2017 SEC Compliance To-Do List

January 12, 2017

Happy New Year! As we begin another year, we would like to take this opportunity to highlight some key SEC compliance requirements that you may wish to consider as part of your 2017 SEC compliance programme.

Regulatory Reminders and Deadlines

Regulatory Filings

Below are upcoming deadlines for certain regulatory filings. Please note that if a filing deadline falls on a U.S. holiday or weekend, the deadline reverts to the next business day. To the extent ACA files Form ADV, Form 13F, Form 13H, or Schedule 13G on behalf of your firm, you will also receive a separate reminder regarding year-end filing obligations from the relevant filing team.

Form ADV Part 1A Update

For firms that are fully registered with the Securities Exchange Commission (“SEC”) as well as exempt reporting advisors, the annual update must be completed within 90 days after your fiscal year end (by March 31, 2017 if your firm’s fiscal year-end is December 31, 2016). Now is a great time to review the accuracy of responses in Part 1A, including all the responses to the questions in Item 11, as well as Schedule A and Schedule D. Even if all responses are accurate, Item 5 will require updating for current regulatory assets under management and the current number of accounts, among other things. You may also consider reviewing your list of clients to determine if you may be required to file any notice filings with state securities authorities.

If ACA provides Form ADV administration for your firm, you will receive an email with the current ADV for you to review for accuracy. In general, all changes will need to be provided to ACA within two weeks of the filing deadline to ensure adequate time to update, review, and file.

Form ADV Part 2 Update

All investment advisers registered with the SEC must file an updated Form ADV Part 2A as part of the annual updating amendment to Part 1A. To the extent the Form ADV Part 2A includes material changes, advisers must deliver either a summary of material changes with an offer to provide the full Part 2A or the full Part 2A that includes a summary of material changes, within 120 days after fiscal year end.

Also as a reminder, you must deliver the Part 2B of Form ADV to clients before or at the time you begin providing advisory services to the client. You must also deliver the Part 2B to clients if there is an update to Item 3.

Form 13F

If your firm had discretionary authority over $100 million or more in Section 13(f) securities at the end of any month during 2016, you are required to file a 4th quarter Form 13F within 45 days after year end (by February 14, 2017).

Schedule 13G

If your firm beneficially owned more than 5% of a class of equity security as of December 31, 2016, you may be required to file an initial Schedule 13G with the SEC within 45 days after year end (by February 14, 2017). Additionally, you are generally required to file amendments to any Schedule 13G or 13G/A filings that were submitted in 2016 for over 5% within 45 days after year end (by February 14, 2017).

Form 13H

If your firm already filed Form 13H, the 4th quarter 2016 amendment is due by January 10, 2017 and the annual amendment is due by February 14, 2017. The quarterly amendment and annual filing can be combined, provided it is filed by January 10th.

As a reminder, an initial Form 13H is required within 10 days if a market participant transacts in “NMS securities” equal or exceeding (i) two million shares or $20 million during any calendar day or (ii) 20 million shares or $200 million during any calendar month.

Form D and Blue Sky Requirements

For all open or continuously offered private funds, you will need to file annual Form D amendments, as applicable, to reflect any changes in the offerings, including, but not limited to, changes in the net asset value, minimum investment amount, number of investors in the offering, and the address or relevant states of operation of a person being paid to solicit to investors in the private fund. Form D amendments are required to be filed within 12 months of the previous filing, provided the fund is still being offered.

While you may monitor state filing (a/k/a, blue sky) requirements on an ongoing basis, you should review your investor base in aggregate to determine if any blue sky filings and associated fees will need to be sent to the states (along with a copy of the Form D amendment).

Form PF

All registered investment advisers with at least $150 million in private fund assets as of the last day of their most recently completed fiscal year must file an initial Form PF within 120 days after the end of the fiscal year (by May 1, 2017 if your firm’s fiscal year-end is December 31, 2016). Within 60 calendar days after the end of the fourth fiscal quarter, large hedge fund advisers must file a quarterly update that amends the answers to all relevant items in Form PF. Other annual filers who have already filed Form PF must file an annual update within 120 days after the end of the fiscal year (by May 1, 2017 if your firm’s fiscal year-end is December 31, 2016).

CFTC Exemptions

The CFTC requires any person or entity claiming an exemption or exclusion from CPO registration under CFTC Regulation 4.5, 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), 4.13(a)(5) or an exemption from CTA registration under 4.14(a)(8) to annually affirm the applicable notice of exemption or exclusion within 60 days of the calendar year end (by March 1, 2017).

Privacy Notice Delivery

Back in December 2015, President Obama signed into law H.R. 22, the “Fixing America’s Surface Transportation Act,” or “FAST Act”, which changed privacy notice delivery requirements. Privacy notices are not required to be sent annually if an adviser (i) only shares nonpublic personal information with nonaffiliated third-parties in a manner that does not require an opt-out right be provided and (ii) has not changed its policies and procedures with regard to disclosing nonpublic personal information since it last provided a privacy notice.

To the extent that you are already preparing an annual compliance package to be sent to your clients/investors, you may consider voluntarily including the privacy notice.

Annual Verification of Eligibility to Participate in New Equity Issues

If your firm purchases new issues on behalf of clients, you may consider sending the annual verification of clients’ and investors’ eligibility to participate in new equity issues under FINRA Rule 5130 and 5131 at this time.

Personal Securities Transaction Reports

By January 30, 2017, you will need to collect the 4th quarter 2016 transaction reports from your access persons. Also, by February 14, 2017, you will need to collect the annual holdings reports from your access persons, provided you require it as of December 31st.

Audited Financial Statement Delivery

For registered advisers that manage private funds, those funds must undergo an annual financial statement audit pursuant to the SEC’s Custody Rule. This is a reminder that the audited financial statements must be distributed to investors within 120 days after the fund’s fiscal year end (or 180 days for fund of funds). If you manage private funds with a fiscal-year ending December 31, this is a reminder that the audited financial statements must be delivered to investors by April 29, 2017 (or June 28, 2017 for fund of funds). If your fiscal-year end is November 30, 2016, the audited financials must be delivered to investors by March 30, 2017 (or May 30, 2017 for fund of funds).

Issuer Disqualification

In July 2013, the SEC adopted paragraph (d) to Rule 506 of Regulation D that disqualifies issuers from Regulation D offerings if the issuer, the general partner or managing member, investment manager, solicitors, certain officers and directors of such entities, or certain large beneficial owners with voting rights (collectively “covered persons”) have been found to have engaged in certain securities-related misconduct described by the amended rule. Firms are generally expected to exercise reasonable care to establish that misconduct has not occurred over time. Many advisers will require that covered persons complete an annual certification/questionnaire. Now may be a good time to send out such a certification/ questionnaire if you manage relevant private funds.

Compliance Policies and Procedures

Many firms roll out formal changes to the Compliance Manual and Code of Ethics at the beginning of the year and may provide compliance training to employees shortly thereafter. Additionally, many firms distribute and collect questionnaires related to potential conflicts of interest and an attestation of employees’ understanding of and compliance with the firm’s policies.

In particular, you should consider the following questions for your compliance programme in 2017, as applicable:

  • Are your firm’s compliance policies and procedures effective in identifying and addressing risks and conflicts of interest?
  • Has your compliance programme been updated to reflect new rules, SEC focus areas, enforcement actions, as well as any material changes to your business model, types of clients, types of investments, markets in which you do business, etc.?
  • Are your privacy safeguarding procedures appropriate and adequate to address relevant state requirements and the SEC’s continued focus on information security and cybersecurity? Has your firm conducted an assessment of its preparedness for a cybersecurity attack? Have you addressed all the issues highlighted in the SEC staff’s September 2015 cybersecurity guidance?
  • Is your business continuity and disaster recovery plan appropriate to address potential disruptions to your business? Have you formalised a succession plan, particularly in light of the SEC’s proposed rule in this area?
  • Are your asset safeguarding procedures adequate to ensure the safety of client assets from theft or misappropriation?
  • Are your pricing and valuation procedures appropriate and adequate given the investments in client portfolios and relevant accounting guidance (e.g., ASC 820-10)?
  • Do you have written policies and procedures on fee and expense allocations? Do you have travel and entertainment guidelines for employees? Have you compared your practices to relevant enforcement actions in this area?
  • Are your marketing/advertising procedures appropriate and adequate to address a potential increase in your firm’s marketing efforts in 2017? Do your procedures address relevant rules when marketing in the US?
  • If employees are engaged in using social media for personal use, do you have procedures in place regarding what can be posted to these platforms about your firm? If employees are conducting business using social media platforms, are these communications maintained as a required record?
  • Have you evaluated potential sources of material non-public information and tailored your policies accordingly (e.g., one-on-one meetings with public company officials, etc.)?
  • Are you archiving and conducting reviews of employees’ electronic correspondence, including emails and instant messages?
  • Have you conducted training for employees on key compliance topics at least once in the last year?
  • Are your soft dollar/dealing commission procedures appropriate and adequate given a potential increase in the amount of products and services that your firm may seek to acquire through the use of soft dollars/dealing commissions in 2017? Have you conducted an assessment that what you are paying is reasonable in light of services provided?
  • If you have not had your personnel complete annual compliance questionnaires in the past, would now be an appropriate time to initiate the process?
  • If you have established operations in foreign locations or intend to market in such locations, would it be appropriate to develop policies and procedures consistent with the Foreign Corrupt Practices Act, as well as plan for a compliance review of the activities completed in your foreign offices?
  • If you have not implemented formal anti-money laundering procedures, would now be an appropriate time to develop such a programme, particularly in light of the proposed rules in this area?
  • Have you reviewed your compliance manual, code of ethics, employment agreements, and other agreements for any language that may contravene whistleblowing rules?
  • Finally, have you considered engaging a third-party to conduct an independent review of your SEC compliance programme, by conducting a mock SEC audit, gap analysis, or a day of mock SEC interviews with firm personnel likely to be questioned during an SEC exam?

Please let us know if we can provide sample policies, forms, or other information for any of the above to assist you in managing your SEC compliance programme.

Summary of Recent Regulatory Developments

On January 4, 2017, U.S. President-elect Donald Trump announced that he plans to nominate Jay Clayton as the new Chairman of the SEC. Clayton is currently a New York-based partner at the law firm Sullivan & Cromwell and has specialized in representing Wall Street firms on mergers and acquisitions. Not much is known yet about Clayton’s specific agenda plans.

On January 12, 2017, the SEC’s examinations program announced its priorities for the New Year. The announced areas of examination focus for investment advisers in 2017 will include retail investors, senior investors, and retirement investments; advisers that deliver advice through electronic mechanisms (“robo-advising”); market-wide risks; and cybersecurity procedures and controls.

Please find here a “Year in Review” article from our newsletter, ACA Insight, highlighting some of the top SEC regulatory developments in 2016.

Contact Us

Please do not hesitate to contact us if you have questions about any SEC-related issue.

Warm wishes for a happy and prosperous New Year.

Andrew Petillon
Senior Principal Consultant
SEC Regulatory Services
ACA Compliance Group (London)

Crystal Christian
SEC Regulatory Services
ACA Compliance Group (London)