The following brief updates exemplify trends and areas of current focus of relevant regulatory authorities:
SEC’s Investor Advocate Office to Study Cybersecurity Threats
The SEC’s Office of the Investor Advocate (OIA) has issued a Report on Objectives for Fiscal Year 2015 stating that one of its objectives in 2015 will be to study efforts by the SEC and other market participants, including FINRA, stock exchanges, and alternative trading systems, to protect investors from cybersecurity threats. OIA will initially focus on evaluating the potential impact of proposed Regulation SCI, which would require new technology standards and compliance rules for market participants, and look for other improvements that would protect investors from cybersecurity threats.
Norm Champ Discusses Alternative Mutual Funds in Recent Speech
In a recent speech given at the Practicing Law Institute, Private Equity Forum, Division of Investment Management Director Norm Champ noted the increased growth in alternative mutual funds in recent years. He noted that an alternative mutual fund is generally understood to be a mutual fund whose primary investment strategy is characterized by: (1) investing in non-traditional asset classes (e.g., currencies), (2) employing non-traditional strategies (e.g., long/short equity positions) and/or (3) investing in illiquid assets (e.g., private debt). Mr. Champ reviewed a range of recent SEC guidance, inspection and examination initiatives relating to these funds. He offered his observations on how to approach regulatory issues associated with valuation, liquidity, leverage and disclosure. He also discussed the role of the boards of directors or trustees of alternative mutual funds and advised that it is essential that an investment adviser to an alternative mutual fund provide the board with sufficient and appropriate information to allow the board to perform its statutory and fiduciary obligations. He emphasized the importance of the fund board knowing its 1940 Act obligations with regard to the fund’s policies and procedures, specifically in the areas of valuation, liquidity, leverage and disclosure. Mr. Champ also highlighted the need for the board to monitor conflicts of interest often associated with alternative mutual funds, including regarding side-by-side management of an alternative mutual fund and a private fund that charges performance fees with the same investment adviser and similar investment objectives. He also noted that fund boards should take care that the names given to alternative mutual funds are not misleading.