Compliance Avenue

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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On Friday June 23, Governor Paterson’s press secretary confirmed via email that New York’s controversial proposal for an extra tax on hedge fund managers that do business in New York but live elsewhere has officially been taken off the table.

In an email, press secretary Morgan Hook wrote:

“The Governor re-submitted a revenue bill that does not contain the hedge fund tax, and he would prefer the legislature pass his version of the revenue bill.”

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HedgeOp Compliance, LLC will be holding a free webinar next week on July 28th called: “Passage of Financial Reform Legislation – Next Steps to Registration and Compliance for Private Fund Advisors”

The webinar will look at 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 view more information and register for the event here.

In this day and age of digital communications where advisers distribute performance information, client newsletters and other sensitive communications via email, it is a best practice (and smart business move) for advisers to require all personnel to utilize a standard disclaimer underneath their email signature.   After the jump, you will find a sample of a recommended disclaimer.

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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.

On July 14, the SEC voted unanimously to issue a concept release seeking public comment on the U.S. proxy system and asking whether rule revisions should be considered to promote greater efficiency and transparency.

The SEC’s concept release, as described in the Fact Sheet published with the SEC’s announcement, focuses on the accuracy and transparency of the voting process, the manner in which shareholders and corporations communicate, and the relationship between voting power and economic interest.

There will be a 90-day public comment period for the concept release after it is published in the Federal Register.

“The proxy is often the principal means for shareholders and public companies to communicate with one another, and for shareholders to weigh in on issues of importance to the corporation,” said SEC Chairman Mary L. Schapiro during the SEC’s Open Meeting on July 14.

“To result in effective governance, the transmission of this communication between investors and public companies must be timely, accurate, unbiased, and fair.”

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.

Today at 11:30 a.m. ET, at the Ronald Reagan Building in Washington, President Obama is scheduled to deliver remarks and sign into law the 2,315-page landmark rewrite of the financial regulatory and Wall Street reform.

Yet even before the bill is signed into law, administration and other officials are already bracing themselves for the years of work that they anticipate will be required for the federal government to fully implement the sweeping reforms.

As reported by TheHill.com, senior administration officials said the legislation provides a “frame” for the new regulatory landscape, but the full force of the rewrite hinges on how regulators interpret their new powers in the comings months and years.

Officials noted it will take time to start up organizations like the consumer financial protection bureau created by the legislation.

“While some things start sooner than later, we should expect that this is going to be done thoughtfully and carefully, and that it will take time,” said Diana Farrell, deputy national economic adviser.

Federal agencies are already preparing for a massive hiring increase.  Yesterday, S.E.C 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.”

Last Thursday, July 15, after nearly two years of legislative wrangling, the Senate made financial and legislative history with the final passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”).  The Act covers nearly every aspect of financial regulation and is by far the most significant overhaul of the financial regulatory system since the passage of the securities laws following the Great Depression.

The Senate approved the Act by a vote of 60-39, with three Republicans from the Northeast joining with the Democrats in voting to advance the legislation. One Democrat, Senator Russ Feingold of Wisconsin, voted against the bill, saying it was still not strong enough to prevent future crises. And the seat held by Senator Robert C. Byrd, Democrat of West Virginia, who died last month, is vacant.  The House approved the bill earlier this month by a vote of 237 to 192, and there, too, only three Republicans voted in favor.

The bill will now be sent to President Obama, who is expected to sign it tomorrow at the Ronald Reagan Building and International Trade Center in Washington, D.C.

Although clearly a significant legislative victory for President Obama and the Democrats, given the scope and breadth of the Act and the fact that its implementation will require multiple agencies vested with broad discretion to engage in a vast amount of rulemaking, it will be years before the practical implications of the Act are fully understood.  Even Senator Dodd (D-Conn.), chairman of the Senate Banking Committee and the Act’s main author, acknowledged that Americans will probably not know for years – perhaps not until the next financial crisis strikes – if the response by Congress this year was sufficient, or falls short despite the best intentions.

“We won’t know the full results of what we have done until the very institutions we have created, the regulations we have suggested and provided for are actually tested,” Mr. Dodd said in a floor speech. “We can’t legislate wisdom or passion. We can’t legislate competency. All we can do is create the structures and hope that good people will be appointed who will attract other good people — people who will make careers and listen and see to it that never again do we go through what we have gone through.”

Mr. Dodd, however, said that Congress had done its utmost.

“The American public expects nothing less of us than to fashion proposals that will minimize great risks to them,” he said. “None of us lost a job or a home in the last two years. None of us has watched our retirement account evaporate overnight. None of us will worry about whether our children can get a higher education. That all happened to the people we represent across the country.”

Mr. Dodd continued:

“They are asking that we do our best. They don’t ask for perfection. They know we have not solved every problem and that we are not going to bring back their homes and their jobs; but they expect us to respond to the situation that brought us to the brink of financial disaster. This is our best effort to do so.”