practices, up-to-date compliance requirements, and robust oversight processes.

Founded in 2002 by former federal and state regulators, ACA delivers the highest quality compliance consulting services with unquestionable integrity and unmatched dedication to its clients. With offices in New York, London, Hong Kong, Boston, Chicago, Los Angeles, and other cities, ACA features an experienced consulting team of former SEC, FINRA, FSA, NYSE, CFTC, NFA, and state regulators, as well as former senior in-house compliance professionals from prominent financial institutions.

For more information, please visit www.acacompliancegroup.com.

CFA and CIPM are trademarks owned by CFA Institute.

MEDIA CONTACT

Krissy Kennedy
Director of Marketing
ACA Compliance Group
Phone: (857) 214-1740
kkennedy@acacompliancegroup.com
www.acacompliancegroup.com

 

 

 

 

Category: Compliance Alerts, Press Releases

 

Global Investment Performance Standards (GIPS®) Workshop Series – A Closer Look at Private Equity and Real Estate under the GIPS Standards (March 10, 2014)

Date: March 10, 2014
Event name: Global Investment Performance Standards (GIPS®) Workshop Series – A Closer Look at Private Equity and Real Estate under the GIPS Standards hosted by the Hong Kong Society for Financial Analysts and HKUST Value Partners Center for Investing.http://www.hksfa.org/free_event_info.php?id=400
Location: Hong Kong
Speaker Alicia Hyde, CPIMPartner

ACA Performance Services

Topic:  GIPS
Category: 2014 Speaking Engagements

 

Global Investment Performance Standards (GIPS®) Workshop Series – A Closer Look at Private Equity and Real Estate under the GIPS Standards (March 7, 2014)

Date: March 7, 2014
Event name: Global Investment Performance Standards (GIPS®) Workshop Series – A Closer Look at Private Equity and Real Estate under the GIPS Standards hosted by the Hong Kong Society for Financial Analysts and HKUST Value Partners Center for Investing.http://www.hksfa.org/free_event_info.php?id=398
Location: Hong Kong
Speaker Alicia Hyde, CPIMPartnerACA Performance Services
Topic:  GIPS
Category: 2014 Speaking Engagements

 

SEC Enforcement Case Highlights Importance of Registration for Non-U.S. Brokers and Advisers (March 6, 2014)

On 2014 February 21, the U.S. Securities and Exchange Commission (“SEC”) entered an order instituting administrative and cease-and-desist proceedings against a financial services firm for violating the U.S. federal securities laws by providing cross-border brokerage and investment advisory services to U.S. clients without registering as either a broker-dealer or an investment adviser with the SEC. According to the SEC, the firm’s relationship managers traveled to the U.S. to solicit clients, provide investment advice, and induce securities transactions, but were not registered in the U.S. to provide brokerage or advisory services, nor were they affiliated with a registered entity. To settle the SEC’s charges, the firm agreed to pay $196 million (including disgorgement, interest, and a $50 million civil money penalty) and admit wrongdoing.

In the order, the SEC summarized the registration requirements for broker-dealers and investment advisers:

“With limited exceptions, any person who operates in the United States, or who makes use of the mails or any other means or instrumentality of interstate commerce, to engage in the business of effecting transactions in securities for the account of others, or to engage in a regular business of buying and selling securities for the person’s own account, must register with the Commission as a broker-dealer. Similarly, unless there is an applicable exemption, any person who for compensation engages in the business of advising others about the advisability of investment in securities must be registered as an investment adviser.”

According to the order, employees of the firm engaged in a number of activities with regard to U.S. persons which should have triggered broker-dealer and/or investment adviser registration, including:

  • traveled to the United States to solicit new clients and service existing clients;
  • communicated with existing and prospective clients through email and the U.S. mail;
  • solicited, established, and maintained brokerage and investment advisory accounts for certain U.S. clients;
  • accepted and executed orders for securities transactions;
  • actively solicited securities transactions;
  • handled certain U.S. clients’ funds and securities;
  • provided account statements and other account information;
  • provided investment advice; and
  • received transaction-based compensation and advisory fees for services rendered to U.S. clients.

The order should be a good incentive for non-U.S. broker-dealers and investment advisers doing business in the U.S. or with U.S. persons to conduct a full review of their business practices in light of U.S. registration requirements. “The broker-dealer and investment adviser registration provisions are core protections for investors,” said Andrew Ceresney, director of the SEC’s Division of Enforcement.

The full text of the SEC’s order can be read here.

For questions regarding this alert or for more information on ACA’s SEC registration and consulting services, please contact:

Category: Compliance Alerts, Compliance Alerts 2014

 

ALPS Client Forum (March 5-7, 2014)

Location: Denver, CO

Topic: Electronic Communications

Category: 2014 Speaking Engagements

 

NYC CCO Compliance Roundtable (March 6, 2014)

Thursday
March 6, 2014

8:30 a.m. – 11:00 a.m.

rsvp

Location:
Lowenstein Sandler
1251 Avenue of the Americas
17th Floor
New York, NY 10020

oin us in New York City on March 6, 2014 for our breakfast seminar, designed to assist CCOs and other compliance professionals in addressing today’s evolving regulatory challenges.

Our panel of experts from Lowenstein Sandler LLP, ACA Compliance Group and CCOs from leading investment firms will discuss real-time developments in the area of investment management.

TOPICS INCLUDE:

  • AIFMD
  • Enforcement Cases
  • OCIE National Exam Priorities 2014
  • Regulatory Developments/Update
  • Registered Fund/Sub-Advisory Primer

Please click here to RSVP.

CLE credits are available.

For questions or more information about the event, please contact Susan Parsons at sparsons@acacompliancegroup.com.

Category: Uncategorized

 

Hong Kong Compliance Roundtable (March 11, 2014)

Tuesday
March 11, 2014

12:30 pm – 5:00 pm
Complimentary cocktail reception to follow event.

RSVP
By March 7, 2014

rsvp

Space is limited.

Location:
Shangri La Hotel
Pacific Place, Supreme Court Road
Central, Hong Kong

 Please join us for a complimentary roundtable designed to assist investment adviser and fund manager compliance professionals in dealing with current US, Hong Kong, and UK regulatory challenges. Our industry-knowledgeable panelists from ACA will discuss topics relevant to regulatory requirements.

If you want to ask a question anonymously, you can submit it prior to the meeting and it will be presented during the roundtable.

Please contact Sue Parsons at sparsons@acacompliancegroup.com with any questions.

Category: Uncategorized

 

ACA/Sidley Chicago Compliance Officer Roundtable – The Guests that Wouldn’t Leave – Insider Trading, Cybersecurity and other Compliance Challenges (April 9, 2014)

Location:
Sidley Austin LLP
One South Dearborn
Chicago, IL 60603

Time:
8: a.m. – 11:30 a.m.

Sponsors:
ACA Compliance Group
Sidley Austin LLP

RSVP

Insider Trading, Cybersecurity and other Compliance Challenges

You are invited to attend the latest in a series of interactive investment adviser
compliance roundtables. This unique series is designed to bring compliance
officers and others interested in adviser compliance issues in the Chicago metropolitan
area together periodically to share information and discuss hot topics.

At the Spring 2014 Roundtable, a panel of experts will discuss the latest
regulatory developments affecting investment advisers, including hedge fund
and private equity managers and family offices.

 

Category: Uncategorized

 

Mutual Fund Distributor Roundtable in Boston (April 30, 2014)

Title: Mutual Fund Distributor Roundtable in Boston

Time: 8:30 a.m. – 11:00 a.m.

Date: April 30, 2014

Co-sponsored by: ACA Compliance Group and K&L Gates

Location: Offices of K&L Gates, State Street Financial Center, One Lincoln St, Boston, MA

RSVP to attend in Boston.

RSVP to attend the webinar.

On April 30, 2014, ACA Compliance Group and K&L Gates will offer a focused compliance officer seminar for mutual fund distributors in Boston. This is a complimentary event.

Panelists from K&L Gates, ACA, and the industry will discuss topics relevant to the regulatory requirements unique to mutual fund distributors. The seminar will take place at K&L Gates’ office in Boston and will also be available via webinar to non-local participants.

Schedule
8:30 a.m. to 9:00 a.m. – Registration and Refreshments
9:00 a.m. to 11:00 a.m. – Interactive Sessions and Discussion

Topics to Include:

  • Regulatory Exams and FINRA Exam Priorities
  • Alternative Products Distribution/Marketing
  • Intermediary Oversight Update
  • FINRA Rulemaking and Guidance Update

Speakers

  • Kenneth G. Juster, Partner, K&L Gates
  • Chih-Pin Lu, Managing Attorney, Raymond James Financial Inc.
  • Michael Mahoney, CCO, John Hancock Funds, LLC
  • Michael W, McGrath, Partner, K&L Gates
  • Steve Price, Vice President, Deputy CCO, ALPS Funds
  • Nick Prokos, Partner, ACA Compliance Group
  • Tamara Salmon, Senior Associate Counsel, Investment Company Institute

Webinar Information
If you are unable to attend in person, please join us for the complimentary webinar. The webinar will be hosted by K&L Gates and will take place from 9:00 a.m. to 11:00 a.m. EDT. Click the RSVP button to register for the webinar.

For questions or more information about the event, please contact Susan Parsons at sparsons@acacompliancegroup.com.

 

Category: Uncategorized

 

Boston Investment Adviser Compliance Roundtable (May 7, 2014)

Time:
Wednesday
May 7, 2014
8:30 a.m. – 12:00 p.m.*
Continental Breakfast will be served.

Location:
Bingham McCutchen LLP
One Federal Street
13th Floor
Boston, MA 02110

Sponsors:
ACA Compliance Group
Bingham McCutchen LLP

RSVP

Description:

Please join us on May 7 for a complimentary morning seminar, which we have designed to help general counsels, chief compliance officers, and other compliance professionals address today’s evolving regulatory challenges.

Our panelists will include:

  • Michael Garrity, Associate Regional Director for Examinations in the Securities and Exchange Commission’s Boston Regional Office
  • Bradford Ali, Chief Operating Officer, General Counsel & Chief Compliance Officer, Shellback Capital, LP
  • Alan Halfenger, Chief Compliance Officer, Bain Capital
  • Andrew Meyers, Chief Compliance Officer, Breckinridge Capital Advisors, Inc.
  • Richard Goldman, Partner, Bingham McCutchen LLP
  • Steven Hansen, Partner, Bingham McCutchen LLP
  • Shannon Behara, Partner, ACA Compliance Group
  • Mark Lawler, Principal Consultant, ACA Compliance Group

These individuals will discuss real-time developments in the investment management area. Their topics will include:

  • OCIE National Exam Priorities for 2014,
  • an update on OCIE’s “Presence Examination” Strategy,
  • recent enforcement cases, and
  • regulatory developments and updates.

Click here to RSVP. If you need more information, please contact Mark Lawler.

 

Category: Uncategorized

 

New York City Broker-Dealer Roundtable (May 13, 2014)

Title: New York City Broker-Dealer Roundtable

Time: 8:30 a.m. – 11:30 a.m.

Date: May 13, 2014

Co-sponsored by: ACA Compliance Group and Sidley Austin LLP:

Location: Offices of Sidley Austin LLP at 787 Seventh Avenue, New York, NY 10019

RSVP

On May 13, 2014, ACA and Sidley Austin will offer a broker-dealer focused seminar for in-house counsel and compliance officers. In this seminar, panelists from Sidley, ACA and the industry will discuss topics relevant to the regulatory requirements unique to broker-dealers.

TOPICS COULD INCLUDE:

  • Conflicts of Interest Management
  • Information Barriers and Insider Trading
  • Surveillance Program Development
  • Regulatory Priorities

ROUNDTABLE DISCUSSION PANELISTS INCLUDE:

  • Francois Cooke, Panelist, Managing Director, ACA Compliance Group
  • Madeleine Dowling, Panelist, Partner, Sidley Austin
  • David Katz, Panelist, Partner, Sidley Austin
  • Mary Johnstone, Panelist, Chief Compliance Officer, Keefe, Bruyette & Woods, Inc.
  • James McGinnis, Panelist, Chief Compliance Officer, BBVA Securities Inc.
  • Michael McMaster, Panelist, Chief Compliance Officer, BNY Mellon Capital Markets LLC

Note that, if desired, discussion questions may be submitted anonymously prior to the meeting.

For questions or more information about the event, please contact Dee Stafford at dstafford@acacompliancegroup.com.

 

Category: Uncategorized

 

Chicago Event: Are You Properly Claiming Compliance with the GIPS® Standards? (May 14, 2014)

Time:
Wednesday
May 14, 2014
3:00 p.m. – 5:00 p.m.
(Cocktail reception to follow)

Location:
The Metropolitan Club
The Willis Tower
233 South Wacker Drive
Chicago, Illinois 60606

RSVP

Description:

ACA Performance Services invites you to attend the complimentary event “Are you Properly Claiming Compliance with the GIPS Standards?” on May 14 in Chicago.

A firm that claims compliance with the Global Investment Performance Standards (GIPS®) is required to comply with all of the requirements of the GIPS standards. These requirements may be found in various forms, including Q&As, Guidance Statements, and interpretations in the GIPS Handbook, in addition to the provisions themselves. During this complimentary presentation, Alicia Hyde and Karyn Vincent will cover some of the more than 50 requirements outside the GIPS provisions that a GIPS-compliant firm must consider to ensure the firm is properly claiming compliance with the GIPS standards. Alicia and Karyn will also provide best practice advice through client examples and Q&As.

Meeting Agenda

Registration 3:00 p.m. to 3:30 p.m.
Presentation 3:30 p.m. to 4:30 p.m.
Networking Cocktail Reception 5:00 p.m. to 6:00 p.m.

Please RSVP by May 9, 2014.

If you have questions regarding this event, please email Christie Dillard at cdillard@acacompliancegroup.com or call her at (212) 868-5940.

Attendance is limited to 50, so please RSVP at your earliest convenience to guarantee your reservation.

Category: Uncategorized

 

Boston Event: Are You Properly Claiming Compliance with the GIPS® Standards? (May 15, 2014)

Time:
Thursday
May 15, 2014
3:00 p.m. – 5:00 p.m.
(Cocktail reception to follow)

Location:
Langham Hotel Boston
250 Franklin Street
Boston, MA 02110

RSVP

Description:

ACA Performance Services invites you to attend the complimentary event “Are you Properly Claiming Compliance with the GIPS Standards?” on May 15 in Boston.

A firm that claims compliance with the Global Investment Performance Standards (GIPS®) is required to comply with all of the requirements of the GIPS standards. These requirements may be found in various forms, including Q&As, Guidance Statements, and interpretations in the GIPS Handbook, in addition to the provisions themselves. During this complimentary presentation, Alicia Hyde and Karyn Vincent will cover some of the more than 50 requirements outside the GIPS provisions that a GIPS-compliant firm must consider to ensure the firm is properly claiming compliance with the GIPS standards. Alicia and Karyn will also provide best practice advice through client examples and Q&As.

Meeting Agenda

Registration 3:00 p.m. to 3:30 p.m.
Presentation 3:30 p.m. to 4:30 p.m.
Networking Cocktail Reception 5:00 p.m. to 6:00 p.m.

If you have questions regarding this event, please email Christie Dillard at cdillard@acacompliancegroup.com or call her at (212) 868-5940.

Attendance is limited to 50, so please RSVP at your earliest convenience to guarantee your reservation.

Category: Uncategorized

 

FRA Hedge Fund Compliance Master Class Conference (February 26, 2014)

Location: New York, NY

Speaker: Scott Brindley

Link to event: http://www.frallc.com/pdf/B900.pdf

ACA Discount Code for Registration:  If you plan to attend, please use our 15% sponsor discount code FSM242 when you register.

Category: 2014 Speaking Engagements

 

The Three (Not So) Little Pillars of Effective Compliance Programs (February 2014)

Publication: NSCP Currents

Issue: February 2014

Author: Erik Olsen, Senior Principal Consultant, ACA Compliance Group

Click to view article.

Category: Compliance Articles

 

SEC Hits the “Reset Button” on Enterprise Risk Management (November 2013)

Publication: NSCP Currents

Issue: November 2013

Author: Dan Campbell, Senior Principal Compliance Consultant, ACA Compliance Group

Click to read the article.

Category: Compliance Articles

 

Rule 5b-3 – Removal of References to Minimal Credit Ratings (February 19, 2014)

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires the SEC to eliminate references to minimum credit ratings by “nationally recognized statistical rating organizations” (“NRSROs”) from its rules. To comply with this mandate, on December 27, 2013, the SEC adopted amendments to Rule 5b-3 under the Investment Company Act of 1940 (“IC Act”), as well as to Forms N-1A, N-2, and N-3 (the “Forms”). The revisions became effective February 7, 2014, and have a compliance date of July 7, 2014.

Amendments to Rule 5b-3
The SEC adopted Rule 5b-3 to make it easier for funds to invest in repurchase agreements. Section 5(b)(1) of the IC Act limits the amount a “diversified” fund can invest in the securities of any one issuer, and Section 12(d)(3) limits a fund’s ability to invest in securities issued by securities-related businesses, including broker-dealers. Because a repurchase agreement could be considered an acquisition of an interest in the counterparty to the agreement, Section 12(d)(3) could limit a fund’s ability to enter into repurchase agreements with counterparties that are broker-dealers and Section 5(b)(1) could limit the amount of repurchase agreements a diversified fund could enter into with any one counterparty.

Rule 5b-3 allows a fund to “look through” fully collateralized repurchase agreements and treat them as an acquisition of the underlying collateral securities as opposed to an interest in the counterparty. Under the current rule, the collateral for such agreements may only consist of (i) cash items, (ii) government securities, (iii) securities rated in the highest category by an NRSRO at the time of the agreement, and (iv) unrated securities comparable in credit quality to those rated in the highest category by an NRSRO. The latter determination would be made by a fund’s board of directors (the “Board”) or a delegate (e.g., the fund’s investment adviser).

The amendments eliminate the references to NRSROs in (iii) and (iv) above. The rule now requires, for all collateral securities that are not cash items or government securities, the Board or its delegate to affirmatively determine prior to entering into the repurchase agreement that each collateral security: (i) is issued by an entity with exceptionally strong capacity to meet its financial obligations on the collateral securities and (ii) is sufficiently liquid to be sold for approximately its carrying value in the ordinary course of business within seven calendar days.

In adopting the amendments, the SEC did not establish specific factors to consider as part of the credit analysis. In doing so, it noted that no single reliable measure of credit risk exists. Therefore, each Board or delegate must establish a sufficiently robust process for determining minimal credit risk. The amendments do not preclude using credit assessments made by third parties, including NRSROs, as part of this analysis. However, the Board or its delegate may not rely solely on such assessments without conducting additional due diligence on the credibility and reliability of the third party and its evaluations. The SEC also states that Boards can adopt standards more stringent than those required in the amended rule. In addition, it makes clear that, for asset-backed collateral securities, the Board or its delegate is expected to consider the security’s structure and the quality of its underlying assets when determining minimal credit risk.

Finally, funds that enter into repurchase agreements and rely on Rule 5b-3 must adopt written policies and procedures reasonably designed to comply with the rule’s specifications. Funds that have previously adopted Rule 5b-3 policies and procedures should review them to ensure they reflect the amendments. The SEC indicates in the adopting release that it expects such procedures to identify the person(s) or function(s) responsible for making credit and liquidity determinations and the process used. The latter description should include the factors considered in the analysis. In addition, to the extent the delegate makes minimal credit risk determinations, the procedures should provide for Board oversight, including regular reporting by the delegate on these determinations as appropriate.

Amendments to Forms N-1A, N-2, and N-3
The Forms require shareholder reports to include a graphical depiction of portfolio holdings grouped into reasonable categories. These categories could include the securities’ credit quality. The current Forms require holdings to be grouped using the credit ratings assigned by a single NRSRO if the chart or graph uses credit quality to present portfolio holdings.

The amendments to the Forms eliminate this requirement. Funds that present portfolio holdings according to credit quality may continue to use ratings assigned by a single NRSRO or they may use alternative categorizations (e.g., internal assessments or ratings by other third parties that are not NRSROs). The amendments are designed to give funds added flexibility. However, the SEC does note certain circumstances where the depiction could be problematic. For example, if a fund relies on internal credit assessments, it could be misleading to depict the holdings using nomenclature similar to that of rating agencies (e.g., “AAA” or “A+”). In another instance, if a fund uses third-party credit ratings, it could be misleading if the fund always chooses the highest credit rating when securities are split-rated and does not provide adequate disclosure.

The amendments do not specifically prohibit any of these practices. However, they do impose additional disclosure requirements when portfolio holdings are depicted by credit quality that must be included near to or as a part of the graphical presentation. Regardless of how credit quality is determined, the amendments require the fund to include a description of the method used. Specifically, the disclosure should state “the credit quality evaluation process, the rationale for its selection, and an overview of the factors considered, such as the terms of the security…, the obligor’s capacity to repay the debt, and the quality of any collateral.” Where third-party credit ratings are used, funds should specifically disclose (i) the criteria or process for selecting the ratings (e.g., median rating), (ii) the method used to evaluate the criteria or process, (iii) the fund’s process for selecting alternative credit ratings (e.g., if the fund uses a single rating agency that does not rate a particular portfolio holding or if the portfolio holds a security that is not rated by any rating agency), and (iv) other fund policies as necessary.

For more information on our consulting services or to learn more about our Investment Company Services Division, please email Nick Prokos or Shannon Behara.

Category: Compliance Alerts

 

Denver Broker-Dealer and Investment Adviser Roundtable (May 22, 2014)

Title: Denver Broker-Dealer and Investment Adviser Roundtable

Time: 8:30 a.m. – 11:30 a.m.

Date: May 22, 2014

Co-sponsored by: ACA Compliance Group, Morrison & Foerster, and ALPS

Location: Marriott Denver City Center, 1701 California St., Denver, CO  80202

RSVP

On May 22, 2014, ACA, ALPS, and Morrison & Foerster will offer a focused seminar for in-house counsel and compliance officers. In this seminar, experienced panelists from ACA, ALPS, Morrison & Foerster and the industry will discuss topics relevant to the regulatory requirements unique to broker-dealers and investment advisers. This event is complimentary.

Topics could include:

  • Conflicts of Interest Management
  • Information Barriers and Insider Trading
  • Surveillance Program Development
  • Regulatory Priorities

Roundtable discussion panelists include:

  • Brad Burgtorf, Panelist, Senior Principal Consultant, ACA Compliance Group
  • Kelley Howes, Of Counsel, Partner, Morrison & Foerster
  • Daniel Nathan, Panelist, Partner, Morrison & Foerster
  • Brad Swenson, Panelist, Chief Compliance Officer, ALPS
  • Steve Price, Panelist, Deputy Chief Compliance Officer, ALPS
  • Stephanie Barres, Panelist, Chief Compliance Officer, Mountainview Securities LLC
  • Molly Campbell, Panelist, Chief Compliance Officer, RCF Management LLC

Note that, if desired, discussion questions may be submitted anonymously prior to the meeting.

Please contact Dee Stafford at dstafford@acacompliancegroup.com with any questions.

Category: Uncategorized

 

Chicago Broker-Dealer Roundtable (June 24, 2014)

Title: Chicago Broker-Dealer Roundtable

Time: 8:30 a.m. – 11:30 a.m.

Date: June 24, 2014

Co-sponsored by: ACA Compliance Group and Ulmer Berne

Location: Offices of Ulmer Berne, 500 West Madison St, Chicago, IL 60661

RSVP

On June 24, 2014, ACA and Ulmer & Berne will offer a complimentary broker-dealer focused seminar for in-house counsel and compliance officers. In this seminar, expert panelists from FINRA, Ulmer & Berne, ACA and the industry will discuss topics relevant to the regulatory requirements unique to broker-dealers.

Regulatory Speaker:

  • Yvonne Harris, Surveillance Director, FINRA Chicago District

Roundtable Discussion Panelists

  • Travis Dragomani, Senior Principal Consultant, ACA Compliance Group
  • Kenneth Wagner, Chief Compliance Officer, William Blair & Company LLC
  • Alan Wolper, Partner, Ulmer & Berne
  • Joseph McDermott, Chief Compliance Officer,Keeley Investment Corp

Topics could include:

  • Regulatory Priorities
  • Conflicts of Interest Management
  • Information Barriers and Insider Trading
  • Surveillance Program Development

CLE will be offered.

Note that, if desired, discussion questions may be submitted anonymously prior to the meeting.

Please contact Dee Stafford dstafford@acacompliancegroup.com with any questions.

There is no charge for this event.

Category: Uncategorized

 

Columbus Broker-Dealer Roundtable (July 15, 2014)

Title: Columbus Broker-Dealer Roundtable

Time: 8:30 a.m. – 11:30 a.m.

Date: July 15, 2014

Co-sponsored by:  ACA Compliance Group. Bryan Cave, Global Relay and ExamFX

RSVP

Please join us for a complimentary workshop focused on helping broker-dealer and investment adviser compliance professionals deal with today’s tough regulatory challenges. Our industry-knowledgeable speakers and panelists from FINRA, Global Relay, ExamFX, Bryan Cave, ACA and the industry will discuss topics relevant to regulatory requirements.

Regulatory Speaker:
Mark Koerner, FINRA, Regional Chief Counsel and Associate Vice President

Roundtable Discussion Panelists:

  • Brad Burgtorf , Senior Principal Consultant, ACA Compliance Group
  • Francois Cooke, Managing Director, ACA Compliance Group
  • Jarrett Jacobs, Chief Compliance Officer, Fifth Third Securities, Inc.
  • William Leuby, Chief Compliance Officer, Hamilton Capital Management
  • Deirdre Patten, President, Patten Training
  • John Russo, Vice President, Global Relay
  • Tim Stearns, Chief Compliance Officer, Touchstone Securities, Inc.
  • Jeffrey Ziesman, Counsel, Bryan Cave

Schedule:

8:30 a.m. Registration and Breakfast
9:00 a.m. Regulatory Speaker
9:30 a.m. Broker-Dealer Session, topics could include:

  • Conflicts of interest
  • Information barriers
  • Surveillance programs
  • Cybersecurity
  • Complex products
  • AML
10:30 a.m. Investment Adviser Session, topics could include:

  • Cybersecurity
  • Custody
  • Need for robust compliance program
  • Performance advertising
  • Social media
  • SEC examination priorities
  • Never-before examined initiative

 

Note that, if desired, discussion questions may be submitted anonymously prior to the meeting.

Please contact Dee Stafford dstafford@acacompliancegroup.com with any questions.

*CLE will be offered.
This course has been approved by the Supreme Court of Ohio Commission on Continuing Legal Education for 2.50 total CLE hour(s) instruction.

 

Category: Roundtables, Uncategorized

 

Expanded Definition of “Knowledgeable Employee”- Rule 3c-5 (February 13, 2014)

On February 6, the SEC’s Division of Investment Management (“IM”) issued a no-action letter to the Managed Funds Association (“MFA”). The document expands and modifies IM’s prior guidance on who qualifies as a “knowledgeable employee” pursuant to Rule 3c-5 under the Investment Company Act of 1940 (“the IC Act”). Rule 3c-5 permits a knowledgeable employee of a private fund or of an affiliated person that manages a private fund’s investment activities to invest in the fund without counting toward the 100-person limit or needing to be a qualified purchaser as required by Sections 3(c)(1) and 3(c)(7), respectively, of the IC Act.

Executive Officers and Policymaking Employees
The first category of knowledgeable employee includes persons who are executive officers or serve in a similar capacity, such as the head of a principal business unit or any other office performing policymaking functions who is a “sophisticated professional with a broad understanding of the investment manager’s operations and investment program.” The IM letter clarifies that whether a business unit carries principal status is determined by facts and circumstances based on an adviser’s specific business operation. It notes that neither size nor involvement in investment activities solely determines principal status.

For example, the IT department of an investment manager that employs technologically driven trading models to generate trade orders and which employs IT professionals to build those models and/or performance and risk-monitoring systems that interact with the investment program could be deemed a principal business unit. Similarly, an Investor Relations (“IR”) department that conducts substantive portfolio reviews with investors and responds to institutional investors’ substantial due diligence inquiries could also be deemed a principal business unit. However, if the IR department only arranges meetings between prospective investors and investment staff or disseminates investor communications written by executives outside the IR department, IM would not consider that department to be a principal business unit.

An individual who has day-to-day involvement in developing and adopting policies for or on behalf of an investment manager, whether or not a senior manager, could also be considered a knowledgeable employee. This involvement requirement can be met by having active membership in a group such as a valuation committee. An employee who merely observes committee proceedings and provides the committee with information, however, would not meet this standard.

Participation in Investment Activities

The second category of knowledgeable employees includes “Participating Employees” who, in connection with regular functions or duties, take part in investment activities of an investment adviser or the private funds it manages and have done so for at least 12 months. For example, in a no-action letter to the American Bar Association Section of Business Law issued in April 1999, IM stated that a research analyst who researches all portfolio investments and provides recommendations to the portfolio manager could be considered a knowledgeable employee. In this letter, IM modifies its prior guidance to include an analyst who researches only a portion of the portfolio’s investments as a knowledgeable employee for purposes of Rule 3c-5. IM provided a number of additional examples of employees who would qualify under this new guidance because they provide analysis or advice that is material to portfolio manager investment decisions.

IM further expands its previous guidance by stating that an employee of an investment adviser to private funds who participates in investment activities for separate accounts of clients otherwise eligible to invest in the adviser’s managed funds, and whose accounts pursue substantially similar investment objectives to those of one or more of the private funds, could also be considered a Participating Employee.

IM also now states that if an investment adviser filed a single Form ADV on behalf of itself and relying advisers affiliated with the filing adviser as part of a single advisory business, then a knowledgeable employee of the filing adviser or any of its relying advisers may be deemed a knowledgeable employee with respect to any private fund managed by the filing adviser or any of its relying advisers.

Finally, IM states that other employees may qualify as knowledgeable employees under Rule 3c 5 based on a determination of the facts and circumstances of the adviser or fund’s particular business. Any such determination should be appropriately documented. The documentation should include a list of employees permitted to invest in a private fund managed by the adviser. It should also describe the basis for the permission.

The full text of the MFA no-action letter can be found here. Please contact your ACA consultant or Damon Zappacosta at (212) 868-5940 with any questions or for more information.

Category: Compliance Alerts

 

SEC Will Focus on Newly Registered and Never-Before Examined Advisers in 2014 (February 13, 2014)

“The probability that you will be examined next year probably is greater than it was this year or in prior years.”

Andrew Bowden,
Director SEC Office of Compliance Inspections and Examinations
October 31, 2013

Dear Clients and Friends,

Have you been examined by the SEC? Are you fully prepared for your first inspection?

As discussed in our Alert on January 17, 2014, the U.S. Securities and Exchange Commission recently announced its examination priorities for 2014. As part of these priorities, the SEC will launch a “Never-Before Examined Advisers” initiative. The initiative will focus on advisers that have been registered for more than three years but never examined. SEC staff members discussed the initiative at the SEC’s Compliance Outreach Program National Seminar on January 30 and stated that the Commission’s goal is to examine 25 to 40 percent of such advisers over the next two years. In addition, the SEC will continue the “Presence Exams” initiative it began in 2012. As before, these exams will target private fund advisers that have registered since Section 402 of the Dodd-Frank Act took effect.

In continuing its Presence Exams, the SEC plans to concentrate on higher-risk areas such as marketing and fundraising, portfolio management, conflicts of interest, custody and safekeeping of client assets, and valuation. Similarly, exams for the Never-Before Examined Advisers initiative are expected to be focused and risk-based. While such exams may have a narrow scope at the onset, SEC examiners have the authority to expand the scope of the review as they deem necessary. In fact, SEC staff indicated recently that Presence Exams have led to further action more often than other types of exams.

Registered investment advisers that have not yet been examined should prepare to undergo an SEC inspection in 2014 and demonstrate that they maintain high-quality compliance programs. Advisers can do so by, among other things,

  • maintaining current, comprehensive, and customized compliance policies and procedures;
  • confirming that all required records are being retained and can be produced promptly;
  • ensuring that employees are well-prepared for intense questioning on complex areas; and
  • creating and maintaining detailed documentation to support testing (e.g., email surveillance) and other compliance-related activities.

ACA specializes in preparing registered investment advisers for SEC inspections. In fact, our team of former SEC examiners and in-house compliance professionals conducts hundreds of mock SEC inspections each year to help firms ensure they are adequately prepared. The mock SEC inspections include

  • thorough scrutiny of compliance policies, procedures, and processes;
  • comprehensive books and records reviews;
  • extensive interviews of key employees;
  • walk-throughs of critical systems; and
  • detailed forensic testing.

For more information on ACA’s services, please email Luke Wilson or call (312) 505-0307.

Category: Compliance Alerts

 

Minneapolis Broker-Dealer and Investment Adviser Roundtable (July 29, 2014)

Title: Minneapolis Broker-Dealer and Investment Adviser Roundtable

Time: 8:30 a.m. – 11:30 a.m.

Date: July 29, 2014

Co-sponsored by: ACA Compliance Group and Faegre Baker Daniels

Location: Faegre Baker Daniels Office at 2200 Wells Fargo Center, 90 S. Seventh Street, Minneapolis, MN 55402

RSVP

On July 29th ACA and Faegre Baker Daniels will offer for a complimentary workshop focused on helping broker-dealer and investment adviser compliance professionals deal with today’s tough regulatory challenges. Our industry-knowledgeable speakers and panelists from Faegre, ACA and the industry will discuss topics relevant to regulatory requirements.

Note that, if desired, discussion questions may be submitted anonymously prior to the meeting.

Please contact Dee Stafford dstafford@acacompliancegroup.com with any questions

Schedule:

8:30 a.m. Registration and Breakfast
9:00 a.m. Regulatory Speaker
9:30 a.m. Broker-Dealer Session
10:15 a.m. Investment Adviser Session
11:00 a.m. Regulatory Exams and Hot Topics

Panelists:

  • Brad Burgtorf, Senior Principal Consultant, ACA Compliance Group
  • Matthew Bogart, Chief Compliance Officer, Carval Investors, LLC
  • Andrea Golis, Chief Compliance Officer, Thrivent Investment Management Inc.
  • Stephen Kyllo, Chief Compliance Officer, DST Market Services, LLC
  • Michael MacPhail, Partner, Faegre Baker Daniels
  • Matthew Thompson, Partner, Faegre Baker Daniels

 

Category: Roundtables

 

Adviser Due Diligence Processes for Selecting Alternative Investments and Their Respective Managers (February 10, 2014)

On January 28, 2014, the SEC’s National Exam Program (“NEP”) issued a risk alert on “Investment Adviser Due Diligence Processes for Selecting Alternative Investments1 and Their Respective Managers.” In the alert, the SEC staff note that determining whether an alternative investment is in the client’s best interests requires advisers to ensure the investment falls within the client’s investment objectives and suits the client’s investment principles and strategies, risk tolerance, and time horizon.

The alert also recounts how, while examining at least 10 SEC-registered investment advisers that invested in or recommended private fund and fund of private fund investments, the SEC staff identified four primary industry trends and three “warning indicators or awareness signals” for advisers regarding their due diligence processes. For the industry trends, the staff noted that advisers are

  • seeking more and broader information directly from alternative investment managers,
  • supplementing their internal analysis with that of third-party service providers to validate information regarding alternative investments,
  • performing additional quantitative analyses and risk measures on alternative investments and their managers, and
  • enhancing and expanding due diligence processes and focus areas.

The SEC staff also observed that advisers using some or all of the due diligence methods noted above did so to help identify certain risk indicators, which are described in detail in the alert, regarding investment, operations, and risk management. Some of these indicators led advisers to conduct additional due diligence analysis, request managers to make appropriate changes, or reject (or veto) the manager or the alternative investment altogether.

The staff concludes the risk alert with an assessment of adviser compliance with the Advisers Act. They noted that, while not specifically required, advisers that consistently applied their written formal due diligence policies and procedures or guidance, required adequate documentation of these policies and procedures, and included due diligence in the annual compliance program review were less likely to lapse in their selection and monitoring of portfolio investments and their related third-party managers.

Another observation made by the staff was that some adviser disclosures to clients on their due diligence processes deviated from actual practices to varying degrees and that marketing materials contained unsupportable statements about due diligence scope and depth that could be misleading.

In addition, some advisers had delegated certain responsibilities to third-party service providers but did not periodically review their providers to ensure adherence to contract terms. These advisers were therefore unaware of any compliance deficiencies regarding the contracts.

Finally, the staff noted that some advisers failed to consistently maintain a record of decisions and their supporting rationale with regard to approving securities acquisitions by their access persons, in particular private funds managed by the adviser. The staff was particularly concerned with respect to advisers granting related persons preferential terms for investments in the advisers’ private funds. The staff feels this type of arrangement may create a conflict of interest that incentivizes employees to make investment decisions that benefit the employee or the firm rather than the client.

ACA recommends that advisers read the full details of this risk alert, critically review their due diligence practices with the observations in mind, and then consider making the changes needed to remediate any noted deficiencies.

We also note that we regularly assist advisers with their due diligence processes by conducting on-site or off-site program assessments. These reviews, performed by our highly experienced industry consultants, focus on

  • identifying and reviewing due diligence program representations;
  • scrutinizing due diligence policies, procedures, and practices;
  • evaluating books and records supporting due diligence activities; and
  • interviewing key process owners.

ACA is one of the world’s largest employers of former SEC, FINRA, NFA, FCA, and state inspectors. We provide compliance advice and assistance internationally to some of the best-known and respected allocators to alternative managers. We use our regulatory expertise to help firms ensure their due diligence programs include industry best practices and meet regulatory expectations.

For more complete information on the NEP due diligence alert and/or ACA’s due diligence assessment services, please email Luke Wilson or call him at (312) 505-0307

Category: Compliance Alerts, Uncategorized

 

2014 SEC Broker-Dealer Examination Priorities (February 6, 2014)

On January 9, 2014, the SEC’s National Examination Program (“NEP”) released its 2014 examination priorities. These latest NEP-wide initiatives focus on fraud detection and prevention, corporate governance and enterprise risk management, technology, issues posed by dually registered broker-dealers and investment advisers, new laws and regulations, and retirement investments and rollovers.

The key NEP areas that relate to broker-dealers are set out below:

  • Sales Practice/Fraud – The broker-dealer examination program will concentrate on the following areas as they relate to sales practices and fraud:
    • Fraud that targets seniors or other special groups
    • Penny stock fraud and pump-and-dump schemes
    • Unsuitable recommendations of high-yield complex products, in particular with regard to conducting adequate new product due diligence
    • Unregistered entities, unregistered offerings, and other unusual capital-raising activities
  • Supervision – The SEC staff will continue to review for instances where broker-dealers have not properly supervised the following:
    • Independent contractors
    • Financial advisers in “remote” locations and large branch offices
    • Registered representatives with significant disciplinary histories
    • Private securities transactions
  • Trading – The SEC staff will focus on reviewing market access controls, specifically those that relate to these areas:
    • Erroneous orders
    • Use of technology, especially algorithmic and high-frequency trading
    • Information and cyber security
    • Market manipulation involving practices such as marking the close
    • Parking
    • Fraudulent stimulation of demand (spoofing)
    • Excessive markups and markdowns
  • Internal Controls – The SEC staff will focus on broker-dealers’ internal control structures and policies as they relate to the following:
    • Liquidity
    • Credit and market risk
    • Internal audits
    • Valuation practices
    • Compliance
  • Financial Responsibility – The SEC staff will seek to determine how broker-dealers’ policies and procedures address compliance with the customer protection and net capital rules. Specifically, they will review compliance with assets collateralizing large concentrated customer debit balances and inventory liquidity.
  • Anti-Money Laundering (“AML”) - The SEC staff’s review of policies and procedures related to AML regulations is an ongoing NEP priority. In this area, examiners will focus on, among other things, compliance and relationships between introducing and clearing firms.

Other key notable exam priorities related to new and emerging issues and initiatives include broker-dealer compliance with Exchange Act Rule 15c3-5 (“Market Access Rule”), the suitability of variable annuity buybacks, and fixed-income products.

Please email Dee Stafford or call her at (310) 322-8840 with any questions on the 2014 NEP examination priorities.

Category: Compliance Alerts

 

Capital Roundtable – BDC (February 6, 2014)

Location: New York, NY

Category: 2014 Speaking Engagements

 

Kansas City Broker-Dealer Roundtable (August 5, 2014)

Title: Kansas City Broker-Dealer Roundtable

Time: 8:30 a.m. – 11:30 a.m.

Date: August 5, 2014

Co-sponsored by:  ACA Compliance Group. Bryan Cave, Global Relay and ExamFX

Location: ExamFX, 11161 Overbrook Road, Leawood, KS 66211

RSVP

Please join us for a complimentary workshop focused on helping broker-dealer and investment adviser compliance professionals deal with today’s tough regulatory challenges. Our industry-knowledgeable speakers and panelists from FINRA, Global Relay, ExamFX, Bryan Cave, ACA and the industry will discuss topics relevant to regulatory requirements. Please join us for a complimentary workshop focused on helping broker-dealer and investment adviser compliance professionals deal with today’s tough regulatory challenges. Our industry-knowledgeable speakers and panelists from FINRA, Global Relay, ExamFX, Bryan Cave, ACA, and the industry will discuss topics relevant to regulatory requirements.

There is no charge for this event.

Schedule:

8:30 a.m. Registration and Breakfast
9:00 a.m. Regulatory Speaker
9:30 a.m. Broker-Dealer Session
10:15 a.m. Investment Adviser Session
11:00 a.m. Regulatory Exams and Hot Topics

If you are interested in receiving an invitation to this event please contact Dee Stafford at dstafford@acacompliancegroup.com for more information.

Category: Roundtables

 

SEC 2014 Exam Priorities and International Examinations (February 5, 2014)

On January 9, 2014, the United States Securities and Exchange Commission (“SEC” or “Commission”) announced its examination priorities for investment advisers in 2014. These priorities focus on industry-wide issues and on areas specific to particular business models and organizations.

The industry-wide priorities include the following:

  • Fraud detection and prevention
  • Corporate governance and enterprise risk management, including “tone at the top”
  • Governance and supervision of information technology systems, including information security, disaster recovery, and business continuity capabilities
  • Issues posed by the convergence of broker-dealer and investment adviser businesses
  • Issues posed by new rules and regulations, including the “bad actor” rules, the JOBS Act changes to solicitation for unregistered offerings, and the new municipal adviser registration requirements
  • Retirement investments and rollovers

The priorities particular to registered advisers include these areas:

  • Safety of client assets and custody, including compliance with the Custody Rule and advisers’ identification of custody relationships
  • Conflicts of interest inherent in certain investment adviser business models, including adviser compensation arrangements, investment opportunity allocation, side-by-side management of performance-based fee accounts and asset-based-only fee accounts, and investment suitability for particular client types
  • Marketing and performance, including accuracy of adviser claims regarding investment objectives and performance figures, use and disclosure of composite performance figures, recordkeeping, and marketing activity compliance oversight
  • Wrap fee programs, including related conflicts of interest, best execution, trading away from sponsors, and disclosures
  • Quantitative trading models, including compliance policies and procedures tailored to performance and maintenance of proprietary models
  • Fixed-income Investment Company Act of 1940 (“40 Act”) funds, including risks associated with a changing interest-rate environment, potential impact on bond funds, and related risk disclosures to investors
  • Money market 40 Act funds, including management of potential stress events
  • Securities lending arrangements, including compliance with exemptive orders and relevant no-action letters
  • Payments for advisory product distributions (e.g., private funds and 40 Act funds), including variety of payments made by advisers and funds to distributors and intermediaries, adequacy of disclosure made to fund boards about payments, and board oversight

In 2014, the SEC staff will concentrate on “never-before-examined” advisers while continuing to inspect newly registered alternative fund managers through “presence examinations.” The five key focus areas of the latter are marketing, portfolio management, conflicts of interest, safety of client assets, and valuation.

As you may know, the SEC was in London in September 2013 conducting examinations of registered investment advisers. The Commission does not appear to be satisfied with the review results. Drew Bowden, head of the Commission’s National Investment Adviser/Investment Company Examination Program, specifically noted the agency’s disappointment with the exam outcomes while speaking at the November 21, 2013 “SEC Regulation Outside the United States” conference in London. Bowden stated that almost all the London advisers examined had numerous deficiencies. In certain cases, the number and nature of deficiencies led the SEC staff to consider referring those advisers to the Enforcement Division.

Bowden further observed that the SEC is aware of the amount of U.S. money managed by firms outside the United States, especially in London, Hong Kong, and Canada. He also indicated that the SEC will continue examining internationally registered advisers in 2014.

For more information on the SEC’s examination program and ACA’s SEC examination preparedness services, please contact Gina Galang at ggalang@acacompliancegroup.com or +852 2251 8371.

Category: Compliance Alerts

 

GAIM Regulation (February 4, 2014)

Location: New York, NY
Speaker: Colleen Marencik

Topic: Electronic Communications

Category: 2014 Speaking Engagements

 

St. Louis Broker-Dealer and Investment Adviser Roundtable (September 30, 2014)

Title: St. Louis Broker-Dealer and Investment Adviser Roundtable

Time: 8:30 a.m. – 11:30 a.m.

Date: September 30, 2014

Co-sponsored by: ACA Compliance Group and Sidley Austin LLP

On June 3, ACA and Sidley Austin LLP will offer a broker-dealer and investment adviser focused seminar for in-house counsel and compliance officers. In this seminar, expert panelists from Sidley Austin LLP, ACA, and the industry will discuss topics relevant to the regulatory requirements unique to these types of firms.

There is no charge for this event.

If you are interested in receiving an invitation to this event please contact Dee Stafford at dstafford@acacompliancegroup.com for more information.

Category: Roundtables

 

Annual Update of Form ADV (January 31, 2014)

SEC-registered investment advisers with a fiscal year ending December 31 are required to file an annual amendment with the SEC to update their Form ADV by March 31, 2014. To help firms with this upcoming filing, we address some frequently asked questions about completing the form here.

Form ADV Part 1A, Item 1

Q: Item 1.M asks if the adviser is registered with a foreign financial regulatory authority. If the adviser has an affiliated entity that is registered with a foreign financial regulatory authority, should this item be marked “yes”?

A: No. This item should only be marked “yes” if the adviser itself is registered with a foreign financial regulatory authority. If the adviser has an affiliated entity, such as a parent company or a subsidiary, that is registered with a foreign financial regulator, the answer should be “no.”

Form ADV Part 1A, Item 5

Q: In response to Item 5. C.(1), advisers must indicate the approximate number of clients to which they provided investment advisory services during their most recently completed fiscal year. Should an adviser to a private fund count the investors in the private fund when responding to this question?

A: No. The private fund is counted as a client of the adviser, but the investors in the private fund are not counted as clients. Advisers should only count an investor as a client if the adviser has a separate advisory relationship with that investor.

Form ADV Part 1A, Item 9

Q: Item 9 requests information related to the custody of client assets. In item 9.A., advisers are required to identify the number of clients and the total dollar amount of the assets over which it has custody. In Item 9.B., advisers are required to identify the number of clients and the total dollar amount of the assets over which its related persons have custody. If the adviser has an affiliated entity which serves as a general partner to a private fund client, how should the adviser respond to these questions?

A: An adviser has custody if its affiliated entity serves as a general partner to a client and thereby has the authority to obtain possession of client funds or securities. Therefore, items 9.A.(1)(a) and (b) should be marked “yes.” Items 9.B.(1)(a) and (b) should also be marked “yes” since the affiliated general partner is the entity that has custody over a client’s funds and securities. Questions (a) and (b) under items 9.B.(2) requesting the approximate amount of client funds and securities and total number of clients for which the adviser’s related persons have custody should be answered, while the similar questions under 9.A.(2) should be answered with “0″ to avoid double counting.

Form ADV, Schedule D

Q: Section 7.B.(1), Question 11 requires advisers to report the gross asset value of private funds to which they provide investment advice. How should the gross asset value be calculated?

A: Advisers should use the same method of asset calculation as they do for calculating RAUM for Item 5.F, that is, include uncalled capital commitments and do not deduct any outstanding indebtedness or other accrued unpaid liabilities.

Q: For advisers to private funds whose financial statements are subject to annual audits, Section 7.B.(1), Question 23(h) asks if the private funds’ audit reports contain an unqualified opinion. If the choice “Report Not Yet Received” is selected, is the adviser required to update the Form ADV when the audit report is available?

A: Yes. Advisers that select “Report Not Yet Received” must remember to promptly file an amendment to the Form ADV to update this response when the audit report is available.

Each year, ACA assists hundreds of clients in completing their annual ADV amendments by the filing deadline. If you would like similar IARD administration assistance, please contact your ACA consultant or Damon Zappacosta at (212) 868-5940.

Best regards,

ACA Compliance Group

 

 
Category: Compliance Alerts

 

PEI CFO and COO Forum 2014 (January 22-23, 2014)

Location: New York, NY

Speaker: Ted Eichenlaub

Category: 2014 Speaking Engagements

 

Are You Properly Claiming Compliance with the GIPS Standards? (February 26, 2014)

RSVP
By February 21, 2014

rsvp

Location:
Millennium Biltmore Hotel Los Angeles
506 South Grand Avenue
Los Angeles, CA 90071

Speakers:
Justin Guthrie, Karyn Vincent

 

ACA Performance Services invites you to attend the event “Are you Properly Claiming Compliance with the GIPS Standards?” on February 26 in Los Angeles.

A firm that claims compliance with the Global Investment Performance Standards (GIPS®) is required to comply with all of the requirements of the GIPS standards. These requirements may be found in various forms, including Q&As, Guidance Statements, and interpretations in the GIPS Handbook, in addition to the provisions themselves. During this complimentary presentation, Justin Guthrie and Karyn Vincent will cover some of the more than 50 requirements outside the GIPS provisions that a GIPS-compliant firm must consider to ensure the firm is properly claiming compliance with the GIPS standards. Justin and Karyn will also provide best practice advice through client examples and Q&As.

Meeting Agenda

Registration 1:30 p.m. to 2:00 p.m.
Presentation 2:00 p.m. to 3:30 p.m.
Networking Cocktail Reception 3:30 p.m. to 5:00 p.m.

Please RSVP by February 21, 2014.

If you have questions regarding this event, please email Christie Dillard at cdillard@acacompliancegroup.com or call her at (212) 868-5940.

Attendance is limited to 50, so please RSVP at your earliest convenience to guarantee your reservation.

Category: Uncategorized

 

Are You Properly Claiming Compliance with GIPS Standards? (February 27, 2014)

When: Thursday, February 27, 2014
1:30 p.m. – 3:30 p.m.
(Cocktail reception to follow)

RSVP
By February 21, 2014

rsvp

Location:
Le Meridien San Francisco
333 Battery Street
San Francisco, CA 94111

Speakers: Justin Guthrie, Karyn Vincent

ACA Performance Services invites you to attend the event “Are you Properly Claiming Compliance with the GIPS Standards?” on February 27 in San Francisco.

A firm that claims compliance with the Global Investment Performance Standards (GIPS®) is required to comply with all of the requirements of the GIPS standards. These requirements may be found in various forms, including Q&As, Guidance Statements, and interpretations in the GIPS Handbook, in addition to the provisions themselves. During this complimentary presentation, Justin Guthrie and Karyn Vincent will cover some of the more than 50 requirements outside the GIPS provisions that a GIPS-compliant firm must consider to ensure the firm is properly claiming compliance with the GIPS standards. Justin and Karyn will also provide best practice advice through client examples and Q&As.

Meeting Agenda

Registration 1:30 p.m. to 2:00 p.m.
Presentation 2:00 p.m. to 3:30 p.m.
Networking Cocktail Reception 3:30 p.m. to 5:00 p.m.

Please RSVP by February 21, 2014.

If you have questions regarding this event, please email Christie Dillard at cdillard@acacompliancegroup.com or call her at (212) 868-5940.

Attendance is limited to 50, so please RSVP at your earliest convenience to guarantee your reservation.

 

 

Category: Uncategorized

 

PEI CFO and COO Forum 2014 (January 22-23, 2014)

Speaker: Ted Eichenlaub

City: New York, NY

Category: 2013 Speaking Engagements

 

2014 SEC Investment Adviser/Investment Company Examination Priorities (January 17, 2014)

On January 9, 2014, the SEC’s National Examination Program (“NEP”) released its 2014 examination priorities. This notice highlights “areas that the [SEC] staff perceives to have heightened risk” for investment advisers and investment companies. It also identifies emerging issues and policy topics the staff plans to review during the coming year. Investment companies and investment advisers, particularly newly registered advisers to hedge funds and private equity funds, should assess whether their internal controls, compliance programs, and risk management practices properly address the NEP concerns and priorities outlined in the notice.

In our view, the key investment adviser and investment company examination focus areas for 2014 described in the NEP notice are as follows.

  • Safety of Client Assets and Custody – The SEC staff will continue to test for compliance with the Custody Rule and adviser identification of custody relationships. It will also continue to confirm the existence of assets using a risk-based asset verification process.
  • Conflicts of Interest Inherent in Certain Investment Adviser Business Models – The staff will continue to review situations in which investment advisers have not properly evaluated or mitigated conflicts of interest such as (i) advisory compensation arrangements, especially when undisclosed, (ii) allocation of investment opportunities, (iii) controls and disclosures related to side-by-side management of performance-based and straight asset-based fee accounts, (iii) risk controls and disclosures, with particular attention paid to illiquid investments and leveraged products and strategies, and (iv) suitability of higher-risk products targeted to certain retail investors such as the elderly or retired.
  • Marketing/Performance – The staff will review for accuracy and completeness adviser claims regarding performance and investment objectives. Focus areas will include (i) use of hypothetical or backtested performance, (ii) use and disclosure of composite figures, (iii) performance recordkeeping, and (iv) compliance oversight of marketing activities in general and in relation to the new JOBS Act rules in particular.
  • Compliance with New Laws and Regulations – The staff will review general solicitation practices and processes followed with respect to the verification of accredited investor status under the newly adopted Rule 506(c) under Regulation D of the Securities Act of 1933. The staff will also conduct reviews to assess compliance with the new rules applicable to municipal advisors. In addition, the staff plans to extend such efforts to any other categories of registrant created or affected by the Dodd-Frank Act.
  • Corporate Governance and Enterprise Risk Management – The staff will seek to determine how firms identify and mitigate legal, compliance, financial, and operational risks and conflicts of interest. This will include assessing the “tone at the top.”
  • Dual Registrants – The staff will continue to conduct examinations of dual-registered and affiliated broker-dealer/investment adviser firms as well as the risk that customers may be placed in inappropriate account types that increase firm revenue with no corresponding customer benefit. Areas of attention will include the risks of customer account migration and the different supervisory structures and standards of conduct that govern the advisory and brokerage services.
  • Use of Technology – The staff will continue to examine the governance and supervision of information technology systems, operational capability, market access, information security, and preparedness to respond to sudden system malfunctions and outages.

The NEP notice also includes six emerging issues that will receive enhanced attention from NEP staff during 2014.

  • Never-Before Examined Advisers – Under this initiative, which is separate from the Presence Exams discussed below, the staff will conduct focused risk-based examinations of advisers that have been registered with the SEC for more than three years but have not yet been examined.
  • Wrap Fee Programs – The staff has identified a number of risk areas related to adviser use of wrap fee programs, including (i) processes in place for monitoring wrap fee programs recommended to advisory clients, (ii) conflicts of interest related to use of wrap fee programs, (iii) best execution, (iv) trading away from the sponsor, and (v) sufficient client disclosures.
  • Quantitative Trading Models – The staff intends to examine advisers that rely substantially on quantitative portfolio management and trading strategies. The SEC will assess whether such advisers have adopted appropriate policies and procedures tailored to the performance and maintenance of proprietary models, including (i) potential use of the models for market manipulation, (ii) reasonable review and testing of the models and their output, (iii) maintenance of proper documentation within required books and records, and (iv) maintenance of an inventory of all proprietary models used by the firm.
  • Presence Exams – The staff will continue its initiative to examine a significant percentage of those advisers registered under Section 402 of the Dodd-Frank Act. The key areas of focus for these exams are (i) marketing, (ii) portfolio management, (iii) conflicts of interest, (iv) safety of client assets, and (v) valuation. The staff plans to prioritize exams of private fund advisers that potentially pose higher risks to investors, that may require broker-dealer registration, or where there have been signs of fraud or other serious wrongdoing.
  • Payments for Distribution in Guise – The SEC staff will continue to review the variety of payments made by advisers and funds to distributors and intermediaries, the adequacy of disclosures made to fund boards about such payments, and the boards’ oversight of these payments. The staff will be looking to determine if these payments are actually payments for distribution and preferential treatment.
  • Fixed-Income Investment Companies – The Commission will be monitoring the risks associated with a changing interest rate environment and the impact this may have on bond funds. The staff will be looking for appropriate disclosures to investors of these risks.

Finally, the notice discusses three policy topics of importance to investment advisers and investment companies.

  • Money Market Funds – The staff will continue examining money market funds, particularly those that have exhibited “outlier behavior,” and focus on how they have managed any stress events.
  • “Alternative” Investment Companies – With respect to funds offering an “alternative” investment strategy, the staff will focus on (i) policies and procedures related to liquidity, leverage, and valuation, (ii) whether boards, compliance personnel, and back offices are appropriately staffed, funded, and empowered, and (iii) the marketing practices related to such funds.
  • Securities Lending Arrangements – The staff will review any securities lending arrangement in place to determine whether it complies with relevant no-action letters and exemptive orders.

For more complete information on the NEP exam priorities for this year, investment advisers and investment companies should review the NEP Examination Priorities for 2014.

Please email Damon Zappacosta or call him at (212)

Category: Compliance Alerts

 

FINRA 2014 Annual Regulatory and Examination Priorities (January 9, 2014)

On January 2, 2014, FINRA released its Regulatory and Examination Priorities Letter for 2014. These priorities represent issues that FINRA will examine across a general population of firms and/or target for reviews. For 2014, the agency’s examinations will focus on areas such as the ones described below.

BUSINESS CONDUCT PRIORITIES

  1. Suitability – FINRA remains concerned regarding the suitability of complex product recommendations to retail investors. These investors generally have difficulty understanding the risks of such products. In the letter, FINRA points to the following types of complex products in this regard:
    • Structured Products
    • Private Real Estate Investment Trusts (REITS)
    • Frontier Funds
    • Interest Rate Sensitive Securities such as Mortgage-Backed Securities, Long Duration Bond Funds, Long Duration Bond ETF’s, Long Duration Corporates, Emerging Market Debt, Municipal Securities, and Baby Bonds
  2. Recidivist Brokers – In 2014, FINRA will target examination firms that hire high-risk brokers. Such brokers have a significant complaint history. Among other things, the exams will evaluate the due diligence and supervision conducted by firms with respect to hiring these individuals and monitoring their activities.
  3. Conflicts of Interest – FINRA will review how firms manage conflicts in light of the considerations noted in its “Report on Conflicts of Interest.”
  4. Cybersecurity – FINRA will review the safeguards firms put in place to protect sensitive customer data.
  5. Qualified Plan Rollovers – FINRA is concerned about investors being misled regarding the costs and fees associated with rolling over 401(k) plans into IRAs. In 2014, reviewing firm rollover practices will be an examination priority. In particular, FINRA staff will assess the marketing materials created and the supervision conducted by firms in this area.
  6. Initial Public Offering Market – FINRA will review firms engaged in public underwriting in 2014. Specifically, it will focus on their due diligence activity and the accuracy of their FINRA Corporate Finance Department filings regarding public underwritings. In addition, the agency will review compliance with rules concerning IPO security sales and allocations, including cold offerings to obtain client allocations of hot offerings.
  7. General Solicitation and Advertising of Private Placements – As of September 23, 2013, amendments to Rule 506 of Regulation D allow general solicitation and advertising for private placements. However, purchasers must still be accredited investors. In light of this new amendment, FINRA will look closely at private placement advertising to make sure it is “fair and balanced.”
  8. Due Diligence and Suitability of Private Placements – Firms should ensure they are conducting reasonable due diligence on all private placements, as this will be a FINRA focus area. In addition, they should make sure recommendations to purchase these investments are suitable.
  9. Offerings of Securities through Private Placements – FINRA has found issues with a number of private placement filings filed under FINRA Rules 5122 and 5123. The agency specifically notes problems such as deficient escrow procedures related to contingent offerings, issuers of private placements being in a distressed financial condition, and serial private placements being sold to repay previous investors. FINRA’s inspections will be alert for these issues as well as check to see that firms make timely and accurate filings regarding these rules.
  10. Anti-Money Laundering (“AML”) – FINRA will examine AML practices related to institutional business. The agency notes specific issues related to liquidating high volumes of low-priced securities in customer DVP/RVP accounts. FINRA also reminds firms that the Customer Identification Program (“CIP”) requirements still apply to DVP/RVP customers.
  11. Municipal Advisors – In September 2013, the U.S. Securities and Exchange Commission (“SEC”) issued final rules regarding municipal advisors. In light of these new rules, FINRA will make municipal advisory activity a focus area.
  12. Crowdfunding Portals – The Jumpstart Our Business Startups (“JOBS”) Act now allows retail investors to purchase unregistered securities offered through crowdfunding websites. Based on the retail investors’ income and net worth, the act limits the amount they can purchase in a 12-month period. FINRA has proposed rules to ensure the JOBS Act’s capital-raising objectives are advanced in a manner that protects investors. As the rules become effective and funding portals become FINRA members, the agency will implement a regulatory program designed to protect investors while taking into account the distinctions between funding portals and broker-dealers.
  13. Senior Investors – FINRA examiners will continue to focus on how firms engage with senior investors. Notably, they will look closely at firms’ suitability determinations, disclosures, and communications. FINRA will also examine the policies and procedures that firms have in place to identify and address potential issues of diminished capacity.

FRAUD PRIORITIES

  1. Microcap Fraud – FINRA suggests that firms conduct heightened supervision on employees that have outside business activities associated with companies traded over the counter (“OTC”). This is an area of significant ongoing concern for the agency. Also, FINRA cautions firms to ensure that research on microcap and low-priced OTC securities is accurate and balanced and appropriately discloses risks to investors.
  2. Insider Trading – As this is an ongoing top priority, FINRA stresses again that firms should continue to safeguard material nonpublic information, as well as assess their information barriers and risk controls periodically.

FINANCIAL AND OPERATIONAL PRIORITIES

  1. Funding and Liquidity Risk – FINRA will continue its focus on how firms monitor for and control liquidity risk. In particular, FINRA will ask firms to perform a liquidity stress test that includes factors important to the resiliency of their liquidity positions.
  2. Risk Control Documentation and Assessment – A recent amendment to Rule 17a-3 of the Securities Exchange Act of 1934 will require broker-dealers that hold more than $1 million in aggregate customer credits or $20 million in capital to document their risk controls. FINRA will check to see that the risk controls of these firms are reasonably designed to mitigate credit, market, and liquidity risks.

MARKET REGULATION PRIORITIES

  1. Algorithmic and High Frequency Trading – FINRA will continue examining whether firms follow the Market Access Rule. This includes assessing the adequacy of controls related to high-frequency trading (“HFT”) and other algorithmic trading strategies.
  2. Best Execution of Equities, Options, and Fixed-Income Securities – FINRA notes that it will focus more closely on compliance with best execution obligations with respect to limit orders in equity securities. The agency will also review situations where a firm potentially ignores a favorable price from one options market and then executes the trade on another market to the customer’s detriment. In addition, it reemphasizes the duty of firms to conduct regular, rigorous execution quality reviews to ensure order flow is being directed to markets that provide the most beneficial terms for customers.

ACA can help your firm assess the potential impact of FINRA’s new regulatory and examination priorities on your firm. For more information on FINRA’s 2014 examination and regulatory priorities, please contact your ACA consultant. You may also call Dee Stafford at (310) 322-8840 or email her at dstafford@acacompliancegroup.com.

Category: Compliance Alerts

 

ACA Compliance Group expands GIPS® verification practice with acquisition of Vincent Performance Services LLC (December 20, 2013)

(New York, NY) December 20, 2013 – ACA Compliance Group (“ACA”), the leading provider of global regulatory compliance consulting and GIPS verification services, announced today that it has acquired a controlling interest in Vincent Performance Services LLC through a merger with ACA Verification Services, LLC, to form ACA Performance Services, LLC. The combination of these two firms further strengthens ACA’s GIPS verification and performance offerings. The financial terms of the transaction will not be disclosed.

Founded in 2003 and based in Portland, Oregon, Vincent Performance Services is dedicated to GIPS verification and related services. The firm’s global client base includes some of the largest institutional asset managers, and its personnel are active volunteers with CFA Institute and the committees that oversee the GIPS standards. All of the Vincent Performance Services staff have joined ACA Performance Services.

By combining the two firms, ACA expands its current footprint to form the largest team of GIPS professionals globally that is solely dedicated to GIPS verification and related services. In 2014, ACA Performance Services will verify over 350 firms, including 25 of the top 100 managers of institutional assets worldwide as ranked by Pensions & Investments Magazine.

“ACA shares our client service philosophy and our personal expectations that we will deliver only the best solutions to our clients,” said Vincent Performance Services founder Karyn Vincent, CFA, CIPM, who will serve as a Partner for ACA Performance Services. “Our partnership will extend the reach of our capabilities to provide the best possible products and services to our clients. Being part of a larger organization will provide our firm with additional resources to leverage our expertise.”

“Our clients across the globe expect ACA to provide the best and most experienced verifiers. Bringing Vincent Performance Services into ACA adds depth to our expertise in GIPS verification and related performance services,” said ACA Performance Services Partner Justin Guthrie, CFA.

ACA Performance Services employs over 30 professionals dedicated to GIPS verification and related services. Over 60 percent of the staff are CFA® charterholders and/or CIPM® certificants, and the combined group brings together more than 180 years of dedicated GIPS verification expertise. ACA expects to add dedicated GIPS staff in London and other strategic global locations.

ABOUT ACA COMPLIANCE GROUP
ACA provides expert compliance consulting services to investment advisers, private fund managers, commodity trading advisors, investment companies, and broker-dealers. ACA additionally provides GIPS verification services and a wide variety of compliance-related educational opportunities.

ACA partners with clients in order to help them build and maintain a strong culture of compliance and sound infrastructure. ACA-developed compliance programs are premised on industry best practices, up-to-date compliance requirements, and robust oversight processes.

Founded in 2002 by former federal and state regulators, ACA delivers the highest quality compliance consulting services with unquestionable integrity and unmatched dedication to its clients. With offices in New York, London, Hong Kong, Boston, Chicago, Los Angeles, and other cities, ACA features an experienced consulting team of former SEC, FINRA, FSA, NYSE, CFTC, NFA, and state regulators, as well as former senior in-house compliance professionals from prominent financial institutions.

For more information, please visit www.acacompliancegroup.com.

CFA and CIPM are trademarks owned by CFA Institute.

 

MEDIA CONTACT

Krissy Kennedy
Director of Marketing
ACA Compliance Group
Phone: (857) 214-1740
kkennedy@acacompliancegroup.com
www.acacompliancegroup.com

Category: Compliance Alerts, Press Releases

 

SEC Hits the “Reset Button” on Enterprise Risk Management

This article was written by ACA Compliance Group’s Dan Campbell and featured in NSCP’s Current Newsletter in November 2013.

http://www.acacompliancegroup.com/documents/SEC-Hits-the-Reset-Button-on-Enterprise-Risk-Management.pdf

Category: Compliance Alerts, Compliance Alerts 2014

 

Miami Broker-Dealer Roundtable (February 11, 2014)

Time: 8:30 a.m. – 11:30 a.m.

Date: February 11, 2014

Co-sponsored by: ACA Compliance Group and Holland & Knight

Location: Offices of Holland & Knight, 701 Brickell Avenue, Miami, FL 33131

On February 11, 2014, ACA and Holland & Knight will offer a broker-dealer focused seminar for in-house counsel and compliance officers. In this seminar, expert panelists from Holland & Knight, ACA, and the industry will discuss topics relevant to the regulatory requirements unique to broker-dealers.

 

Topics to be addressed include:

  • 2014 FINRA Priorities
  • Conflicts Management
  • Complex Products
  • Risk Management
  • Private Placements

 

FINRA Presentation:

Jeffrey Pasquerella, Speaker

Regional Director, FINRA

 

Roundtable Discussion:

Francois Cooke, Panelist
Managing Director, ACA Compliance Group

Mitchell Herr, Panelist
Partner, Holland & Knight

Melinda Wolfe, Panelist
Chief Compliance Officer, Kovack Securities

Note that, if desired, discussion questions may be submitted anonymously prior to the meeting.

There is no charge for this event.

Please contact Dee Stafford at dstafford@acacompliancegroup.com for more information.

 

 

Category: Uncategorized

 

ACA Compliance Group Partners with New Mountain Capital – November 25, 2013

(New York, NY) November 25, 2013 – ACA Compliance Group (“ACA”), the leading global regulatory compliance consultancy, announced today that it has agreed to partner with New Mountain Capital to further grow and expand its business. The transaction will benefit ACA’s current and future clients by providing the firm with strategic guidance and capital necessary to deepen the firm’s regulatory compliance and GIPS® verification offerings, including through technology enhancements. Additionally, the partnership will allow ACA to expand into related corporate governance and risk services.

ACA provides regulatory compliance consulting services to investment advisers, private fund managers, commodity trading advisors, investment companies, and broker-dealers. ACA also provides GIPS® verification services and a wide variety of compliance-related educational opportunities. Founded in February 2002 by former federal and state regulators, ACA features an experienced consulting team of former SEC, FINRA, FSA, NYSE, CFTC, NFA, and state regulators, as well as former senior in-house compliance professionals from prominent financial institutions.

New Mountain Capital was founded in January 2000 with a focus on growth investing. The firm currently manages private equity and public equity capital with aggregate assets under management totaling over $10 billion. New Mountain pursues high quality, mid-market sized companies in key growth industries, and works closely with management after the acquisition to build value.

The transaction, which is expected to close in early December 2013, will launch ACA into its next stage of growth and allow it to feature a suite of risk and corporate governance service offerings tailored to the needs of financial services firms worldwide. In addition, ACA expects to develop and expand its technology capabilities, both internally and via client offerings. In connection with the transaction, ACA expects to seek opportunities for growth on a global basis.

While New Mountain will acquire a controlling interest, the firm’s five original founders and partners will maintain a significant investment in the new entity. ACA will continue to operate with no changes to the senior leadership team and staffing. The investment was an outgrowth of proprietary discussions between ACA’s founders and New Mountain.

“With its differentiated regulatory expertise, ACA is the clear market leader in compliance consulting services,” said Peter N. Masucci, Managing Director of New Mountain Capital. “ACA’s strong culture and reputation allow it to attract and retain talented professionals across all divisions, and its resulting deep experience across all asset classes allows ACA to offer its unique insights and unparalleled service.”

“This is a tremendous opportunity for ACA Compliance Group and its clients,” said Robert L. Stype, Managing Partner of ACA Compliance Group. “New Mountain will provide us with the resources to expand our global presence and accelerate our development of new services and technology offerings.”

ABOUT ACA COMPLIANCE GROUP
ACA provides expert compliance consulting services to investment advisers, private fund managers, commodity trading advisors, investment companies, and broker-dealers. ACA additionally provides GIPS® verification services and a wide variety of compliance-related educational opportunities.

ACA partners with clients in order to help them build and maintain a strong culture of compliance and sound infrastructure. ACA-developed compliance programs are premised on industry best practices, up-to-date compliance requirements, and robust oversight processes.

Founded in 2002 by former federal and state regulators, ACA delivers the highest quality compliance consulting services with unquestionable integrity and unmatched dedication to its clients. With offices in New York, London, Hong Kong, Boston, Chicago, Los Angeles, and other cities, ACA features an experienced consulting team of former SEC, FINRA, FSA, NYSE, CFTC, NFA, and state regulators, as well as former senior in-house compliance professionals from prominent financial institutions.

For more information, please visit www.acacompliancegroup.com.

ABOUT NEW MOUNTAIN CAPITAL
New Mountain Capital is a New York-based private equity firm that emphasizes business building and growth, rather than debt, as it pursues long-term capital appreciation. The firm currently manages private and public equity funds with over $10 billion in aggregate capital commitments. New Mountain seeks out the highest-quality growth leaders in carefully selected industry sectors and then works intensively with management to build the value of these companies.

For more information, please visit www.newmountaincapital.com.

Category: Compliance Alerts 2013, Press Releases

 

2013 Compliance Science, Inc. User Conference – November 18-19, 2013

Location: W New York- 541 Lexington Avenue between 49th & 50th Streets New York, NY 10022

Speaker: Ted Eichenlaub

Topic: Code of Ethics and Insider Trading

Category: 2013 Speaking Engagements

 

SEC Corrective Action Review Enforcement Actions – November 4, 2013

On October 23, 2013, the U.S. Securities and Exchange Commission (“SEC” or “Commission”) announced sanctions against three investment advisers that failed to correct issues identified by SEC staff during prior examinations. The SEC took this action as part of its two-year old Compliance Program Initiative (“CPI”), which seeks to uncover and discipline repeated compliance failures. The sanctions indicate that the Commission expects advisers to take deficiencies noted during examinations seriously and implement appropriate corrective measures. In short, investment advisers can no longer delay implementing required changes in hopes of avoiding them altogether. The SEC has made a clear statement via the CPI: advisers must apply their policies and procedures efficiently, effectively, and consistently and remedy deficiencies promptly or risk similar disciplinary proceedings.

In the actions mentioned above, one adviser failed to conduct an annual compliance program review and made misleading statements on its website and investor brochure. As part of its settlement with the SEC, the firm agreed to pay $175,000, complete 30 hours of compliance training, and retain a compliance consultant for three years. The other two firms also failed to conduct the required annual compliance program review, failed to implement adequate written compliance policies and procedures, and made misleading statements in marketing materials. They agreed to pay $275,000, hire compliance consultants, and notify clients of the SEC’s enforcement actions.

In the release announcing the sanctions, Andrew Bowden, director of the SEC’s National Exam Program, made this statement regarding the Commission’s action: “After SEC examiners identified significant deficiencies, these firms did little or nothing to address them by the next examination. Firms must fix deficiencies identified by our examiners.”

Given these developments, investment advisers should make sure they have adequately addressed deficiencies noted during prior SEC examinations regardless of how much time has elapsed. ACA specializes in confirming successful remediation of compliance issues noted previously by advisers internally and by SEC staff. In this regard, our CAR (Corrective Action Review) Exams provide the following services:

  • Detailed analyses of SEC examination summary letters
  • Thorough reviews of advisers’ written responses to SEC staff
  • Comprehensive documented assessments—based on our reviews, compliance testing, and interviews with firm personnel—of the deficiencies identified by SEC staff and the efficacy of advisers’ remedial actions

For more information on ACA’s CAR Exams, please email Damon Zappacosta or call (212) 868-5940.

Category: Compliance Alerts 2013

 

FINRA Report on Conflicts of Interest – October 31, 2013

In October 2013, FINRA published its Report on Conflicts of Interest to share best practices and assist firms in strengthening their “conflicts frameworks.” In his introductory remarks to the report, FINRA chairman and chief executive officer Richard Ketchum emphasizes that the publication’s intention is to help firms better identify and manage conflicts of interest. As he notes,

FINRA stresses in the report that it is not intended to express any legal position, and does not create any new legal requirements or change any existing regulatory obligations. Our expectation is that firms will use this report to stimulate dialogue about the conflicts they face and to implement a strong conflict management framework that’s appropriate to their business.

In particular, the report recommends that broker-dealers consider

  • establishing an enterprise-level framework that identifies and manages conflicts of interest,
  • developing approaches to handle conflicts of interest in manufacturing and distributing new products, and
  • implementing approaches to analyze and address potential conflicts regarding broker-dealer compensation of associated persons, particularly those acting as brokers for private clients.

The report also advises firms to take the following actions as part of establishing an effective conflict management process:

  • Develop and implement an enterprise-level framework that identifies and manages conflicts on an ongoing basis. This includes setting a “tone from the top” where firm leadership communicates on an ongoing basis the importance of putting customer interests first.
  • Establish a new product review process that identifies and mitigates conflicts.
  • Reduce conflicts in compensation structures between customer interests and broker or firm interests where possible, particularly regarding proprietary products.
  • Mitigate conflicts of interest through disclosures and other information that educates customers on factors that may affect a product’s financial outcome.
  • Create standards for brokers’ personalized recommendations to retail customers that make sure customer interests come first.

As part of their efforts to address regulatory conflict-of-interest requirements, broker-dealers should adopt the practices described in the FINRA report. In addition, ACA recommends that firms

  • identify any conflicts that may affect them,
  • perform a gap analysis to ensure their supervisory procedures cover all conflicts identified, and
  • establish policies and procedures that document their conflict-of-interest management process, making sure to define all roles and responsibilities involved in the process.

For more information on or assistance with managing conflicts of interest, please contact your ACA consultant or Dee Stafford at (310) 322-8840 or via email at dstafford@acacompliancegroup.com.

Category: Compliance Alerts 2013

 

Dechart’s Global Alternative Funds Symposium – October 24, 2013

Location: Sheraton New York, Times Square Hotel, New York, New York

Topic: The Symposium will focus on what investment managers must know now about evolving laws, opportunities, trends, and risks in the current global alternative funds marketplace. The Symposium will feature multiple general and concurrent panels comprising industry leaders as well as partners from Dechert offices throughout the United States, Europe, and Asia.

Speaker: Jeffrey Morton, Partner, ACA Compliance Group

 

Category: 2013 Speaking Engagements

 

Municipal Advisor Registration Requirements – October 9, 2013

On September 18, the SEC adopted the final municipal advisor registration requirements under Section 975 of the Dodd-Frank Act. These requirements will replace the temporary regime—implemented October 1, 2010, and set to expire December 31, 2014—that requires municipal advisors to register with the SEC and MSRB. On the same day, the SEC also adopted new Rules 15Ba1-1 through 15Ba1-8, new Rule 15Bc4-1, and new Forms MA, MA-I, MA-W, and MA-NR under the Exchange Act. The term “municipal advisor” is defined as a person (who is not a municipal entity or an employee of a municipal entity) (1) who provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar factors concerning such financial products or issues; or (2) who undertakes a solicitation of a municipal entity. This definition encompasses financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and swap advisers that provide municipal advisory services (unless they are statutorily excluded).

Unlike the temporary registration rule, the final registration rule exempts all employees, governing body members, and other officials of municipal entities and obligated persons to the extent that they act within the scope of their employment or official capacity. In addition, the SEC narrowed the application of the term “investment strategies” to just the investment of proceeds from municipal security sales or the recommendation and brokerage of municipal escrow investments in lieu of all public funds of municipal entities.

Brokers, dealers, and municipal securities dealers serving as underwriters are generally exempt from having to register as municipal advisors. This exclusion covers advice provided by underwriters within the scope of underwriting and, generally, advice given with respect to the structure, timing, terms, and other similar factors concerning the issuance of municipal securities. This exemption would not apply to advice given on investment strategies (e.g., the investment of proceeds of municipal securities or related municipal escrow investments in refinancings), advice given on municipal derivatives, and advice generally deemed by the SEC to be outside the scope of an underwriting, as such forms of advice have been deemed to create conflicts of interest for an underwriter.

The adopting release for the final rules also sets forth certain non-exclusive instances within and outside the underwriter exclusion. In addition, the release states that a broker-dealer that effects a transaction that it has not recommended would not be a municipal advisor with respect to this activity. On the other hand, the sale of a security to a municipal entity or obligated person would constitute a municipal advisory activity if (1) the monies used to purchase the security are proceeds of municipal securities, and (2) in executing such transaction, the broker-dealer also recommended the investment or otherwise offered advice to the municipal entity or obligated person about which securities to purchase or sell. Registered investment advisers and associated persons are also exempt from registration as municipal advisors if they only provide investment advice regarding the investment of proceeds of municipal securities or municipal escrow investments. The SEC interprets the registered investment adviser exclusion to include any advice provided pursuant to an advisory agreement. However, the exemption would not apply if the advice concerned whether and how to issue municipal securities, advice concerning the structure, timing, and terms of an issuance of municipal securities and other similar matters, advice concerning municipal derivatives, or a solicitation of a municipal entity or obligated person. (The release does say, however, that an affiliate of a registered investment adviser would not have to register as a municipal advisor when it solicits municipal entities or obligated persons on behalf of the affiliated investment adviser.) The SEC did not carve out a registration exemption for state-registered investment advisers or exempt reporting advisers.

Banks, to the extent they provide advice on certain identified banking products and services such as deposit accounts, extensions of credit, sweep accounts, or bond indenture trustee services are exempt from having to register as a municipal advisor. Municipal advisor registration would be required, however, in instances where banks acted as financial advisers to municipal entities in structuring issues of municipal securities or provided advice with respect to municipal derivatives. To the extent a bank provides advice with respect to a municipal derivative or engages in any other non-exempted municipal advisory activity, if such advice is provided through a separately identifiable department or division (“SID”), then the SID, rather than the bank itself, is deemed to be the municipal advisor and would register accordingly.

Registered commodity trading advisers and their associated persons are exempt from registering if the advice they provide relates to swaps. Registered swap dealers, to the extent the dealer recommends a municipal derivative or a trading strategy that involves a municipal derivative, are exempt from registration provided the dealer (or associated person) is not “acting as an adviser” to the municipal entity or obligated person with respect to the municipal derivative or trading strategy pursuant to Section 4s(h)(4) of the Commodity Exchange Act and the rules and regulations thereunder.

Finally, the final rules allow that, where a municipal entity or obligated person is represented by a registered municipal advisor, parties to the municipal securities transaction and others who are not registered municipal advisors can provide advice to the municipal entity or obligated person, subject to certain conditions.

As the Dodd-Frank Act did not specifically define or otherwise provide a general standard to determine what constitutes “advice” to a municipal entity or obligated person, the SEC determined that “advice” includes, without limitation, a recommendation particularized to the needs and circumstances of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities based on all the facts and circumstances.

Registered municipal advisors will be required to file Form MA, which is generally modeled on Form ADV, with the SEC through the EDGAR system. As with Form ADV filings, the SEC will have up to 45 days to review the Form MA filing to determine whether to grant registration or institute proceedings to determine whether registration should be denied. Registered municipal advisors will also have to promptly amend the information in Form MA at least annually within 90 days of the end of the municipal advisor’s fiscal year (or of the end of the calendar year for a sole proprietor) or more frequently than annually if required by the form’s general instructions. For the initial filing of Form MA, the release outlined a series of specific compliance dates based on the registration number a municipal advisor received (or will receive) when it registered (or will register) as a municipal advisor under the temporary registration regime starting on July 1, 2014.

For each individual associated with the registered municipal advisor who engages in municipal advisory activities, a Form MA-I must also be filed through EDGAR with the SEC. However, unlike in the proposed rule, which would have required associated persons engaged in municipal advisory activities to register separately, the final rule will only require registered municipal advisors to furnish information about these individuals. A registered municipal advisor will also have to promptly amend the information contained in Form MA-I by filing an amendment whenever the information in the form becomes inaccurate for any reason. Annual updating amendments to Form MA-I are not required.

Finally, the SEC adopted a recordkeeping rule (Rule 15Ba1-8) for registered municipal advisors based generally on the books and records requirements for broker-dealers and investment advisers. Rule 15Ba1-8(a) requires, among other things, a municipal advisory firm to make and keep true, accurate, and current certain books and records relating to its municipal advisory activities, generally for a period of at least five years.

Regarding regulatory examinations of registered municipal advisors, the SEC has designated FINRA to examine its members’ activities as registered municipal advisors and evaluate compliance by such members with federal securities laws, SEC rules and regulations, and MSRB rules applicable to municipal advisors, subject to the SEC’s oversight. The SEC, in turn, will be responsible for examining registered municipal advisors that are not FINRA members.

For more information about ACA Compliance Group’s Investment Adviser Services, please contact Damon Zappacosta at dzappacosta@acacompliancegroup.com

Category: Compliance Alerts 2013

 

SEC Securities Lending Sweep Confirmed! – October 7, 2013

The federal government shutdown has not stopped the Securities and Exchange Commission (“SEC”) staff from initiating its anticipated sweep on securities lending practices in the investment management industry. The first hint of a sweep and a possible focus on securities lending practices appeared in an early September 2013 interview with Andrew Bowden, head of the SEC’s Office of Compliance Inspections and Examinations.1 Bowden indicated that SEC examiners will begin scrutinizing investment advisers’ use of securities lending programs and affiliated lending agents. This was followed by Kevin Kelcourse, head of the SEC Enforcement Division’s Asset Management Unit in the Boston Regional Office, also noting the possibility of a securities lending sweep later that same month at the National Investment Company Service Association (NICSA) General Membership Meeting.

As further evidence of this sweep, a document request list sent this week by the SEC’s Chicago office examination staff initially asked only for limited information regarding the securities lending practices of the firm being examined. However, a closer review of the document request list makes it apparent that the examiners’ focus on this area will expand beyond their typical concentration on investment companies. Of particular note, the request for 1) fee splits and how they are set or negotiated and 2) other fees charged to securities lending clients suggests a new focus on fee arrangements in the context of securities lending practices.

Fee Splits

Fee splits have been a hot topic for the SEC examination staff in the past, particularly when an affiliated lending agent has been involved. Plaintiffs, however, are now taking note of the issue. On August 28, a federal court dismissed two shareholders’ claims against BlackRock’s iShares Trust and iShares, Inc. (together, the “Funds”), Blackrock Fund Advisors (“BFA”), the Funds’ investment adviser, Blackrock Institutional Trust Company, N.A. (“BTC”), the Funds’ securities lending agent, and certain other defendants.2 The plaintiffs in the iShares case alleged that BFA and BTC received excessive compensation from revenue earned on the Fund’s securities lending transactions. In this case, the Funds’ securities lending agreement provided for BFA and BTC, which was engaged by BFA to manage the lending of securities owned by iShares exchange traded funds, including the Funds, to retain 40 percent (40%) of the revenue and the Funds to receive the remaining 60 percent (60%). Although the case was dismissed, it highlights the renewed focus on fee split arrangements.

Fee splits often vary from provider to provider and from client to client. The question that industry participants seem to be focusing on is whether the participants in the fee split arrangement have negotiated the best deal possible. If an adviser offers an affiliated entity’s securities lending program, the adviser may want to determine if the fee split is consistent with other service providers based on portfolio size and the types of securities held in the portfolio. Similarly, mutual fund complexes that use a related securities lending agent to lend and reinvest collateral and rely on SEC exemptive relief to enter into such joint transactions may want to take the opportunity to review that exemptive relief.

Given the SEC examination staff’s renewed focus on fee splits under securities lending agreements, we recommend that clients evaluate their current practices in this area. We also suggest examining the following topics as part of an overall evaluation of your securities lending compliance programs.

Cash Collateral Reinvestment

Cash collateral reinvestment continues to be one of the most significant risks associated with securities lending. Firms that participate in securities lending programs should consider developing customized guidelines for investing cash collateral to mitigate this risk. Such guidelines might cover issues such as the types of eligible investments, duration limits, credit quality, concentration limits, and the restriction of certain securities based on the lender’s risk appetite.

A firm’s senior executives and investment personnel should also ask themselves tougher questions regarding their securities lending program’s invested collateral. For example, how are current market conditions affecting the risk/return profile of invested collateral? Are there credit issues relating to recent downgrades? Have valuation issues arisen with respect to invested collateral? How are collateral vehicles being monitored? What would happen if restrictions were implemented on investor redemptions? Asking and answering these questions can help firms stay current with potential issues related to securities lending practices and provide the lead time needed to resolve such issues before they cause compliance-related problems.

Counterparties

Many firms review the creditworthiness of counterparties periodically throughout the year. When assessing counterparty exposure, firms should consider measuring such exposure at various levels, including the assets on loan, collateral reinvestment, and a particular portfolio’s direct investments, particularly in derivative or complex instruments and non-delivery versus payment (DVP) transactions. Also, advisers should consider reviewing their exposure to a particular counterparty on an aggregate basis as well as on a portfolio-by-portfolio (or client-by-client) basis.

In the context of the SEC examination staff’s securities lending sweep, firms that rely on securities lending agents to monitor counterparties might consider conducting their own credit reviews of counterparties. If firms rely on a securities lending agent’s review processes, they should review such processes as part of their ongoing due diligence of service providers or request documentation supporting such agent’s review.

Evaluation of Loan Limits

Participants in securities lending programs should consider how much of their portfolio is on loan at any particular time. Mutual fund clients are not permitted to loan securities with a value that exceeds one-third of the funds’ total asset value, including collateral received from such loans. Advisers and, particularly, mutual funds should consider evaluating their current lending limitations. Decreasing the percentage permitted to be loaned to any one borrower or on a security-by-security basis can help alleviate counterparty and sell fail risks while simultaneously allowing the firm to continue an active lending program.

Increased Monitoring of Sell Fails

As the rate of borrower defaults increases, advisers should be wary of potential sell fails. Firms are advised to ensure that their lending agents or prime brokers or custodians monitor their borrowers to return securities. Advisers, particularly those who provide investment advice to registered mutual funds, should consider monitoring how long securities are out on loan. Compliance officers should consider reviewing and evaluating their firms’ sell fails for trends such as a single borrower continuously failing to deliver. If any such trends are discovered, it would suggest the need to discuss with the lending agent the question of whether to exclude a broker from borrowing in the future.

ACA’s Securities Lending Review Services

Participants in securities lending arrangements, including directors or trustees of a mutual fund, have much to consider when evaluating securities lending programs as an investment option. As described above, securities lending poses operational and counterparty risk, as well as risks associated with cash collateral investment. Firms who engage in these programs should have a strong understanding of each risk and of how advisers will identify, monitor, and mitigate such risks.

ACA Compliance Group’s securities lending review program provides our clients with access to the knowledge and experience of former SEC examiners and consultants who have worked directly on securities lending operations at global custodians. For further information regarding ACA’s compliance services related to securities lending, please contact Nick Prokos, at nprokos@acacompliancegroup.com or Christopher Kemp, at ckemp@acacompliancegroup.com or at (617) 589-0904.

Category: Compliance Alerts 2013

 

PEI Finance and Compliance Series – October 10, 2013

Topic: Effective Recordkeeping
Sponsor: PEI
Location: Boston
Speaker: Lee Ann Wilson
Category: 2013 Speaking Engagements

 

ML CFO Summit – October 2-4, 2013

Locaton: Montage Deer Valley, Park City, Utah

 

Category: 2013 Speaking Engagements

 

2013 NSCP National Membership Meeting, October 21-23, 2013

Location: Washington, DC
Click here for more information.

Category: Uncategorized

 

DMS Offshore Investment Services’ 3rd Annual Offshore Investment Funds Summit in Sao Paulo, Brazil, September 26, 2013

Sponsor:                      DMS Offshore Investment Services

Location:                     Sao Paulo, Brazil

Speaker:                       Luke Wilson

 

Category: 2013 Speaking Engagements

 

2013 Private Equity CFO Conference in Park City, Utah, October 4, 2013

Sponsor:                      Merrill Lynch

Location:                     Park City, Utah

Speaker:                       Luke Wilson

Category: 2013 Speaking Engagements

 

Managers of Funds Relying on Rule 506 Exemption Must Identify Bad Actors by September 23

You’ve heard of 506(c). Make sure you’ve also heard of 506(d).

On July 10, 2013, the U.S. Securities and Exchange Commission (“SEC”) adopted final regulations under the Jumpstart Our Business Startups Act (“JOBS Act”) and the Dodd-Frank Act. New Rule 506(c), which allows private funds to engage in general solicitation, caught the eye of nearly all private fund managers in the U.S.

But private fund managers also need to take a close look at the other new SEC rule adopted that same day: New Rule 506(d). That rulemaking added a “bad boy” disqualifier that prevents private funds (and other issuers) from relying on the Rule 506 exemption if certain covered persons have disciplinary events on or after September 23, 2013. New Rule 506(d) effectively prevents any adviser, SEC registered or not, with “bad actors” in its senior leadership from being able to use any of the Reg D exemptions for its funds. To be clear, not only is the general solicitation provision of Rule 506(c) not available, Rule 506 in its entirety is not available.

Past disciplinary events are not wholly excused either. If a fund has a covered person that has a disciplinary event that occurred prior to September 23, 2013, the fund may continue to rely on the exemption, but the event must be disclosed to investors.

With September 23 looming, firms with funds that rely on Rule 506 are advised to circulate questionnaires to their senior staff, boards of directors, and others to determine whether they have a covered person with a disciplinary event.

The list of covered persons is long and broad. Specifically, with respect to private funds, the list of covered persons includes

  • the fund’s manager,
  • all of the manager’s directors, executive officers, general partners, and managing members, and
  • any non-executive officers of the manager who actually participate in the fund’s offering.

In addition, if the fund manager has managing members or general partners, the analysis continues at that level. All of the directors and executive officers of those managing members or general partners are covered persons, as well as any other officers of the managing members or general partners who participate in the offering.

Covered persons also include the issuer itself, any predecessor of the issuer, or any affiliated issuer (although the rule does provide certain carveouts for past acts that occurred prior to the affiliation); any director, executive officer, other officer participating in the offering, general partner or managing member of the issuer; any beneficial owner of 20% or more of the issuer’s outstanding voting equity securities, calculated on the basis of voting power; any “promoter” connected with the issuer in any capacity at the time of the sale; any person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with sales of securities in the offering (a “compensated solicitor”); and any director, executive officer, other officer participating in the offering of any such compensated solicitor or the general partner, or managing member of any such compensated solicitor.

Disqualifying disciplinary events include securities-related felonies, misdemeanors, restraints and enjoinders, and certain sanctions contained in any regulatory orders issued by the SEC, state securities commissions, state banking regulators, state insurance commissions, federal banking agencies, the U.S. Commodity Futures Trading Commission, or the National Credit Union Administration.

With only a week to go until September 23, advisers to private funds that rely on the Rule 506 exemption should act now to query their staff, affiliates, boards, and others to identify any “bad actors” in their midst. Firms that identify such personnel should prepare written disclosures to provide to investors subscribing after September 23.

In addition, firms should determine a mechanism for identifying disciplinary events among their covered persons that occur after September 23 that could trigger the disqualification provisions of Rule 506(d).

The specific list of disqualifying events is set forth in the full text of the Rule 506(d), which can be found here, beginning on page 142.

For more information about ACA’s Investment Adviser services, contact Damon Zappacosta at dzappacosta@acacompliancegroup.com or your ACA consultant.

Category: Compliance Alerts 2013

 

Andrew Petillon Joins ACA Compliance Group as Compliance Consultant to Private Funds and Investment Advisers

Andrew Petillon is a former SEC senior executive who co-led Enforcement and Examination programs in the Commission’s Los Angeles office

(Los Angeles, CA) September 4, 2013 – ACA Compliance Group (“ACA”) is pleased to announce Andrew Petillon joining our Los Angeles office as a compliance consultant for private funds and investment advisers. Andrew is a 25-year veteran of the U.S. Securities and Exchange Commission. While at the SEC, Andrew held many senior leadership positions in the Commission’s Los Angeles office, including co-leading the Enforcement and Examination programs and serving as Special Counsel in Enforcement and Regulation.

“We are excited to welcome Andrew,” says Dan Smith, ACA Partner. “I worked closely with Andrew at the SEC and greatly respect the depth of his regulatory knowledge and his ability to convey complex ideas clearly. Andrew is one of a handful of people who has held senior management positions in the Commission’s Enforcement and Examination programs. He will be an invaluable resource to our clients.”

Andrew earned his B.A. from Pomona College and his J.D. from Loyola Law School. In addition to his SEC service, Andrew has been a lecturer at UCLA Law School and an instructor at UCLA Extension.

About ACA Compliance Group

ACA Compliance Group (“ACA”) is a full-service global compliance consulting firm founded in 2002. We are headquartered in New York City and maintain regional offices across the US, Europe, and Asia. Our consultants comprise more than 50 former SEC, FINRA, NYSE, NFA, FSA, and state regulators along with former senior compliance managers from prominent financial institutions.

Drawing on their comprehensive expertise and experience, our consulting staff provides unparalleled regulatory compliance and GIPS® verification services to US and global investment advisers, private funds, investment companies, and broker-dealers. ACA assists these firms in mitigating risk and complying with new and existing regulatory requirements, focusing at all times on helping clients understand, implement, and maintain the compliance policies and procedures they need to succeed in today’s increasingly challenging regulatory environment.

For more information regarding ACA’s services, contact Damon Zappacosta at dzappacosta@acacompliancegroup.com or visit our website www.acacompliancegroup.com.

Contact

Krissy Kennedy
Director of Marketing
ACA Compliance Group
Phone: (857) 214-1740
kkennedy@acacompliancegroup.com
www.acacompliancegroup.com

Category: Compliance Alerts 2013, Press Releases

 

ACA Compliance Group and Sidley Austin present San Francisco Compliance Workshop – October 16, 2013

Please join us for a workshop designed to assist broker-dealer and investment adviser compliance professionals in dealing with current tough regulatory challenges.  Our industry-knowledgeable panelists from ACA, Sidley and the industry will discuss topics relevant to regulatory requirements.

The following is general information about the upcoming event:

  • Date: October 16, 2013
  • Time: 8:30 am to 11:30 am
  • Location: Mandarin Oriental, 222 Sansome Street, San Francisco, 94104
  • Sessions will include
    • Broker-Dealer
    • Investment Adviser

Please contact Dee Stafford at dstafford@acacompliancegroup.com with any questions.

 

Category: Uncategorized

 

ACA Compliance Group and Morgan Lewis present Philadelphia Compliance Workshop October 30, 2013

Please join us for a workshop designed to assist broker-dealer and investment adviser compliance professionals in dealing with current tough regulatory challenges.  Our industry-knowledgeable panelists from ACA, Morgan Lewis and the industry will discuss topics relevant to regulatory requirements.

The following is general information about the upcoming event:

  • Date: October 30, 2013
  • Time: 8:30 am to 11:30 am
  • Location:Morgan Lewis Offices at 1701 Market St, Philadelphia, 19103
  • Sessions will include
    • Broker-Dealer
    • Investment Adviser

CLE credit will be offered.

Please contact Dee Stafford at dstafford@acacompliancegroup.com with any questions.

 

Category: Uncategorized

 

GIPS Open Standards Forum – September 18, 2013

Please join us for our annual GIPS open forum in Boston on September 18th, the day prior to the GIPS Standards Annual Conference. This forum is designed to allow attendees the opportunity to network and share best practices with their peers related to their firm’s claim of compliance with the GIPS standards. The majority of the meeting will be spent in break-out groups designed to allow you to discuss key issues your firm faces today.

Speakers:

  • Michael Caccese, Practice Area Leader, K&L Gates
  • Douglas Charton, Associate, K&L Gates
  • Kamelia Dari, CIPM, Verification Manager, ACA Verification Services
  • Pamela Grossetti, Associate, K&L Gates
  • Justin Guthrie, CFA, Partner, ACA Verification Services
  • Alicia Hyde, CIPM, Partner, ACA Verification Services
  • Kenneth Juster, Associate, K&L Gates
  • Michael McGrath, Of Counsel, K&L Gates

Registration: 4:15 – 4:30 pm
Program:
4:30 – 6:00 pm
Reception to follow

Location:
K&L Gates - Boston
State Street Financial Center
One Lincoln Street
Boston, MA 02111

RSVPs will be handled by K&L Gates.
To RSVP, please contact Ashley Morris at K&L Gates or click here to RSVP online.

Category: Uncategorized

 

California Association of Public Retirement Systems (CALAPRS) Administrator’s Institute Annual Assembly – September 26, 2013

Topic:                          Best Practices for Third Party Manager Oversight

Sponsor:                      CALAPRS

Location:                      Carmel, CA

Speaker:                       Ted Eichenlaub, Jorge Rodriguez

Category: 2013 Speaking Engagements

 

NASAA Investment Adviser Training – August 14, 2013

Topic: Business Continuity Planning

Sponsor: NASSA

Location: Pittsburgh, PA

Speaker: Darren Kearns

Category: 2013 Speaking Engagements

 

Social Media and Compliance – Navigating the Waters and Establishing a Program – August 13, 2013

Topic: Social Media Compliance

Sponsor: Fidelity

Location: Webcast

Speaker: Giselle Casella

Category: 2013 Speaking Engagements

 

AIMA Brazil Network working lunch “COMPLIANCE PROGRAMS – EXPECTATIONS OF US REGULATORS AND INVESTORS” – August 14, 2013

Topic: COMPLIANCE PROGRAMS – EXPECTATIONS OF US REGULATORS AND INVESTORS

Sponsor: AIMA

Location: Rio de Janeiro, Brazil

Speaker: Luke Wilson, Managing Director

Category: 2013 Speaking Engagements

 

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