Dear Clients and Friends, As the developments affecting the investment management industry continue to unfold, we have once again prepared our annual compendium of relevant Sidley Updates for our investment fund and adviser clients and friends. The compendium includes a summary of each 2017 Sidley Update, in reverse chronological order, along with a link to its full text. We have included all of the Updates, making the compendium repetitive in instances where we revisited a topic to report on emerging information and breaking news in the industry. If you would like additional information on any of these topics, please contact the Sidley lawyer with whom you usually work.
December 20, 2017 CFTC Proposes Interpretation of “Actual Delivery” in Connection with Virtual Currency On December 15, 2017, the Commodity Futures Trading Commission (CFTC or the Commission) issued a proposed interpretation of the term “actual delivery” as that term is used in the so-called “retail commodity transactions” provisions of the Commodity Exchange Act (CEA). Specifically, the proposed interpretation would “inform the public of the Commission’s views as to the meaning of actual delivery within the specific context of retail commodity transactions in virtual currency.” The proposed interpretation will be open for public comment through March 20, 2018. December 12, 2017 The DOL Fiduciary Rule: 18-Month Extension of Transition Period On November 29, 2017, the Department of Labor (DOL) announced an 18-month extension, from January 1, 2018 to July 1, 2019, of the special transition period for the new fiduciary rule’s Best Interest Contract (BIC) Exemption and the Principal Transactions Exemption, as well as the applicability of certain amendments to Prohibited Transaction Exemption (PTE) 84-24. November 16, 2017 Derivatives Quarterly Newsletter: 3rd Quarter 2017 This issue of Sidley’s Derivatives Quarterly Newsletter highlights and discusses what we consider to be the more important regulatory developments that may affect entities that trade derivatives products. This issue covers developments that arose in the third quarter of 2017. October 30, 2017 Securities and Exchange Commission Issues No-Action Letters to Address MiFID II On Oct. 26, 2017, the U.S. Securities and Exchange Commission (SEC) staff issued three no-action letters intended to provide guidance to broker-dealers and investment advisers affected by the European Union’s Markets in Financial Instruments Directive (MiFID) II requirements, which become effective on Jan 3, 2018. MiFID II, among other requirements, compels EU investment managers to pay separately for trade execution and for investment research — services that historically have been bundled in the U.S. October 26, 2017 Federal Reserve Adopts Rule Requiring GSIBs to Amend QFC Transactions to Limit Termination Rights of Counterparties On September 1, 2017, the Board of Governors of the Federal Reserve System (the Federal Reserve) adopted a rule (the Rule) that will require global systemically important U.S. bank holding companies (U.S. GSIBs) and most of their subsidiaries to amend a range of derivatives, short-term funding transactions, securities lending transactions and other qualifying financial contracts (QFCs). The required amendments will limit counterparty termination rights related to certain U.S. GSIB resolution and bankruptcy proceedings. Banks and other depository institutions regulated by the Office of the Comptroller of the Currency (OCC) or the Federal Deposit Insurance Corporation (FDIC) are “excluded banks” under the Rule, but they will be subject to “substantively identical” rules adopted by those agencies. October 9, 2017 U.S. Treasury Recommends Changes to Securitization Market Regulation On October 6, 2017, the U.S. Department of the Treasury released a report on the regulation of U.S. capital markets (the Report). The Report addresses securitization markets (among many other subjects). The Report recommends regulatory changes or review in four areas related to securitizations:
- Capital Requirements—Bank capital requirements should be reduced or, in certain cases, reviewed, in order to better align those requirements with underlying securitization risks.
- Liquidity Requirements—Regulators should consider allowing certain high-quality securitized obligations to be counted by banking organizations against bank liquidity requirements.
- Risk Retention Requirements—Risk retention requirements should be revised to expand the exemptions available for certain types of securitizations, and one federal agency should be designated by Congress for related rulemaking.
- Disclosure Requirements—Reporting requirements for publicly offered securitizations should be reviewed and recalibrated and should not be extended to Rule 144A offerings or additional asset classes.
The recommendations are consistent with the Report’s characterization of the “counterproductive” treatment of securitization as “high-risk.” The Report states that “securitization, when undertaken in an appropriate manner, can be a vital financial tool to facilitate growth in our domestic economy.” October 5, 2017 SEC Publishes Important Guidance on Common Advertising Rule Compliance Issues This Sidley Update summarizes a Risk Alert that the Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE) staff published on September 14, 2017 and supplements Sidley’s annual summary of developments for investment advisers published on February 17, 2017. The Risk Alert addresses compliance issues related to Rule 206(4)-1 (Advertising Rule) under the Investment Advisers Act of 1940 (Advisers Act). October 3, 2017 Proper Supervision by CPOs: Are You Performing Daily Reconciliation on Cash Accounts? Daily reconciliation may be fairly common for fund managers in relation to trading accounts, but may not always be the standard for cash accounts, particularly for cash accounts where all or nearly all cash is swept out at month-end after completion of subscription and redemption activity. A recent enforcement action may cause managers to reevaluate whether enhanced monitoring procedures for cash accounts may be necessary. September 29, 2017 Volcker Rule OCC Requests Public Input on Potential Revisions On August 2 2017 the U.S. Office of the Comptroller of the Currency (OCC) released a notice seeking public input regarding how to revise the Volcker Rule. The notice cites a report that the U.S. Treasury Department released in June 2017, which included recommendations for significant changes to the Volcker Rule (among other recommendations to reform the U.S. financial system). Although the OCC did not propose specific changes to the Volcker Rule in its notice, it stated that “[t]he information that the OCC is soliciting could support the revisions to the final rule advanced in the Treasury report and elsewhere.” The notice states that the “OCC is not requesting comment on changes to the underlying Volcker statute.” Instead, the OCC is requesting additional information and suggestions that it and the other agencies responsible for implementing the Volcker Rule can consider as they determine whether to propose formal changes to the rule. Any formal rulemaking would require joint action by the OCC and those other agencies. None of the other agencies have issued corresponding requests for public comment at this time. August 23, 2017 Upcoming October 1, 2017 Compliance Date for Investment Advisers to Use Revised Form ADV This Sidley Update highlights certain points regarding compliance with amendments the Securities and Exchange Commission (SEC) adopted on August 25, 2016 (Amendments) to Form ADV and to Rule 204-2 (Books and Records Rule) under the Investment Advisers Act of 1940 (Advisers Act). August 11, 2017 CFTC Issues Aggregation Exemption Notice Filing Relief On August 10, 2017, the Division of Market Oversight (DMO) of the Commodity Futures Trading Commission (CFTC) granted time-limited no-action relief from a number of requirements applicable to persons who rely on certain exemptions from the CFTC’s position limit aggregation rules, including the requirement to file notices to rely in aggregation exemptions. This latest relief expands the scope of previously granted no-action relief that was scheduled to expire on August 14, 2017, which would have resulted in a number of market participants becoming subject to those filing requirements on that date. As detailed below, the notice filing requirement and elements of certain aggregation exemptions will not be enforced until August 12, 2019. August 9, 2017 Derivatives Quarterly Newsletter: 2nd Quarter 2017 This issue of Sidley’s Derivatives Quarterly Newsletter highlights and discusses what we consider to be the more important regulatory developments that may affect entities that trade derivatives products. This issue covers developments that arose in the second quarter of 2017. In this issue:
- U.S. Derivatives Developments
- CFTC and NFA
- European Derivatives Developments
- Asia Derivatives Developments
July 27, 2017 CFTC Grants SEF and DCO Registration to LedgerX LLC On July 6, 2017, the Commodity Futures Trading Commission (CFTC) issued an Order of Registration (SEF Order) to LedgerX LLC (LedgerX), granting it registration as a Swap Execution Facility (SEF). On July 24, 2017, the CFTC issued an Order of Registration (DCO Order, and together with the SEF Order, Orders) to LedgerX, granting it registration as a Derivatives Clearing Organization (DCO). With the Orders, LedgerX will become the first federally regulated bitcoin options exchange and clearinghouse to list and clear fully collateralized, physically settled bitcoin options. July 26, 2017 CFTC and Exchanges Amend Aggregation Rules, Which May Trigger Filing Obligations and Present Issues for Fund Managers The U.S. Commodity Futures Trading Commission (CFTC) and U.S. futures exchanges set limits on the number of futures contracts that may be held or controlled by one person. CFTC and exchange rules also require “aggregation” of positions across multiple accounts in certain instances, but allow “disaggregation” of such accounts if certain narrow criteria are satisfied. While the CFTC and exchanges have historically had position limit, aggregation and disaggregation rules, the CFTC and U.S. futures exchanges have recently amended their rules to require persons seeking to disaggregate accounts that would otherwise be required to be aggregated to make certain notice filings with the CFTC and/or exchanges. Beginning August 14, 2017, CFTC staff no-action relief that had been issued relating to those notice requirements will expire, triggering CFTC notice filing requirements for fund managers seeking certain types of position limit disaggregation. The notice filing requirements of the U.S. futures exchanges were not subject to this no-action relief and may in some cases also require fund managers to make notice filings with the exchanges. Although industry groups have requested relief from the filing requirements, it is not yet clear whether that relief will be granted. This Sidley Update provides an overview of the impact of the CFTC and futures exchange aggregation and disaggregation rules on fund managers. June 14, 2017 IRS Issues Proposed Regulations on New Tax Audit Rules for Partnerships On June 13, 2017, the United States Internal Revenue Service (IRS) re-released proposed regulations (the Proposed Regulations) that were originally circulated in unofficial form on January 19, 2017 (the Unofficial Proposed Regulations), on the new partnership audit rules enacted by Congress in 2015 (the New Audit Rules). These new rules apply to partnership taxable years beginning on or after January 1, 2018. The Proposed Regulations clarify the broad scope of the New Audit Rules and provide, among other things, procedures for opting out of these rules, for designating the partnership representative, for determining amounts owed by the partnership or partners attributable to adjustments and for pushing out the adjustments to the partners. The Proposed Regulations and their Preamble are essentially identical to the Unofficial Proposed Regulations. June 13, 2017 Private Funds 2017: Developments & Opportunities Sidley held its fourth Private Funds program at the AXA Auditorium at 787 Seventh Avenue in New York on June 13. The annual event featured a series of panel discussions on recent developments and hot topics affecting the private funds industry, ranging from the rise of private credit funds to future expectations regarding the regulatory landscape. June 12, 2017 CFTC Approves Amendments to Recordkeeping Rules On May 23, 2017, the Commodity Futures Trading Commission (CFTC) unanimously approved proposed amendments to the recordkeeping obligations set forth in CFTC Regulation 1.31 (Recordkeeping Rule) which is applicable to all CFTC registered entities and other persons required to maintain records under the Commodity Exchange Act (CEA). The final amendments are intended to modernize the Recordkeeping Rule by making the form and manner in which regulatory records must be kept technology-neutral. The amendments provide recordkeepers with greater flexibility regarding the retention and production of CFTC regulatory records. The CFTC indicated that it does not believe the amendments impose any new recordkeeping requirements on any recordkeeper, and existing recordkeeping methods remain valid for compliance with the amended Recordkeeping Rule should a recordkeeper choose not to take advantage of the less-prescriptive, principles based approach of the amended Recordkeeping Rule. The final amendments also reorganized the Recordkeeping Rule for ease of understanding, including by adopting new definitions. The amendments represent a long-awaited and generally positive modernization of important CFTC rules that have often frustrated market participants. The effective date for the amended Recordkeeping Rule is August 28, 2017. May 24, 2017 Trump Administration Opens Comment Period on Renegotiation of the North American Free Trade Agreement The Office of the United States Trade Representative (USTR) has issued a Federal Register notice requesting comments on U.S. priorities for the renegotiation of the North American Free Trade Agreement (NAFTA). Comments from interested parties are due on June 12. Requests to participate in the hearing on this issue are also due on June 12. The hearing will be held on June 27. U.S. companies with significant trade or investment ties with Canada and Mexico can use this opportunity to seek to ensure that a renegotiated agreement will provide free and fair market access opportunities across North America. May 16, 2017 Derivatives Quarterly Newsletter: 1st Quarter 2017 This issue of Sidley’s Derivatives Quarterly Newsletter highlights and discusses what we consider to be the more important regulatory developments that may affect entities that trade derivatives products. This issue covers developments that arose in the first quarter of 2017. In this issue:
- U.S. Derivatives Developments
- CFTC and NFA
- SEC and FINRA
- U.S. Enforcement Developments
- European Derivatives Developments
- Asia Derivatives Developments
May 16, 2017 Managers of Investment Funds: It Is Time to Consider Action to Address the DOL Fiduciary Rule The applicability date of the new Department of Labor (DOL) fiduciary rule is less than a month away. Now is the time for investment managers of investment funds to consider taking action to address this rule as it relates to new sales of fund investments to ERISA plans and individual retirement accounts (IRAs). May 15, 2017 CFTC Proposes Amendment to Responsibilities and Reporting Requirements of Chief Compliance Officers of Swap Dealers, Major Swap Participants and Futures Commission Merchants On May 3, 2017, the Commodity Futures Trading Commission (the CFTC) voted to propose changes (the Proposed Amendment) to certain CFTC regulations (the Existing CCO Rules) related to the duties and annual reporting requirements of chief compliance officers (CCOs) of swap dealers (SDs), major swap participants (MSPs) and futures commission merchants (FCMs) registered with the CFTC (Covered Entities). The Proposed Amendment is not intended to change substantively the CCO’s role and responsibilities. Instead, the proposal is generally designed to clarify existing requirements under the Existing CCO Rules, incorporate industry feedback the CFTC has received since the adoption of the Existing CCO Rules and harmonize the Existing CCO Rules with the U.S. Securities and Exchange Commission’s (SEC) recently adopted counterpart chief compliance officer rules (the SEC CCO Rules), which apply to CCOs of security-based SDs and major security-based swap participants. Comments on the Proposed Amendment must be received on or before July 7, 2017. May 8, 2017 SEC Publishes Important Guidance on the Custody Rule, Participating Affiliate Arrangements, Robo-Advisers, Form PF and Certain Compliance Topics This Sidley Update highlights selected investment adviser guidance that the Securities and Exchange Commission (SEC) staff published in the first quarter of 2017 and supplements Sidley’s annual summary of developments for investment advisers published on February 17, 2017. The recent guidance addresses certain obligations of investment advisers under the Investment Advisers Act of 1940 (Advisers Act) and the rules thereunder. May 5, 2017 MiFID II – Implications for EU and Non-EU Investment Managers (UPDATED MAY 2017) MiFID II, which is to be implemented throughout the EU on January 3, 2018, represents a comprehensive and far-reaching set of reforms that will reshape the way in which EU markets and their participants operate. In July 2016, we published a detailed Update considering the implications of MiFID II for EU and non-EU investment managers. The Update has now been updated to reflect the final rules and guidance, along with the latest thinking on the issues. April 18, 2017 Monetary Authority of Singapore Consults on Proposed Framework for Singapore Variable Capital Companies On March 16, 2016, Ms. Indranee Rajah, Senior Minister of State for Law and Finance of Singapore, announced at the Investment Management Association of Singapore’s (IMAS) annual conference that the Monetary Authority of Singapore (MAS) was working with the Accounting and Corporate Regulatory Authority of Singapore (ACRA) on introducing a “new regulatory framework for open-ended investment companies.” The rollout was targeted to be within the next 12 months. A year later, on March 23, 2017, Mr. Lawrence Wong, Minister for National Development and Second Minister for Finance of Singapore, announced at IMAS’ 20th Anniversary Conference that MAS had launched a public consultation on a new corporate structure called the Singapore Variable Capital Company (S-VACC), essentially a Singapore-domiciled open-ended investment company. According to Mr. Wong, “the S-VACC will complement Singapore’s existing corporate structures as one that is tailored for investment funds,” and “will allow asset managers to further consolidate their operations in Singapore by domiciling more of their funds in Singapore alongside their fund management activities.” March 16, 2017 Second Significant Trial Decision in Six Months in Favor of Mutual Fund Adviser That Delegated Services to Sub-Advisers On February 28, 2017, a New Jersey federal court ruled in favor of a mutual fund adviser alleged to have received excessive fees because it delegated certain services to sub-advisers. In Kasilag v. Hartford Investment Financial Services, LLC, No. 1:11-cv-01083-RMB-KMW (D.N.J. Feb. 28, 2017), the district court ruled that the plaintiffs failed to meet their burden of proof under Section 36(b) of the Investment Company Act of 1940. This ruling is significant as there are many similar lawsuits pending around the United States involving the use of sub-advisers, and it is the second trial victory in the last six months for mutual fund advisers under Section 36(b). February 28, 2017 Reference Tool: Financial Regulations That Could be Impacted by the New Administration To date, the chorus of the new administration has been deregulation. President Donald Trump has stated that he plans “to be cutting a lot out of Dodd-Frank,” and on February 3, 2017, issued a memorandum paving the way to reverse the Department of Labor’s Fiduciary Duty Rule, as well as an executive order on Core Principles for Regulating the U.S. Financial System (the Executive Order). On February 9, 2017, the Department of Labor filed for a 180-day delay of implementation of its fiduciary rule and a new public comment period on the measure while it reviews the rule’s effects on the industry as well as investors’ access to retirement information and financial advice. February 21, 2017 Derivatives Quarterly Newsletter: 4th Quarter 2016 This issue of Sidley’s Derivatives Quarterly Newsletter highlights and discusses what we consider to be the more important regulatory developments that may affect entities that trade derivatives products. This issue covers developments that arose in the fourth quarter of 2016. In this issue:
- U.S. Derivatives Developments
- CFTC and NFA
- SEC and FINRA
- U.S. Enforcement Developments
- European Derivatives Developments
- Asia Derivatives Developments
February 21, 2017 2017 Update for Investment Advisers Investment advisers registered with the Securities and Exchange Commission (SEC) have certain annual requirements under the Investment Advisers Act of 1940 (Advisers Act); some of these also either apply to exempt reporting advisers (ERAs) or warrant consideration as best practices for ERAs. This Update reminds investment advisers about certain annual regulatory and compliance obligations, including a number of significant 2017 reporting or filing deadlines. February 17, 2017 The Monetary Authority of Singapore Consults on Proposed Regulatory Regime for Managers of Venture Capital Funds On February 15, the Monetary Authority of Singapore (MAS) issued a Consultation Paper on the Proposed Regulatory Regime for Managers of Venture Capital Funds (Consultation Paper). The Consultation Paper seeks to introduce a simplified regulatory regime for venture capital (VC) managers by streamlining admission and ongoing requirements for VC managers (VC Manager Regime). This is to differentiate the regulatory treatment accorded to VC managers from other fund managers, and to reflect the MAS’ assessment of the lower risk of business and market conduct issues associated with VC managers. February 8, 2017 CFTC Proposes Amendments to Recordkeeping Rule On January 12, 2017, the Commodity Futures Trading Commission (CFTC) unanimously approved proposed amendments (Proposal) to the recordkeeping obligations set forth in CFTC Regulation 1.31 (Recordkeeping Rule). The Proposal is a long-awaited response to multiple industry groups’ petitions for rulemaking urging the CFTC to modernize the outdated Recordkeeping Rule. The Proposal seeks to ensure the Recordkeeping Rule is up-to-date in light of technology changes and recognizes significant advances in the use and knowledge of information technology among market participants since the rule was last amended. Market participants will generally welcome the Proposal, which includes long-sought changes, such as making the form and manner in which regulatory records must be kept technology neutral and removing the requirement for certain recordkeepers to hire third-party technical consultants. Importantly, the Proposal is intended to be technology neutral, so, as technology develops, the Recordkeeping Rule should not become stale. The Proposal has also reorganized the Recordkeeping Rule for ease of understanding, including by adopting new definitions. February 6, 2017 SEC Enforcement Quarterly Newsletter Sidley Austin LLP is pleased to distribute this issue of the SEC Enforcement Quarterly newsletter. Each quarter, our Securities & Derivatives Enforcement and Regulatory practice publishes this review of recent developments in securities enforcement and regulatory matters. In this issue, we feature the following articles:
- SEC Reports Record-Breaking Enforcement Figures for Fiscal Year 2016
- In Highly Anticipated Decision, Supreme Court Rejects Narrow View of “Personal Benefit” in Insider Trading U.S. Enforcement Developments
- OCIE Warms of Increased Focus on Policies That Could Affect Whistleblowers Asia Derivatives Developments
- Circuit Split Raises Question About Constitutionality of ALJs at SEC
- Supreme Court to Address Circuit Split on Whether Statute of Limitations Limits SEC Disgorgement Orders
- Recent SEC Staff Changes
- FCPA Focus
January 30, 2017 AIFMD 2017 Update – UK Annex IV Reporting to be Extended to Master Funds On January 25, 2017, the UK Financial Conduct Authority (FCA) published amendments to its rules on Annex IV reporting under the EU Alternative Investment Fund Managers Directive (AIFMD). The amendments will affect non-EU Alternative Investment Fund Managers (AIFMs) that market feeder Alternative Investment Funds (AIFs) in the UK under the UK’s implementation of the Article 42 AIFMD national private placement regime. The changes apply to those AIFMs who report Annex IV information for their feeder AIFs on a quarterly basis. In future, such AIFMs will also be required to report quarterly information regarding the feeder AIF’s master AIF, notwithstanding that the master AIF is not itself marketed in the UK. The new obligation takes effect from June 29, 2017, which implies that the first quarterly Annex IV report for the relevant master AIF should be filed by July 31, 2017, for the quarter April to June 2017. The new reporting obligation will only affect “above threshold” AIFMs that are required to file Annex IV on a quarterly basis; it will not apply to “sub-threshold” (or “small”) AIFMs or those AIFMs that currently file on a half-yearly or yearly basis. January 26, 2017 Webinar: Impact of Mandatory Uncleared Margin Rules on the Buyside—What You Need to Know and Do On January 25, the Managed Funds Association and Sidley co-hosted “Impact of Mandatory Uncleared Margin Rules on the Buyside—What You Need to Know and Do,” a CLE-accredited webinar that focused on mandatory uncleared margin rules that are scheduled to take effect March 1, 2017. The webinar included:
- An analysis of the U.S. and EU rules
- An overview of the ISDA 2016 Variation Margin Protocol
- How to respond to the ISDA Regulatory Margin Self-Disclosure Letter
- Current implementation challenges and pitfalls
Miki Navazio (NY), Matthew Dening (London), Kate Lashley (NY) and Roisin Nagle (London) conducted the webinar. January 23, 2017 New California Law Requires Public Pension and Retirement Systems to Disclose Compensation and Expenses Under a new California law (AB 2833), starting January 1, 2017, each California public pension and retirement system, including that of the University of California, must require vehicles in which the system has made “alternative investments” to provide certain information related to those alternative investments, including information regarding fees and expenses borne directly or indirectly by the system, and investment performance. Each California public pension and retirement system must also disclose this information, at least annually, at a public meeting. Under the new law, an “alternative investment” is an investment in a private equity fund, venture fund, hedge fund or absolute return fund. The new disclosure requirements apply to all new contracts that a California public pension or retirement system enters into (e.g., fund subscriptions) on or after January 1, 2017 and to all existing contracts pursuant to which a California public pension or retirement system makes a new capital commitment on or after that date. For “grandfathered” investments (i.e., existing investments for which the public pension or retirement system has not made a new capital commitment on or after January 1, 2017), the law requires the public pension or retirement system to undertake “reasonable” efforts to obtain the same information that it is required to obtain from non-grandfathered investment vehicles and to comply with the same public reporting requirements for any such information it obtains. January 17, 2017 The Investment Funds and Advisers 2016 Year-End Client Update Recap Dear Clients and Friends, As the developments affecting the investment management industry continue to unfold, we have once again prepared our annual compendium of relevant Sidley Updates for our investment fund and adviser clients and friends. The compendium includes a summary of each 2016 Sidley Update, in reverse chronological order, along with a link to its full text. We have included all of the Sidley Updates, making the compendium repetitive in instances where we revisited a topic to report on emerging information and breaking news in the industry. If you would like additional information on any of these topics, please contact the Sidley lawyer with whom you usually work. January 12, 2017 Monetary Authority of Singapore Consults on Regulations for Short Selling On December 14, 2016, the Monetary Authority of Singapore (MAS) issued a Consultation Paper on Regulations for Short Selling (Consultation Paper). The Consultation Paper seeks to introduce requirements to enhance transparency on the level of short selling in securities listed on Singapore’s approved exchanges. Market participants will be required to specifically mark short sell orders to the relevant exchange and report short positions above specific thresholds to MAS. The approved exchanges will publish aggregate information on short sell orders and short positions. These new requirements form part of the Securities and Futures (Amendment) Bill 2016, and further details are set out in the draft Securities and Futures (Short Selling) Regulations 2017 (Regulations) and the draft Guidelines on the Regulation of Short Selling (Guidelines) attached as Annex B and Annex C of the Consultation Paper, respectively. January 10, 2017 BEA Implements Changes to Direct Investment Survey Reporting Requirements for Certain Private Funds Following up on its announcement in 2016, the Bureau of Economic Analysis, Department of Commerce (BEA) has made important changes to its surveys of direct investment (voting interests of 10 percent or more) that will affect many private funds and will be implemented beginning with direct investment surveys conducted in 2017. Further information on these changes, including frequently asked questions and tools to help determine reporting obligations, is available on the BEA’s website. These changes are intended to simplify reporting for private funds by recharacterizing certain direct investments in private funds as portfolio investments based on the nature of the private fund’s investments. Under these changes, the BEA expects that many hedge funds that have been subject to BEA direct investment reporting as a result of cross-border voting interests will instead be subject to reporting to the U.S. Treasury Department’s Treasury International Capital (TIC) system, which applies to hedge fund groups with total cross-border investments exceeding the much higher TIC reporting thresholds. However, many private equity funds will remain subject to BEA direct investment reporting. Under these changes, any cross-border voting investments of 10 percent or more in, or by, private funds will only be subject to BEA reporting if such investments involve, directly or indirectly, a direct investment in an “operating company,” which the BEA defines as “companies that are not other private funds or holding companies.”