Compliance Avenue

This is a follow up on our July 21 blog post reporting that the SEC announced approval for amendments to Form ADV Part II – now officially renamed “Part 2″), which  (among other things) will require advisers to make their brochures publicly available via electronic filing, and will change the format of the brochure from its current “check the box” approach to a more narrative, “plain English” approach.

On July 28, the SEC published the Adopting Release along with the revised Form ADV Part 2 .  More on the specific disclosure items contained within the new Part 2 will be discussed on upcoming blogs.

With the Financial Regulatory Reform Bill having been recently signed into law, advisors to hedge funds and private equity funds need to be aware and fully informed about the SEC registration process: what it means for their business and how to prepare.

On Wednesday July 28th, HedgeOp Compliance CEO Bill Mulligan and other members of HedgeOp’s professional staff held a practical and informative webinar discussing the following key areas:

• What are the mechanics of SEC registration? What does the process involve?
• The top 10 things Private Fund Advisors need to know about developing an Advisers Act compliance program.
• How can technology help you in the process?

You can watch the seminar and download the presentation materials below.

Download Presentation Materials

On July 21 — the same the day that President Obama signed into law a landmark piece of financial legislation that (among other things)  significantly increases the number of managers that will be required to register with the SEC as investment advisers — the SEC voted unanimously to adopt significant amendments to the Form ADV Part 2, which is the principal disclosure document (commonly referred to as the “brochure”) that an SEC-registered investment adviser must provide to its clients and prospective clients.

As described more fully below, the amendments will (among other things) require advisers to make their brochures publicly available via electronic filing, and will change the format of the brochure from its current “check the box” approach to a more narrative, “plain English” approach.

The amendments are intended to substantially improve the quality of the disclosures advisers provide to their clients.  As stated by SEC Chairman Mary L. Schapiro:

“These changes are designed to provide clients with greater information about the individuals who will provide them with investment advice.  These amendments will help transform the brochure into a plain English narrative that is well-suited to serve investors’ needs and describes the adviser’s conflicts, compensation, business activities, and disciplinary history.”

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It’s official: President Obama has signed into law the most sweeping financial regulatory overhaul since the Great Depression, and in so doing declared that the new laws will foster innovation, not hamper it.

Speaking at the Ronald Reagan Building in Washington, D.C., Obama noted that over the past two years the nation has faced the worst recession since the Great Depression, with millions of Americans losing their jobs and watching the value of their retirement savings decline.

“The primary cause was a breakdown in our financial system,” Obama said. For years, the U.S. financial system was governed by “antiquated” rules, he added; rules that “left abuse unchecked and taxpayers on the hook if a financial institution failed.”

“There will be no more tax-funded bailouts … period,” Obama added, and he noted that lawmakers will still need to “make adjustments” to the rules as the financial system adapts to the changes.

Obama also touted the broader economic benefits of new consumer financial protections.

“These reforms represent the strongest consumer financial protections in history,” Obama said in a prepared statement on the new financial rules.

After a burst of applause the President added: “Because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes.”

“These protections will be enforced by a new consumer watchdog with just one job: looking out for people — not big banks, not lenders, not investment houses — in the financial system. Now, that’s not just good for consumers, that’s good for the economy,” he said.

Yesterday, SEC Chairman Mary Schapiro, during her Testimony Concerning Oversight of the U.S. Securities and Exchange Commission: Evaluating Present Reforms and Future Challenges, which she gave before the United States House of Representatives Committee on Financial Services Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, stated that the Commission expects to hire approximately 800 new positions during the course of the implementation.

“The President’s proposed FY 2011 budget included a request for $24 million to begin implementation of the President’s financial reform proposal,” stated Chairman Schapiro.

“With the specific provisions of the legislation in place, we have been working to develop estimates of the resources that will be needed to achieve the full implementation of Congress’ regulatory reform mandate. While the dollar cost of full implementation will depend greatly on the effective date of new rules, the timing of hiring, and other factors, we currently estimate that the SEC will need to add approximately 800 new positions over time in order to carry out the new or expanded responsibilities given to the agency by the legislation.”

On the issue of how to manage the agency’s growth, Chairman Schapiro stated:

While the budget request anticipates significant growth in the size of the SEC, the agency is properly positioned to implement this plan. To accomplish the hiring of hundreds of new staff during the course of FY 2011, the SEC is enhancing its human resources staff and, consistent with its current authorities, streamlining its hiring process.

Improvements include simplifying the application process and maintaining a searchable database of applicants, so that it is possible to interview for a vacancy as soon as it appears rather than having to go through the lengthy posting process each time. Being able to better tailor, target and speed recruiting will enhance the quality of applicants and help the agency acquire the necessary talent to perform effectively in an increasingly complex financial environment.

The Securities and Exchange Commission today announced that the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) are filing proposed rules to clarify the process for breaking erroneous trades. The rules would make it clearer when, and at what prices, trades would be broken.

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As reported by Reuters, trading of shares of The Washington Post Co (WPO.N)  was temporarily halted today after it triggered the first use of the new circuit breaker rule approved by the SEC on June 10 in response to the market disruption of May 6, specifically the “flash crash” that exposed the potential flaws in electronic trading.

As discussed in a previous Compliance Avenue blog (see SEC Approves New Stock-by-Stock Circuit Breaker Rules), the new rule requires the exchanges and FINRA to temporarily pause trading in any stock that moves 10 percent or more in the previous five-minute period.

“The halt was triggered by an erroneous trade,” said NYSE Euronext spokesman Ray Pellecchia, adding this was the first time the circuit breaker was activated.

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The U.S. Securities and Exchange Commission (SEC), Quebec Autorité des marchés financiers (AMF) and Ontario Securities Commission (OSC) today announced a comprehensive arrangement to facilitate their supervision of regulated entities that operate across the U.S.-Canadian border.

SEC Chairman Mary L. Schapiro, AMF President and CEO Jean St-Gelais and OSC Chair David Wilson executed a memorandum of understanding (MOU) that provides a clear mechanism for consultation, cooperation, and exchange of information among the SEC, AMF and OSC in the context of supervision. The MOU sets forth the terms and conditions for the sharing of information about regulated entities, such as broker-dealers and investment advisers, which operate in the U.S., Quebec and Ontario.

Please refer to the SEC press release for more information.