Since the last issue of our IM Update, we have also published the following separate Alerts of interest to the investment management industry:

SEC Proposes Rules to Require Liquidity Risk Management Programs for Funds and to Permit Swing Pricing of Fund Shares 

October 5, 2015

In a September 22, 2015 Release, the SEC published the following proposals: 

  • Proposed Rule 22e-4, which would require open-end funds (including ETFs but not money market funds) to adopt liquidity risk management programs. These programs would require review and management of a fund’s liquidity risks, including classifying each asset into a specific liquidity category, and maintaining a portion of the fund’s holdings in assets that a fund believes could be converted to cash within three business days.
  • Revised Rule 22c-1, which would permit, but not require, an open-end fund (other than an ETF or a money market fund) to implement “swing pricing.” Swing pricing would allow a fund to adjust its NAV to pass on to purchasing or redeeming shareholders the costs arising from their trade activity.
  • New disclosure and data reporting requirements, which would disclose information about a fund’s liquidity risk and how that liquidity risk is managed. These requirements would be implemented through amendments to Form N-1A and through additional reporting requirements on proposed Forms N-PORT and N-CEN.

SEC Removes Credit-Rating References and Amends Issuer Diversification Requirements in Money Fund Rules 

September 25, 2015

In a September 16, 2015 Release (the “Release”), the SEC completed its obligations under Section 939A of the Dodd-Frank Act by removing references to credit ratings from Rule 2a-7. Most notably, the Release removes credit ratings from Rule 2a-7’s definition of “eligible security.” In the process, the Release creates a uniform credit quality standard – “presents minimal credit risks to the fund” – for each security acquired by a money market fund. The Release also requires money market funds to adopt written procedures requiring a fund’s adviser to provide ongoing review of the credit quality of each portfolio security to determine that the security continues to present minimal credit risks.

SEC’s OCIE Risk Alert Announces New Cybersecurity Exam Initiative – Focus Includes Conducting Tests of Efficacy of Firm’s Procedures and Controls

September 18, 2015

Following up on last year’s cybersecurity sweep exam, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a new Risk Alert on September 15, 2015, announcing a second round of cybersecurity exams. In addition to gathering information about industry practices, OCIE announced that it intends to test individual firms’ implementation of cybersecurity procedures and controls.

BEA Releases New BE-180 Form and Related Guidance in Advance of Upcoming Deadline

September 17, 2015

The U.S. Department of Commerce, through the Bureau of Economic Analysis (the “BEA”), requires U.S. financial services providers (including investment advisers, funds and their general partners) that had certain financial services transactions with foreign persons in excess of $3 million during their 2014 fiscal year to file a report on Form BE-180 (a “BE-180 Filing”). In late August, the BEA released the new BE-180 form and instructions for the 2014 survey, which is due as early as November 1, 2015 (subject to certain extensions). BE-180 is a 5-year benchmark survey. At the time of the prior survey for 2009, a BE-180 Filing was required only upon request by the BEA. Similar to recent changes impacting other BEA surveys, including the BE-10 and BE-13 surveys, the BEA announced in a rule published in the Federal Register earlier this year that, in addition to those contacted by the BEA, any U.S. person that satisfies the reporting threshold will be required to make a BE-180 Filing, regardless of whether the BEA has contacted such person. Accordingly, investment advisers and the funds they advise will now be required to make a BE-180 Filing if they meet the reporting threshold.

Second Circuit Court of Appeals Creates Circuit Split on Controversial Dodd-Frank Act Whistleblower Anti-Retaliation Provision 

September 11, 2015

On September 10, 2015, the United States Court of Appeals for the Second Circuit issued its highly anticipated decision in Berman v. Neo@Ogilvy LLC. The plaintiff-appellant, Daniel Berman, had been the finance director of Neo@Ogilvy. Mr. Berman’s lawsuit alleged that Neo@Ogilvy had unlawfully terminated him because he had reported internally, to senior company officers, supposed violations of GAAP and other accounting irregularities. The question of law presented was whether the Dodd-Frank Act’s whistleblower anti-retaliation provision offers protection to an employee who, like Mr. Berman, is fired after he reports possible financial misconduct internally but before he makes a report to the SEC.

FTC Cautions Against Improper Reliance on “Investment-Only” Exemption 

August 26, 2015

Investment manager Third Point LLC and three of its affiliated funds have entered into a proposed settlement agreement with the federal antitrust authorities for violations of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, arising from improper reliance on the “investment-only” exemption. According to the Federal Trade Commission, Third Point failed to obtain HSR clearance in 2011 prior to acquiring voting securities of Yahoo! Inc. in excess of the then-applicable $66 million threshold of the act, relying on the investment-only exemption despite taking action deemed to be inconsistent with passive investment intent. This enforcement action and related FTC guidance reminds investors that the investment-only exemption continues to be narrowly construed, and that enforcing compliance with the HSR Act remains a top priority of the federal antitrust authorities even where a transaction involves a minority stake and does not pose competition issues.

FinCEN Rule Proposes AML Regulations for Registered Investment Advisers

August 27, 2015

On August 25, the Financial Crimes Enforcement Network (“FinCEN”) proposed an anti-money laundering rule applicable to investment advisers registered with the SEC.

Commenters React to DOL’s Proposed Expansion of Fiduciary-Duty Rules 

August 17, 2015

Four months after proposing a significantly expanded definition specifying when “investment advice” to employee plans and IRAs would give rise to fiduciary status under the Employee Retirement Income Security Act of 1974, the Department of Labor has its hands full grappling with comments on the multi-faceted proposal. The DOL received over 2,600 comment letters on the proposal and heard testimony from over 70 witnesses during public hearings from August 10 to August 13 in Washington D.C. This Alert describes some of the leading themes in the comment letters and the public hearings, focusing on the concerns of the regulated community.