DOL Fiduciary Rule | FINRA Rule Changes | IARD | Mutual Funds | Pay to Play

Regulatory Update November 2016

Check out these links!

DOL Issues First of Three FAQs on New Fiduciary Rule! DOL says no extensions to the April 2017 deadline.  Read the 34 FAQs here.   Highlights:   The FAQs provide details on what it means to be a “level fee fiduciary”, guidance on getting information about an existing 401(k)’s fees and expenses (for advising on rollovers), the role of independent marketing organizations for insurance products, and how to comply with the “negative consent” condition.

 2017 Renewal Program Kicks-Off in November: Broker Dealers and Registered Investment Advisers will be able to access their 2017 Preliminary Renewal Statement beginning November 14, 2016! Make sure to fund your FINRA accounts to pay for renewals for state registration of investment adviser representatives and state notice filings for investment adviser firms.  The payment deadline is December 16, 2016.  Don’t wait until the last minute! 

 REMINDER: FINRA Rule 2273 Becomes Effective on November 11, 2016:  After recruiting new registered representatives, firms will be required to provide a FINRA-created Educational Communication regarding recruitment practices and asset transfers to the customers of that representative. For more information, consult Frequently Asked Questions Regarding FINRA Rule 2273.

 SEC Announces Enforcement Results for FY 2016 with a Record Number of Cases against Investment Advisers and Investment Companies: The SEC announced that in fiscal year 2016 it filed 868 enforcement actions.  The SEC brought the most cases involving investment advisers and investment companies (160) in its history, including 98 standalone cases against investment advisers and investment companies.

SEC adopts New Disclosures Requirements for Investment Companies: The SEC has voted to “modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end funds, including mutual funds and exchange-traded funds (ETFs).”  The SEC will require two new disclosure documents from registered investment companies, Form N-PORT, a monthly portfolio reporting form, and Form N-CEN, a new annual reporting form to replace Form N-SAR. Form N-Port (which will replace Form N-Q) will require registered investment companies (except money market funds) to provide portfolio-wide and position-level holdings data to the SEC on a monthly basis.

 SEC Adopts Sweeping New Liquidity Risk Management Rules for Mutual Funds. The SEC adopted its final liquidity risk management (LRM) rule for mutual funds and certain exchange-traded funds.  Check out a summary here

 SEC Adopts Swing Pricing Amendment for Mutual Funds. The swing pricing rule will permit mutual funds to use swing pricing – the process of adjusting a fund’s net asset value to pass on to purchasing or redeeming shareholders costs associated with their trading activity.

 T+2 Here at Last? The SEC voted to amend the rule regarding standard settlement for most broker-dealer securities transactions from three business days after the trade date (T+3) to two business days after the trade date (T+2). The proposal affects Rule 15c6-1(a) of the Exchange Act of 1934.

 SEC Approves FINRA’s Pay-to-Play Rule. The SEC recently approved FINRA’s Pay-to-Play rules (Rule 2030 and 4580) to regulate political contributions by FINRA members that solicit governmental entities on behalf of investment advisers. Similar to Rule 206(4)-5 under the Advisers Act, FINRA Rule 2030 imposes a 2-year ban on any member from engaging in distribution or solicitation activities for compensation with a government entity on behalf of an investment adviser looking to do business with a government entity if that Member or a Covered Associate has made a contribution to an official of the government entity during that period.


Lessons Learned from Recent SEC Actions:

Supervisor Held Liable for Failing to Prevent Insider Trading:  It’s not always the compliance officer’s fault!  In a recent action, the SEC settled charges against a hedge fund adviser and a senior research analyst related to their failure to detect insider trading by one of their employees.  Artis Capital Management had to disgorge more than $5 million in profits, plus interests and penalties of more than $3.5 million.  The supervisor ended up paying a fine of $140,000 and was suspended from the industry for 12 months.  The supervisor’s mistake?  He knew the employee was getting information from industry sources, including employees of public companies, but didn’t ask where he got the information.  Unlike the firm’s other analysts, this employee relied on his industry contacts to provide his insights, and communicated his recommendations solely by telephone to his supervisor.  Based on the timing of this employee’s incredibly profitable tips, the supervisor should have been suspicious and investigated further.

Check out this case against Calvert Investment Management Inc., if you want to understand how crucial it is to have a strong valuation process and to follow it.

Worth Reading:


Filing Deadlines and To Do List for November

For Investment Advisers 

  • Form 13F Quarterly Filing for Q3 2016 is due November 14, 2016.
  • Form PF for Large Hedge Fund Advisers is due November 29, 2016.


For Investment Advisers and Broker Dealers 

  •  Annual Renewal Program for Investment Advisers and Broker Dealers: The payment deadline is December 16, 2016.    2017 Preliminary Renewal Statements will be available beginning November 14, 2016.

Hardin Compliance Consulting provides links to other publicly-available legal and compliance websites for your convenience.  These links have been selected because we believe they provide valuable information and guidance.  The information in this e-newsletter is for general guidance only.  It does not constitute the provision of legal advice, tax advice, accounting services, or professional consulting of any kind.