Investment Management

The Division of Examinations of the Securities and Exchange Commission published its examination priorities for fiscal year 2025. The 2025 Exam Priorities reflect practices, products, and services the Division believes present heightened risks to investors and the U.S. capital markets.

There have been several recent notable enforcement actions, including continued enforcement by the SEC and CFTC against off-channel communications, as well as an SEC fraud settlement with Macquarie Investment Management Business Trust.

Chapman's quarterly Regulatory Update contains an overview of the latest regulatory actions, market happenings, and litigation and enforcement activity in the investment management space.

On September 12, 2024, the Commodity Futures Trading Commission (CFTC) adopted amendments to CFTC Regulation 4.7 (Reg. 4.7), a rule that provides exemptions from the broader compliance requirements under Part 4 of the CFTC regulations (Part 4) for registered commodity pool operators (CPOs) with respect to pools (4.7 pools) offered solely to “Qualified Eligible Persons” (QEPs) and registered commodity trading advisors (CTAs) that advise or manage commodity trading accounts of QEPs. The amendments (i) increase the financial thresholds in the “Portfolio Requirement” of the QEP definition and (ii) permit CPOs of fund of fund pools offered solely to QEPs to provide monthly account statements within 45 days of the month-end, rather than providing quarterly account statements within 30 days of the quarter-end. The CFTC chose not to adopt, at this time, the proposed minimum QEP disclosures.

Chapman's white paper provides a summary of the interval fund and tender offer fund structures, including their basic legal framework, their investment restrictions, how they are distributed and how they facilitate redemptions. It also provides a comparison of interval funds and tender offer funds, both to each other and to other types of investment companies.

The Investment Advisers Act of 1940 (the “Advisers Act”), rules adopted by the U.S. Securities and Exchange Commission (the “SEC”) pursuant thereto, and state laws governing the activities of investment advisers determine when persons engaged in the business of providing investment advice must or may register as an investment adviser with either the SEC or the relevant state authorities.

Despite recent regulatory efforts from FINRA and the SEC, industry participants continue to have no clear understanding of what qualifies a product as either “complex” or “risky.”  In this article, Chapman attorneys provide insight and context for a path forward for definitive guidance regarding complex products, but also for a more rational regulatory scheme that considers a wide variety of factors. This article proposes an objective framework for broker-dealers and investment advisers to consider Defined Outcome ETFs, regardless of whether they are deemed complex under the current regulatory environment, by utilizing a well-established measure of risk to assess whether an investment in those vehicles is in a client’s best interest.

On June 5, 2024, the United States Court of Appeals for the Fifth Circuit (the “Court”) determined to vacate rules recently adopted by the Securities and Exchange Commission (the “Commission”) regulating the conduct of investment advisers to private investment funds (the “Private Fund Advisers Rule”).

On April 23, 2024, the Department of Labor (“DOL”) released its final investment advice fiduciary rule, titled the Retirement Security Rule (the “Final Rule”), which re-defines who is a fiduciary on account of providing investment advice to workplace retirement plans and individual retirement accounts (“IRAs”). In addition, the DOL released several amended DOL prohibited transaction exemptions that, together with the Final Rule, are “intended to protect the interests of retirement investors by requiring persons who are defined in the Final Rule as investment advice fiduciaries to adhere to stringent conduct standards and mitigate their conflicts of interest.” The Final Rule and the amended exemptions finalize the proposed investment advice fiduciary rule and proposed amendments to the prohibited transaction exemptions, which the DOL issued on October 31, 2023. The Final Rule narrows certain provisions in the proposed rule that some commentators and industry groups argued were overly broad. The Final Rule and the amended prohibited transaction exemptions will become effective on September 23, 2024, except that certain provisions in the amended exemptions will not be phased in until one year after such effective date.

In February 2023, Perpetual US Services, LLC filed an application for exemptive relief with the Securities and Exchange Commission (SEC) that, if granted, would allow a mutual fund to create and operate an ETF share class alongside its mutual fund share classes. In the February 2024 issue of The Investment Lawyer, Chapman partners Rick Coyle, Barry Pershkow and Morrison Warren break down the history of the sought-after relief, the potential advantages to such a structure for mutual fund sponsors and shareholders, and share their insights into the SEC’s reluctance to grant such relief, while ultimately arguing that the approval of these applications is the proper step for the SEC to take.

In its 2024 Supervisory Priorities, the NCUA set out examination priorities based on activities that pose the highest risk to federally insured credit union members (referred to as “credit unions”) and that are responsive to the continuous stream of challenges facing credit unions in this current market. It should come as no surprise to anyone that liquidity risk is once again an examination priority for 2024, as the economic environment continues to be uncertain. This all follows on the heels of the Addendum to the Interagency Policy Statement on Funding and Liquidity Risk Management: Importance of Contingency Funding Plans issued in July 2023 (the “Addendum”), highlighting the importance of contingency funding plans as a crucial component of managing funding and liquidity risk. 

Chapman's quarterly Regulatory Update contains an overview of the latest regulatory actions, market happenings, and litigation and enforcement activity in the investment management space.

On August 23, 2023, the Securities and Exchange Commission (the “Commission”) voted 3 to 2 to adopt new and amended rules under the Investment Advisers Act of 1940 (the “Advisers Act”) requiring advisers to private funds to provide additional disclosures to investors in such funds, restrict certain types of preferential treatment to investors, and impose new requirements related to fund audits, books and records, and adviser-led secondary transactions.

Chapman's quarterly Regulatory Update contains an overview of the latest regulatory actions, market happenings, and litigation and enforcement activity in the investment management space.

On March 15, 2023, the U.S. Securities and Exchange Commission (“SEC”) issued a series of proposals designed to improve firms’ preparedness and responses to cyber incidents. The proposals, which would impact many of the financial services industry participants regulated by the SEC, generally require that firms establish policies and procedures to better prevent and detect cyber incidents and disclose certain cyber incidents to clients and the SEC within specified time periods.

On February 15, 2023, the U.S. Securities and Exchange Commission (the “SEC”) adopted rule changes to Exchange Act Rule 15c6-1, shortening the standard settlement cycle for most broker-dealer transactions in securities from two business days after the trade date (T+2) to one day (T+1).

On February 15, 2023, by a vote of 4 to 1 with only Commissioner Peirce voting no, the U.S. Securities and Exchange Commission proposed to amend the content of Rule 206(4)-2 under the Investment Advisers Act of 1940 (the “Advisers Act”), known as the Custody Rule, and redesignate it as Rule 223-1 under the Advisers Act, now known as the Safeguarding Rule. If adopted, the proposal would, among other things, expand the coverage of the Advisers Act’s custody provisions beyond “client funds and securities” to include any client assets of which an adviser has custody, a change that would bring within the rule’s coverage all digital assets, including non-securities such as commodities. Such a change would impose a requirement on many investment advisers that hold client assets to place those assets with a “qualified custodian,” despite a current lack of widespread availability of such service providers for many digital assets.

Chapman attorney Barry Pershkow spoke at the ETFGI Global ETFs Insights Summit. 

The Securities and Exchange Commission is taking significant steps to combat “greenwashing,” which occurs when a company conveys false or misleading information to overstate its environmental or sustainability practices, as well as other activities the SEC perceives to be potentially misleading to investors with respect to a company’s ESG efforts.

Chapman's Kathleen Moriarty and Morrison Warren are speaking at Exchange: An ETF Experience, which is sponsored by Chapman.

On February 10, 2022, the Securities and Exchange Commission (the “SEC”) proposed amendments to certain rules and regulations under the Exchange Act of 1934, as amended (the “Exchange Act”), that govern beneficial ownership reporting (the “Proposed Amendments”).¹ The SEC provided that updating these reporting requirements for modern advances in the securities market will reduce information asymmetries and promote transparency and address the timeliness of key filings. Specifically, the Proposed Amendments are aimed at, among other things: (i) shortening deadlines regarding filing of Schedule 13D and Schedule 13G; (ii) clarify how certain derivatives acquired with control intent are treated with respect to beneficial ownership reporting; and (iii) clarify when a “group” is formed for purposes of beneficial ownership reporting.

Environmental, Social and Governance (“ESG”) investing continued to grow throughout 2021 and this growth is expected to continue into 2022 as ESG investments are estimated to surpass $41 trillion in assets under management globally by the end of the year. ESG investing occurs when investors make investment decisions based on a company’s environmental, social and governance policies and performance alongside traditional financial metrics. As investment firms, lending institutions, and individual investors are increasingly looking at ESG factors to identify material risks and growth opportunities, a number of trends are expected to emerge in the upcoming year. These include regulation of ESG disclosures, growth in green technology, renewable energy and infrastructure investments, and heightened standards associated with sustainable finance.

On February 9, 2022, the Securities and Exchange Commission (the “Commission”) voted 3 to 1 to propose new and amended rules under the Investment Advisers Act of 1940 (the “Advisers Act”) to require advisers to private funds to provide additional disclosures to investors in such funds, prohibit certain types of preferential treatment to investors and impose new requirements related to fund audits, books and records and adviser-led secondary transactions.

Chapman's Morrison Warren hosts a session at Real Vision's The Takeover: The Future of Blockchian.

Chapman’s Morrison Warren co-moderates a panel on the future of digital asset ETFs at a live event hosted by the Chamber of Digital Commerce. Chapman is a member and sponsor of the Chamber.

Lenders and investors are taking different approaches to building ESG portfolios based on the entity’s own preferences and values. However, one widely used tool involves screening of select assets or transactions that align with those values.

The US Securities and Exchange Commission Division of Examinations has released its 2021 Examination Priorities. A discussion of the exam priorities is included in this article.

Chapman attorneys Kathleen Moriarty and Barry Pershkow spoke at the ETFGI Global ETFs Insights Summit USA. 

On April 13, the Department of Labor released guidance on the prohibited transaction exemption pertaining to fiduciary investment advice for retirement investors, employee benefit plans and investment advice providers. 

Chapman attorney Morrison Warren spoke at the NYSE ETF Industry Summit. 

At today’s Earth Day Climate Summit, President Joe Biden announced to world leaders that the United States is committed to cutting its greenhouse gas emissions by 50% to 52% from 2005 levels by 2030.

Last week the Loan Syndications and Trading Association, the Loan Market Association, and the Asia Pacific Loan Market Association jointly published their first ever Social Loan Principles.

On April 14, the U.S. Department of Labor announced guidance for plan sponsors, plan fiduciaries, record keepers, and plan participants on best practices for maintaining cybersecurity, including tips on how to protect the retirement benefits of participants.

On April 9, 2021, the Securities and Exchange Commission Division of Examinations issued a Risk Alert highlighting observations made by the Division from recent examinations of investment advisers, registered investment companies, and private funds offering products and services that incorporate environmental, social, and governance factors.

Chapman attorney Greg Xethalis spoke at a webinar, entitled "Decrypting the Hype: Cryptocurrency and Tokenized Assets," hosted by the National Investment Company Service Association (Nicsa).

The Securities and Exchange Commission this month announced that the Divisions of Corporation Finance, Examinations, and Enforcement are all undertaking climate or ESG-related initiatives. 

The Securities and Exchange Commission’s Division of Examinations has released its 2021 Examination Priorities. 

Environmental, Social and Governance investing in the United States has reportedly reached an estimated $250 billion in assets under management and is expected to see continued growth in 2021 and beyond. 

The Financial Industry Regulatory Authority, Inc. recently issued its 2021 Report on FINRA’s Risk Monitoring and Examination Activities. The new Report is designed to assist FINRA member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations.

On December 22, the U.S. Securities and Exchange Commission adopted amended Rule 206(4)‑1 under the Investment Advisers Act of 1940, as amended, which addresses investment advisers marketing their services to clients and investors

On November 17, the Securities and Exchange Commission adopted amendments to Rule 302(b) of Regulation S-T, which will provide more flexibility in connection with SEC filings by allowing the use of electronic signatures in authentication documents.

This fall, the Securities and Exchange Commission has proposed additional avenues for businesses to raise capital away from the use of registered broker‑dealers.

Chapman sponsored the virtual Institutional Limited Partners Association's Private Equity Legal Conference.

Chapman attorneys Kathleen Moriarty and Barry Pershkow spoke at the ETFGI Global ETFs Insights Summit.

The Department of Labor proposed a new investment advice fiduciary rule, which generally reinstates the DOL’s longstanding investment advice fiduciary test and provides a new prohibited transaction exemption for such fiduciaries.

On May 4, the IRS issued Revenue Procedure 2020‑19, which provides temporary relief to publicly‑offered regulated investment companies and publicly‑offered real estate investment trusts, with respect to stock distributions that are intended to qualify for the dividends-paid deduction.

On April 8, the SEC adopted rule amendments that will allow closed-end funds and business development companies the ability to use registration, offering and communications rules that are currently available to publicly‑registered operating companies.

With the Regulation Best Interest compliance date set for June 30, 2020, the SEC's Office of Compliance Inspections and Examinations recently announced that it would begin conducting broker‑dealer examinations focused on Reg BI compliance and outlined the scope of exams likely to occur in the first year following the compliance date.

With the Form CRS compliance date set for June 30, 2020, the SEC's Office of Compliance Inspections and Examinations recently announced that it would begin conducting examinations focused on Form CRS compliance and outlined the focus of exams likely to occur in the first year following the compliance date.

The SEC has taken several actions to assist funds and advisers in light of the effects of COVID-19. Similarly, FINRA also has taken several actions to provide guidance and certain regulatory relief to its member firms.

This client alert has been updated from our March 31, 2020 client alert to reflect guidance from the U.S. Treasury Department and the Small Business Administration.

This morning, the Board of Governors of the Federal Reserve System announced sweeping actions to help the economy.

The SEC re‑proposed Rule 18f-4, a new exemptive rule designed to provide a more comprehensive approach to the regulation of funds’ use of derivatives and certain other transactions.

On January 13, 2020, the Delaware Supreme Court reversed, in part, an appeal from the Delaware Court of Chancery in BlackRock Credit Allocation Income Trust v. Saba Capital Master Fund, Ltd.

The SEC's Office of Compliance Inspections and Examinations has released its 2020 Examination Priorities. This Client Alert includes a discussion of the exam priorities.

FINRA recently issued its 2020 Risk Monitoring and Examination Priorities Letter. The letter highlights the areas of focus for FINRA’s risk monitoring, surveillance and examination programs for 2020 and contain numerous links to Regulatory Notices, FINRA Reports and other resources to aid broker-dealers in complying with the priority areas.

On November 25, the SEC re-proposed Rule 18f-4 under the Investment Company Act of 1940 as amended. Rule 18f-4 is intended to be a new exemptive rule that is designed to enhance the regulation of the use of derivatives by registered investment companies, including mutual funds, ETFs, closed-end funds, and BDCs notwithstanding the restrictions under the 1940 Act.

On November 4, the SEC announced proposed amendments to Rules 206(4)-1 and 206(4)-3 under the Investment Advisers Act of 1940 to address investment adviser advertisements and payments to solicitors, respectively. 

On September 26, the SEC adopted final Rule 6c-11 under the Investment Company Act of 1940, and certain form amendments that standardize the regulatory regime governing exchange-traded funds.

Fund sponsors are increasingly considering two similar types of registered closed-end investment companies known as “interval funds” and “tender offer funds” as an attractive alternative to open-end mutual funds, ETFs and traditional closed-end funds.

On September 26, the SEC adopted Rule 6c-11 under the Investment Company Act of 1940 and amendments to Form N-1A and Form N-8B-2 that overhaul the patchwork regulatory framework that currently governs the $3.32 trillion ETF industry. The adopted rule and form amendments are largely similar, but not identical, to the versions that were proposed in June 2018.

Chapman attorney Greg Xethalis spoke at an event hosted at Chapman's New York office in connection with Climate Week NYC 2019.

Chapman attorney Walt Draney spoke at the Alternative Finance Summit 2019.

Chapman attorney Kathleen Moriarty will be speaking at the 24th Annual Global Indexing and ETFs Conference. 

The Securities and Exchange Commission voted 3 to 1 to adopt highly anticipated new and amended rules, forms and guidance relating to registered investment advisers’ and broker-dealers’ conduct and interactions with retail customers.  

Chapman attorney Barry Pershkow spoke at the 2019 ETFs Global Markets Roundtable.

On March 20, the Securities and Exchange Commission voted to propose amendments to existing rules and forms that, if adopted, would modify the registration, communication, offering and reporting processes applicable to registered closed-end investment companies and business development companies regulated under the Investment Company Act.

The Financial Industry Regulatory Authority, Inc. recently issued its 2019 Risk Monitoring and Examination Priorities Letter. The Risk Monitoring and Examination Priorities Letter also directs members to their 2017 and 2018 Reports on Examination Findings. This Client Alert provides brief summaries of some of the more significant issues FINRA’s letter raises.

The beginning of each year provides an opportunity for investment advisers to review compliance and regulatory matters, including issues related to private investment funds and commodity pools.

On December 14, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations issued a Risk Alert reminding investment advisers of their recordkeeping obligations with respect to electronic messaging and summarizing their related observations from recent examinations.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations has released its 2019 National Exam Program Examination Priorities.

The Securities and Exchange Commission recently issued a no-action letter which allows broker-dealers to rely on investment advisers to perform some or all of their Customer Identification Program obligations under federal anti-money laundering legislation.

The Internal Revenue Service recently provided excise tax relief for funds taxed as regulated investment companies that were required to increase their gross income because of the new Section 965 transition tax.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations issued a National Exam Program Risk Alert outlining the most common deficiencies that OCIE staff has identified in recent examinations of registered investment advisers’ best execution practices.

On June 28, the Securities and Exchange Commission proposed Rule 6c-11 under the Investment Company Act of 1940 and amendments to Form N-1A and Form N-8B-2 that overhaul the patchwork regulatory framework that currently governs the $3.4 trillion ETF industry.

The Municipal Securities Rulemaking Board recently published its 2017 Compliance Advisory for Brokers, Dealers and Municipal Securities Dealers. The Compliance Advisory outlines several MSRB rules that the MSRB believes present key compliance risks for brokers, dealers and municipal securities dealers.

On April 18, the Securities and Exchange Commission released a new interpretation addressing investment advisers’ fiduciary duties to their clients. The SEC’s proposed interpretive guidance reaffirms and clarifies duties owed by investment advisers to their clients under Section 206 of the Investment Advisers Act of 1940.

On April 18, the Securities and Exchange Commission proposed new Regulation Best Interest under the Securities Exchange Act of 1934 that would establish a federal standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer. 

The Securities and Exchange Commission recently proposed new and amended rules and forms under the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934 to require registered investment advisers and broker-dealers to provide a brief relationship summary to retail investors regarding their offered services, the standard of conduct and fees associated with the services.

Today, the Securities and Exchange Commission voted 4 to 1 to propose highly anticipated new and amended rules and guidance relating to registered investment advisers’ and broker-dealers’ conduct and interactions with retail customers.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently published a Risk Alert that highlights frequently-identified investment adviser fee and expense compliance issues from exams of over 1,500 investment adviser examinations during the past two years.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently released its 2018 National Exam Program Examination Priorities. Highlights from the 2018 exam priorities are reviewed in this Client Alert. 

The beginning of each year provides an opportunity for investment advisers to review compliance and regulatory matters, including issues related to private investment funds and commodity pools, which are briefly summarized in this alert.

The Financial Industry Regulatory Authority, Inc. recently issued its 2018 Regulatory and Examination Priorities Letter. A number of FINRA’s comments direct firms to review the 2017 Examination Findings Report for additional insights into specific areas of concern and effective practices.

On August 11, the IRS issued Rev. Proc. 2017-45 which allows publicly offered real estate investment trusts and regulated investment companies to make stock distributions that will qualify for the dividends-paid deduction, if certain requirements are met, and therefore enable a RIC or REIT to meet its minimum annual dividend distribution tests. 

Both the House and Senate versions of the Tax Cuts and Jobs Act include a new provision that would impose an excise tax on the compensation paid by certain exempt organizations, including certain state and local governmental entities, if the compensation to a covered employee is more than $1 million.

On November 2, Representative Brady released the proposed text of the long-awaited federal income tax reform bill. The bill also includes a provision that appears aimed at subjecting public pension plans to unrelated business taxable income.

The staff of the Securities and Exchange Commission issued three no-action letters designed to assist broker‑dealers and investment advisers in addressing issues related to European Union directives and related legislation that will become effective on January 3, 2018.

The Financial Industry Regulatory Authority, Inc. released additional guidance on social media and digital communications in Regulatory Notice 17-18. The guidance from FINRA is summarized in this article.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently published a Risk Alert that highlights frequently identified investment adviser advertising compliance issues. The Risk Alert identifies the advertising compliance issues most frequently identified in deficiency letters from investment adviser examinations.

The Department of Labor published its proposal to delay for 18‑months the more onerous provisions of the exemptions that were issued in connection with the DOL’s fiduciary rule. The exemptions were supposed to be fully effective January 1, 2018. Instead, the DOL has proposed that they become fully effective July 1, 2019.

The Department of Labor recently issued another set of FAQs, focusing on advisors to 401(k) plans. The FAQs generally address two issues. 

In a court filing on August 9, the Department of Labor notified the court that it recently submitted proposed amendments to the three exemptions to its fiduciary rule to the Office of Management and Budget.

In February 2017, the staff of the Securities and Exchange Commission’s Division of Investment Management issued guidance providing additional clarity on Rule 206(4)-2 under the Investment Advisers Act of 1940.

Effective May 14, 2018, amendments to Municipal Securities Rulemaking Board Rule G-15 and Financial Industry Regulatory Authority Rule 2232 will subject firms to new transaction-related disclosure requirements to retail investors for certain fixed income securities. 

The Securities and Exchange Commission announced that it is requesting comments from retail investors and other interested parties on the standards of conduct applicable for broker-dealers and investment advisers.

Labor Secretary Alexander Acosta confirmed in an Op-Ed in the Wall Street Journal that the Department of Labor fiduciary rule will become applicable on June 9. Along with the Op-Ed, the DOL issued new Conflict of Interest FAQs related to the June 9, 2017 to January 1, 2018 transition period and Field Assistance Bulletin No. 2017-2.

The Financial Industry Regulatory Authority, Inc. recently released additional guidance on social media and digital communications. FINRA previously issued guidance on the use of social media communications in Regulatory Notice 10-06 and Regulatory Notice 11-39.

On May 1, Tax Notes published a flurry of revocations of private letter rulings that had been issued to regulated investment companies. In each of the revocations, at least one of the rulings requested in the original private letter ruling was that the income from a commodity linked note was qualified income for the purposes of Internal Revenue Code § 851.

The Municipal Securities Rulemaking Board recently withdrew a proposed rule from consideration by the Securities and Exchange Commission. The rule would have prohibited a broker, dealer or municipal securities dealer from effecting a customer transaction in municipal securities in an amount lower than the minimum denomination of the issue stated in offering documents.

The Financial Industry Regulatory Authority, Inc. recently released three Regulatory Notices related to its ongoing review of its members’ involvement in the capital formation process. 

The Financial Industry Regulatory Authority, Inc. recently requested comments on proposed amendments to FINRA Rule 2241 (on equity research) and FINRA Rule 2242 (on debt research) that would create a safe harbor for trading desk commentary distributed to eligible institutional investors subject certain conditions.

Yesterday the Department of Labor released the final rule delaying the applicability of the DOL fiduciary rule and the related prohibited transaction exemptions to June 9, 2017. The rule was originally set to become applicable on April 10, 2017.

The Department of Labor announced a proposed 60-day delay of the applicability date of the DOL fiduciary rule and related exemptions. The DOL has allowed a 15-day comment period providing all interested parties an opportunity to comment on the proposed delay.

The staff of the Securities and Exchange Commission’s Division of Investment Management recently issued new guidance providing additional clarity on Rule 206(4)-2 under the Investment Advisers Act of 1940.

The staff of the Securities and Exchange Commission’s Division of Investment Management recently released guidance on disclosure, suitability and compliance obligations for automated advisers—often referred to as “robo-advisers.”

The Financial Industry Regulatory Authority, Inc. announced the effective date of amendments to FINRA Rule 2232 requiring firms to disclose additional transaction-related information for certain fixed income securities principal transactions with retail customers.

The Municipal Securities Rulemaking Board is requesting comments on proposed amendments to its advertising rule for brokers, dealers, and municipal securities dealers and a new advertising rule for municipal advisors.

The Financial Industry Regulatory Authority, Inc. recently proposed amendments that would create a new exception to FINRA’s prohibition on projecting performance. The proposed exception to FINRA Rule 2210 would permit a firm to distribute a customized hypothetical investment planning illustration.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently published a Risk Alert listing five compliance topics most frequently identified in deficiency letters to investment advisers following exams.

The Securities and Exchange Commission is seeking comments on proposed new Municipal Securities Rulemaking Board Rule G-49 prohibiting a broker, dealer or municipal securities dealer from effecting a customer transaction in municipal securities in an amount lower than the minimum denomination of the issue stated in offering documents.

President Trump issued a memorandum directing the Department of Labor to conduct an analysis of the fiduciary rule’s potential impact. Depending on the results of its examination, the memorandum instructs the DOL to publish for notice and comment a proposed rule to rescind or revise the rule. 

The Department of Labor released on January 13 two sets of frequently asked questions to provide additional guidance on its new fiduciary rule. One set of FAQs is directed at consumers to better help them understand the Rule. The other set of FAQs is directed at financial service providers to address the regulation defining “investment advice.” 

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently released its Examinations Priorities for 2017.

The beginning of each year provides an opportunity for investment advisers to review annual compliance and regulatory matters, including issues related to private investment funds and commodity pools. This alert briefly summarizes some of the primary issues that advisers might consider in their 2017 annual review and update processes.

The Financial Industry Regulatory Authority, Inc. recently issued its annual Regulatory Examination Priorities Letter. This alert summarizes some of the more significant issues FINRA’s letter raises. 

The staff of the Securities and Exchange Commission’s Division of Investment Management has released guidance focused on disclosure issues and certain procedural requirements associated with mutual funds implementing intermediary‑specific variations to sales loads and adding new share classes.

The Municipal Securities Rulemaking Board recently published guidance on broker-dealer obligations when executing transactions involving a registered investment adviser that is authorized to exercise full discretion to buy and sell municipal securities on behalf on an account holder.

The Municipal Securities Rulemaking Board recently issued an interpretive notice announcing its interpretation that if a dealer engages in a transaction with a customer in a municipal security that bears market discount, the dealer must disclose the existence of market discount to its customer as part of the “time of trade disclosure” required under MSRB Rule G-47. 

The Securities and Exchange Commission recently approved Financial Industry Regulatory Authority, Inc. and Municipal Securities Rulemaking Board rule amendments requiring broker-dealers to disclose trade compensation for certain fixed income securities principal transactions with retail customers. 

The Financial Industry Regulatory Authority, Inc. recently filed proposed rule changes with the Securities and Exchange Commission to amend FINRA Rule 4512 and adopt FINRA Rule 2165. 

The Securities and Exchange Commission recently approved proposed rule changes by the Financial Industry Regulatory Authority, Inc. that would revise certain filing requirements of FINRA Rules 2210, 2213 and 2214. 

The Municipal Securities Rulemaking Board recently issued a notice seeking guidance on its strategic priorities for 2017. The MSRB’s notice seeks comment on potential areas where the MSRB should focus its strategic goals and how it should prioritize its core activities. 

On October 27, the Department of Labor issued its first wave of FAQs to address certain questions that have arisen with respect to the DOL’s previously issued fiduciary rule. Generally, the Rule broadly defines who is a fiduciary under the Employee Retirement Income Security Act and the Internal Revenue Code.

The Financial Industry Regulatory Authority announced that it is conducting a sweep examination on broker-dealer firms to look into incentives and business practices that may encourage employees to engage in inappropriate cross-selling activities. 

The Securities and Exchange Commission voted last Thursday to adopt changes to enhance liquidity risk management by open-end funds, including mutual funds and exchange-traded funds.

Last week, the IRS contemporaneously released two pieces of guidance related to the question of whether qualifying regulated investment company income could include indirect commodities income through controlled foreign corporations or derivative exposure to commodities. 

The Municipal Securities Rulemaking Board recently published its 2016 Compliance Advisory for Brokers, Dealers and Municipal Securities Dealers. The Compliance Advisory outlines several MSRB rules that the MSRB believes present key compliance risks for brokers, dealers and municipal securities dealers. 

After several years of securities industry efforts, the Securities and Exchange Commission has formally proposed a rule change that would shorten the standard settlement cycle for most broker-dealer securities transactions from three business days after the trade date to two business days after the trade date. 

Municipal Securities Rulemaking Board Rule G-15(f) prohibits a broker, dealer or municipal securities dealer from effecting a customer transaction in municipal securities in an amount lower than the minimum denomination of the issue stated in offering documents, subject to two current exceptions.

The Securities and Exchange Commission is seeking comments on proposed Municipal Securities Rulemaking Board rule changes that would require dealers to disclose bond mark-ups and mark-downs on retail customer trade confirmations. 

On August 25, after approximately five years of litigation concluding with a 25-day bench trial, Judge Peter G. Sheridan issued the opinion of the U.S. District Court for the District of New Jersey in the first trial of a “manager-of-managers” theory of liability for breach of fiduciary duty.

The Securities and Exchange Commission recently approved new Financial Industry Regulatory Authority, Inc. pay‑to-play rules to regulate activities of FINRA member firms that engage in distribution or solicitation activities with government entities on behalf of investment advisers.

The Securities and Exchange Commission recently adopted changes to certain aspects of the reporting, disclosure and recordkeeping obligations of registered investment advisers including changes to Form ADV. 

The Financial Industry Regulatory Authority, Inc. recently proposed amendments to its gifts, non-cash compensation and business entertainment rules. 

The Securities and Exchange Commission is seeking comments on proposed Financial Industry Regulatory Authority, Inc. rule changes that would require members to disclose bond mark-ups and mark-downs on retail customer trade confirmations.

The Internal Revenue Service issued Notice 2016-10 to address foreign tax credits and regulated investment companies. The Internal Revenue Code does not provide guidance on the question of how a RIC should treat refunds of foreign tax when it has made an election to pass the foreign tax credit to its shareholders. Notice 2016-10 begins to address this question.

Following the implementation of Dodd-Frank's rules and regulations and the initial wave of SEC examinations of municipal advisors, management and compliance personnel are navigating through the rules while continuing to run their business and service clients.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently issued a Risk Alert announcing that they will be undertaking an examination initiative focused on the risk that registered advisers may be making conflicted recommendations to their clients.

The Securities and Exchange Commission recently proposed a new rule and rule amendments under the Investment Advisers Act of 1940 that would require SEC-registered investment advisers to adopt and implement written business continuity and transition plans.

The Financial Industry Regulatory Authority, Inc. recently filed changes to new FINRA Rule 2242 (Debt Research Analysts and Debt Research Reports) with the Securities and Exchange Commission. The rule is still new and FINRA has delayed implementation several times.

The Financial Industry Regulatory Authority, Inc. recently filed proposed changes to certain aspects of the FINRA rules governing member firms’ communications with the public. The proposed rule changes are substantially similar to those proposed by FINRA in May 2015. 

The Securities and Exchange Commission recently published a notice of its intention to adjust for inflation dollar amount thresholds for the “qualified client” definition under Investment Advisers Act of 1940 Rule 205-3. Under Rule 205-3, an investment adviser may charge performance-based fees to a “qualified client” meeting a minimum net worth or minimum assets.

Client Alert
The Financial Crimes Enforcement Network recently published its final rule under the Bank Secrecy Act of 1970, as amended on customer due diligence requirements for banks, broker-dealers, mutual funds and futures commission merchants and introducing brokers in commodities.

The Financial Industry Regulatory Authority, Inc. delayed the implementation of FINRA Rule 2242 until July 16, 2016. FINRA Rule 2242 addresses conflicts of interest relating to the publication and distribution of debt research reports.

The Municipal Securities Rulemaking Board prohibits a broker, dealer or municipal securities dealer from effecting a customer transaction in municipal securities in an amount lower than the minimum denomination. The MSRB recently proposed adding two additional exceptions that would allow dealers to sell below stated minimums. 

This alert addresses several frequently asked questions related to sales of unit investment trusts registered under the Investment Company Act of 1940 by those persons deemed fiduciaries under the U.S. Department of Labor's recently released fiduciary rule.

Today the U.S. Department of Labor released its highly anticipated final rule to define the term “fiduciary” and address conflicts of interest in providing investment advice to retirement accounts.

The staff of the Securities and Exchange Commission’s Division of Investment Management recently released guidance regarding registered investment company risk disclosure.

The Municipal Securities Rulemaking Board is seeking comment on proposed guidance on establishing the “prevailing market price” and calculating mark-ups and mark-downs for principal transactions in municipal securities.  

The Financial Industry Regulatory Authority, Inc. delayed the implementation of FINRA Rule 2242 (Debt Research Analysts and Debt Research Reports) until April 22, 2016. FINRA Rule 2242 addresses conflicts of interest relating to the publication and distribution of debt research reports.

This Client Alert briefly summarizes some of the primary issues that advisers might consider in their 2016 annual review and update processes. 

The Securities and Exchange Commission recently approved amendments to Financial Industry Regulatory Authority, Inc. rules to apply FINRA Rule 2121 (Fair Prices and Commissions) to government securities. 

On January 6, 2016, the staff of the Securities and Exchange Commission’s Division of Investment Management released guidance regarding registered open-end investment company payments to certain financial intermediaries that provide shareholder and recordkeeping services for investors. The staff’s guidance is designed to help fund boards oversee and evaluate whether sub-accounting fees are for distribution or non-distribution services.

In December 2014, the Securities and Exchange Commission approved a new Municipal Securities Rulemaking Board best execution rule for transactions in municipal securities and related amendments applicable to “sophisticated municipal market professionals."

In September, the IRS issued final regulations to clarify that controlled groups under the rules for regulated investment companies may consist of only two entities. This may cause unanticipated attributions of ownership, which would disqualify some RICs from beneficial tax treatment.

The Municipal Securities Rulemaking Board recently adopted amendments to MSRB Rule G-20 on gifts, gratuities and non-cash compensation. The rule changes become effective on May 6, 2016.

The Municipal Securities Rulemaking Board recently proposed amendments to MSRB Rules G-12 and G-15 that would shorten the settlement cycle from T+3 (trade date plus three business days) to T+2 (trade date plus two business days) for transactions in municipal securities. 

The Financial Industry Regulatory Authority, Inc. recently filed a proposed rule change with the Securities and Exchange Commission to apply FINRA rules on bond mark-ups and commissions to transactions in exempted securities that are government securities.

The Securities and Exchange Commission recently proposed new rules and amendments designed to enhance liquidity risk management requirements for certain open-end management investment companies, including mutual funds and exchange-traded funds.

The Municipal Securities Rulemaking Board recently proposed amendments to MSRB Rule G-15 that would require brokers, dealers and municipal securities dealers to disclose the mark-up or mark-down on retail customer confirmations for specified principal transactions.

The Financial Industry Regulatory Authority, Inc. recently issued a Regulatory Notice providing guidance on liquidity risk management practices that FINRA expects member firms to consider and implement in preparation for adverse circumstances. 

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently issued a Risk Alert providing information on the areas of focus for the SEC staff’s second round of cybersecurity examinations of registered investment advisers and broker-dealers. 

The National Futures Association recently submitted an interpretive notice proposal to the Commodity Futures Trading Commission that would require NFA members to establish information systems security programs.

The Financial Crimes Enforcement Network recently proposed rulemaking to prescribe minimum standards for anti-money laundering programs.

The Financial Industry Regulatory Authority, Inc. recently announced the adoption of amendments to its equity research rules and entirely new rules governing debt research. 

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently issued a Risk Alert summarizing deficiencies in controls of certain broker-dealers related to sales of structured products to retail investors. 

The Securities and Exchange Commission is seeking comments on proposed rule changes by the Financial Industry Regulatory Authority, Inc. addressing external personal accounts opened or established by associated persons of FINRA member firms. 

The Financial Industry Regulatory Authority recently issued a Regulatory Notice to remind firms that their written supervisory procedures should identify the process for detecting, resolving, and preventing the consequences of short positions and fails-to-receive in municipal securities. 

The Securities and Exchange Commission recently published orders approving two rule proposals by the Financial Industry Regulatory Authority, Inc. governing equity and debt research analysts and research reports.

The Securities and Exchange Commission is seeking comments on a proposed rule change by the Financial Industry Regulatory Authority, Inc. that would amend FINRA Rule 2210 (Communications with the Public).

Law360 republished a Chapman Client Alert.

The Securities and Exchange Commission recently set the compliance date for the ban on certain payments to third-party solicitors under Rule 206(4)-5 of the Investment Advisers Act of 1940 as July 31, 2015.

The staff of the Securities and Exchange Commission’s Division of Investment Management recently published guidance on investment adviser Code of Ethics exceptions to personal securities transaction reporting for securities transactions occurring in certain types of trusts or investment management accounts where the beneficiary or account holder has limited or no discretionary investment authority. 

The Financial Industry Regulatory Authority is requesting comment on a revised proposal to adopt a new FINRA rule that would consolidate and clarify former National Association of Securities Dealers and New York Stock Exchange rules regarding discretionary accounts and transactions.

On June 12, 2015, the Securities and Exchange Commission issued a release seeking public comment to help inform its review of the listing and trading of new, novel, or complex exchange-traded products.

The Financial Industry Regulatory Authority recently issued a Regulatory Notice announcing that it had added additional guidance to the FINRA Rule 2210 questions and answers webpage to provide additional guidance on advertising and other communications with retail investors. 

The Securities Industry and Financial Markets Association recently proposed that the Financial Industry Regulatory Authority amend its rules to replace the current broker-dealer “suitability” standard with a new “best interests” standard along with enhanced customer disclosure about a broker-dealer’s services, conflicts of interest, fees, and compensation. 

The Financial Industry Regulatory Authority recently released a Regulatory Notice in which it proposed changes to certain aspects of the FINRA rules governing member firms’ communications with the public. This Client Alert is a summary of the proposed changes.

This Client Alert summarizes the Securities and Exchange Commission proposed changes to certain aspects of the reporting, disclosure, and recordkeeping obligations of registered investment advisers. 

This Client Alert summarizes the Securities and Exchange Commission proposed changes to certain aspects of the disclosure and reporting obligations of registered investment companies. 

The Financial Industry Regulatory Authority recently issued an interpretive letter that allows distributors of mutual funds to include related performance information in communications with institutional investors, including registered broker-dealers and investment advisers.

On May 20, 2015, the Securities and Exchange Commission proposed changes to certain aspects of reporting and disclosure obligations of registered investment advisers and investment companies. 

The staff of the Securities and Exchange Commission’s Division of Investment Management recently published guidance for registered investment advisers and registered investment companies related to cybersecurity preparedness in their business practices. 

The Securities and Exchange Commission staff recently announced an initiative to conduct examinations of registered investment company complexes that have not previously been examined. 

The staff of the Securities and Exchange Commission recently issued guidance to remind affiliates of registered investment companies that the receipt of gifts or entertainment may violate Section 17(e)(1) of the Investment Company Act of 1940.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently issued its 2015 Regulatory and Examinations Priorities Letter.

The Financial Industry Regulatory Authority, Inc. recently issued its Regulatory and Examinations Priorities Letter. In this alert are brief summaries of some of the more significant issues FINRA’s letter raises.

The Securities and Exchange Commission recently issued a no-action letter which grants relief to broker-dealers, allowing them to rely on investment advisers to perform some or all of their Customer Identification Program obligations under federal anti-money laundering legislation.

The beginning of each year provides an opportunity for investment advisers to review annual compliance and regulatory matters, including issues related to private investment funds and commodity pools.

The Securities and Exchange Commission approved the Municipal Securities Rulemaking Board’s proposal to implement a “best execution” standard for municipal securities transactions.

The Securities and Exchange Commission is seeking comments on two new rule proposals by the Financial Industry Regulatory Authority, Inc. governing equity and debt research analysts and research reports.

The Financial Industry Regulatory Authority, Inc. recently proposed new “pay-to-play” rules that would regulate the activities of FINRA member firms engaging in distribution or solicitation activities with government entities on behalf of investment advisers.

The Financial Industry Regulatory Authority, Inc. and the Municipal Securities Rulemaking Board recently requested comment on proposals to require disclosure of pricing information on customer trade confirmations for certain fixed income security transactions.

The Municipal Securities Rulemaking Board recently announced the approval of an amended continuing education rule that will require annual training and expand the coverage of its Firm Element.

The Board of Governors of the Financial Industry Regulatory Authority, Inc. recently authorized regulatory notices seeking comment on initiatives to enhance transparency and execution quality in fixed income markets.

The staff of the Commodity Futures Trading Commission recently issued relief for certain exempt commodity pool operators that permits general solicitation and general advertising in connection with offerings of commodity pools.  

The Securities and Exchange Commission is seeking comments on the first ever explicit “best execution” rule for municipal securities transactions proposed by the Municipal Securities Rulemaking Board.

On August 18, 2014, the Municipal Securities Rulemaking Board released for public comment draft amendments the Proposed Amendments) to existing Rule G-37, which restricts “pay to play” practices by regulating certain activities by brokers, dealers and municipal securities dealers.

The Municipal Securities Rulemaking Board recently announced its intent to move forward with several actions aimed at enhancing price transparency for municipal securities.

The Municipal Securities Rulemaking Board has released for public comment a revised draft of its proposed Rule G-42 on the duties of municipal advisors.

On May 19, 2014, the Staff of the Office of Municipal Securities of the Securities and Exchange Commission issued additional guidance on the SEC’s registration rules for municipal advisors.

The Municipal Securities Rulemaking Board recently announced the approval and effectiveness of its new fair-pricing rule. Amended MSRB Rule G-30 consolidates dealer fair-pricing obligations into a single rule on prices and commissions for principal and agency transactions in municipal securities.

The Financial Industry Regulatory Authority, Inc. recently filed proposed advertising rule changes with the Securities and Exchange Commission.