Compliance Avenue

For all of the SEC registered investment advisers out there, don’t forget that your annual ADV Part 1 update filing is due at the end of march (90 days after fiscal year end).  Update filings are made via the IARD system and AUM-based filing fees will be required this year.

While you’re thinking about Form ADV’s, don’t forget that some states require that you submit a copy of your ADV Part II to them (if you have made a notice filing in that state).  For example, New York State requires that advisers who have made notice filings to the state must submit a copy of their ADV Part II to the NYS Dept. of Law.  An updated copy of Part II must also be offered to your investors and advisory clients once a year.

Touching on a subject that we discussed back in August, FINRA has issued an advisory note stating that brokers must monitor their employees’ activity on social networking sites.  According to the Bloomberg article:

Firms that archive client communications including e-mails need to adopt similar policies for social networking sites and may use software to automatically log brokers’ Web messages…

With the proliferation of social networking sites and the privacy restrictions that most users utilize, it is difficult to imagine how brokers can possibly hope to monitor or record their employees activities on those sites.  The best they can hope for is to issue policies prohibiting the use of social networking sites for business.  As discussed in our earlier article on the subject, this is eventually going to become an issue for hedge funds and RIA’s as well.  Will the SEC eventually issue similar guidance?

We wish all of our readers a healthy and happy holidays!

Reg S-P has been mentioned quite frequently on this site. In March 2008, the SEC released a set of proposed amendments to Regulation S-P which seek to require registered investment advisers to enhance the protection of consumer financial information. If adopted, the proposed amendments would require advisers to expand existing safeguards into a more expansive “information security program”.

HedgeOp Compliance CEO, Bill Mulligan conducted a webinar on these proposed changes, specifically focusing on: helping investment adviser’s understand the expanded requirements under the proposal and discussing the hot button topics such as: (i) the identification of reasonably foreseeable risks at your firm; (ii) designing information safeguards to control/manage the identified risks; (iii) setting up a plan for testing and training for staff; (iv) evaluating the programs of your service providers; and (v) developing and reviewing your procedures related to unauthorized access of confidential data.

You can view a video recording of this webinar and download the presentation materials below.

Download webinar presentation

A few weeks ago, the Commodity Futures Trading Commission (”CFTC”) issued amendments to regulations covering periodic account statements and annual reports that Commodity Pool Operators (”CPOs”) need to prepare and distribute for the commodity pools the CPOs operate. Several of the amendments will impact the reporting that is presently prepared and distributed by CPOs that operate pools in accordance with CFTC Regulation 4.7 (”4.7 Pools”). Furthermore, one of the amendments impacts the annual reports prepared and distributed by those claiming exemptions from registration in accordance with CFTC Regulations 4.13(a)(3) or 4.13(a)(4). These amendments will become effective today and changes that affect annual financial reports will apply to annual reports distributed for fiscal years ending December 31, 2009 and later.

This post only summarizes the amendment provisions. You can view the final rule release here. Read the rest of this entry »

Going back to yesterday’s subject of privacy forms, I thought it would be good to focus on some of the basics of Reg S-P from the perspective of an investment adviser.  When developing privacy policies, all investment advisers should understand the following: Read the rest of this entry »

The SEC is clearly continuing their interest in insider trading as they have reportedly sent dozens of subpoenas to hedge fund managers and brokers.  From FINalternatives:

The regulator has sent at least three dozen such subpoenas to hedge funds and brokerages, The Wall Street Journal reports. According to the newspaper, at least some of the managers receiving the subpoenas were surprised by their scope and is causing fear that the SEC may come down hard on what have become common practices in the industry.

Eight federal regulators (including the SEC and CFTC) recently released a final version of a model privacy notice that will make it easier for consumers (i.e. investors/advisory clients) to understand how financial institutions collect and use personal information.

As way of background, the Gramm-Leach-Bliley Act contains a series of requirements governing the disclosure and use of non-public personal information by financial institutions.   The GLB Act requires the SEC (among others) to carry out the purposes of the provisions and establish standards for their application.  The SEC’s Reg S-P covers investment companies, broker/ dealers and registered investment advisers.  In 2006, the Financial Services Regulatory Relief Act of 2006 amended the GLB Act to require the applicable agencies to provide a succinct model form that allows consumers to easily compare the privacy practices of different financial institutions.

The initial proposed form was released in 2007 and after a comment and research period, a new model form has now been released. This new model form (there’s actually two versions–one with opt-out and one with no opt-out), which can be found here, provides a safe harbor for complying with the privacy rules.

Willkie Farr & Gallagher has a very nice summary of some of the other features and drawbacks of the new model privacy form.

Earlier this week, Senator Chris Dodd, Chairman of the Senate Banking Committee released the details of his sweeping regulatory reform bill.  Included in that bill was a provision for hedge fund registration.   This  follows the litany of proposed bills in both the House and Senate and the recent passing of a House bill by the Financial Services Committee.

The highlights of Senator Dodd’s bill is that it puts the threshold at $100 million AUM for mandatory registration (unlike the House bill which was $150M) and it exempts private equity and venture capital firms from registration although the ultimate decision of who will be exempted from registration will fall to the SEC.   The bill also imposes new record-keeping and disclosure requirements for firms that manage private funds.

With the House preparing to take up debate about their regulatory overhaul bill, and this bill marking the starting point in the Senate, we will hopefully have a better idea of exactly where the final bill will end up very soon.

If you find yourself in or around the Greenwich, CT area next week, Bowne & Co. along with HedgeOp Compliance and Hedge Connection are sponsoring a free hedge fund compliance lunch seminar: “Pending Regulations for Hedge Funds, With a Special Focus on Managing Your Compliance Program.”

The keynote speaker will be Arthur Laby, Associate Professor, Rutgers University School of Law – Camden and former SEC Assistant General Counsel.

You can find more information and register online, here.