Regulation AB

On December 9th, the SEC’s Division of Corporation Finance published revised Regulation AB Compliance and Disclosure Interpretations (“C&DIs”). The revised C&DIs replace the interpretations published in the Regulation AB Manual of Publicly Available Telephone Interpretations. The revisions appear in Section 200, Exchange Act Rules; Section 211, Form 10-K; Section 212, Form 10-D; Section 300, Item 100 of Regulation AB; Section 301, Item 1101 of Regulation AB; Section 308, Item 1108 of Regulation AB; Section 311, Item 111 of Regulation AB; Section 314, Item 1114 of Regulation AB; Section 322, Item 1122 of Regulation AB; and Section 323, Item 1123 General Guidance. Regulation AB C&DIs.

Other Developments

Agenda for Advisory Committee on Small and Emerging Companies

The SEC published the agenda for the December 17, 2014 meeting of its Advisory Committee on Small and Emerging Companies. The meeting will focus on the definition of “accredited investor”. SEC Press Release.

Whistleblower Amicus Brief

On December 11th, the SEC made available its amicus brief in Safarian v. American DG Energy, Inc., where the Third Circuit is considering whether the Dodd-Frank Act’s whistleblower protection provisions covers employees who do not report information to the Commission. Amicus Brief.

Chair White Outlines Asset Management Initiatives

On December 11th, SEC Chair Mary Jo White discussed the regulatory issues presented by the asset management industry and the Commission’s planned response. At her direction, the SEC staff has developed recommendations for three core initiatives. The first involves enhanced data reporting by both funds and advisors. The reporting and disclosure of fund investments in derivatives, the liquidity and valuation of their holdings, and securities lending practices should all be significantly enhanced.  Collecting more data on separately managed accounts is also needed. The second involves enhancing controls on risks related to portfolio composition. Liquidity management and the use of derivatives in mutual funds and ETFs are two key areas of focus by the staff. The staff is considering whether broad risk management programs should be required for mutual funds and ETFs to address the risks related to their liquidity and derivatives use, as well as measures to ensure the Commission’s comprehensive oversight of those programs.  The staff is also reviewing options for specific requirements, such as updated liquidity standards, disclosures of liquidity risks, or measures to appropriately limit the leverage created by a fund’s use of derivatives. A third focus of regulatory enhancements is on the impact on investors of a market stress event or when an investment adviser is no longer able to serve its clients. The staff is therefore developing a recommendation to require investment advisers to create transition plans to prepare for a major disruption in their business. The staff is also considering ways to implement the new requirements for annual stress testing by large investment advisers and large funds, as required by the Dodd-Frank Act. White Remarks.

Investment Management Director’s Top 10

On December 10th, Norm Champ, Director of the SEC’s Investment Management Division, listed the top 10 lessons learned and points to remember from 2014. Among the top 10 are the importance of risk monitoring, data collection and analysis, and that requests for exemptive relief can provide the Division with the opportunity to monitor industry trends and developments. Champ further highlighted the 2014 enforcement action against a portfolio manager who was banned for five years after misleading and obstructing his firm’s CCO. Champ Remarks.

Accounting Staff Speak at Annual Conference

On December 8th, 10 members from the SEC’s Office of the Chief Accountant spoke at the 2014 AICPA National Conference on Current SEC and PCAOB Developments. Chief Accountant James Schnurr discussed the convergence of GAAP and IFRS accounting standards. He hopes to commence discussions with the SEC Chair and the Commissioners in the near future about alternative ways in which IFRS might be made available for use by U.S. issuers. Schnurr Remarks. Julie A. Erhardt, Deputy Chief Accountant, described how the issues surrounding convergence differ from those being considered in 2004, when convergence was first discussed. She highlighted those differences with respect to investors, issuers, and securities regulators. Erhardt Remarks

The other speakers were:

  • Kevin M. Stout, Senior Associate Chief Accountant, who addressed internal control over financial reporting issues;
  • Hillary H. Salo, Professional Accounting Fellow, who addressed financial instrument accounting, particularly the impact of derivatives novation on hedge accounting and the allocation of proceeds when the fair value of a liability required to be measured at fair value exceeds the net proceeds for a hybrid instrument;
  • Dan Murdock, Deputy Chief Accountant, who addressed segment reporting;
  • Steve Mack, Professional Accounting Fellow, who addressed two revenue recognition issues: current
  • accounting for presenting revenues on a gross or net basis and the new revenue recognition standard and what some consider to be a significant increase in the use of estimates and management judgments;
  • Carlton E. Tartar, Associate Chief Accountant, who addressed spinoff accounting, goodwill impairment testing dates, and the presentation of expenses that are contingent upon a business combination when pushdown financial statements are presented.;
  • Brian T. Croteau, Deputy Chief Accountant for the Professional Practice Group, who addressed auditor independence, the PCAOB, and internal control matters;
  • Christopher F. Rogers, Professional Accounting Fellow, who addressed consolidation; and
  • T. Kirk Crews, Professional Accounting Fellow, who addressed the statement of cash flows.

Staff Announcement

The SEC announced that Karol L.K. Pollock has been named the new leader of the examination program in the Los Angeles Regional Office.