IAA to DOL: Give Advisers More Time to Comply with Fiduciary Exemption

The IAA has asked the DOL to delay compliance with the DOL Fiduciary Exemption until it has completed additional related regulatory action, or for at least six months from the current December 20, 2021 deadline. 

The IAA argued in a letter that an extension would give advisers additional time to update their processes and that additional regulatory actions contemplated by the DOL could further complicate compliance.
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IAA Calls on SEC to Address Adviser Use of Digital Engagement and Tech
to Provide Advice Within Advisers Act Fiduciary Framework

Urges Agency to Extend Comment Period Given Breadth of Request

The IAA has submitted a comment letter to the SEC in response to the agency’s August 27th Request for Information on the use of digital engagement practices and technology to provide investment advice by investment advisers. Our letter suggests several general principles and recommendations for the SEC to consider.
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SEC Proposes Reporting Say-on-Pay Votes, Updates to Fund Proxy Reporting

Proposal Would Require Disclosure of Shares on Loan During Proxy Vote

In a 4-1 vote at Chair Gary Gensler’s first open meeting, the SEC proposed requiring institutional investment managers that are required to file Form 13F to report “say-on-pay” votes, which are non-binding shareholder votes related to corporate executive compensation. The SEC also has proposed several changes to the form used by funds to report their proxy votes, Form N-PX.

The proposed rule change on “say-on-pay” votes would conclude rulemaking on shareholder input on executive compensation that was required by the Dodd-Frank Act.
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New SEC Marketing Rule Now Top Compliance Concern, Survey Shows

Most firms report effective business continuity plans related to COVID-19

Implementing the SEC’s new Marketing Rule for Investment Advisers is the number one worry for investment adviser compliance officers, according to the 2021 Investment Adviser Compliance Testing Survey. Advisory firms have until November 4, 2022 to come into full compliance with the rule. 

Advertising/Marketing was identified by 58 percent of survey respondents as the “hottest” compliance topic – up 33 percentage points from last year. Cybersecurity followed with 53 percent. Now that it’s become a top priority for the SEC, Climate Change/ESG climbed to third in compliance officers’ list of hot topics, named by 45 percent of respondents (up from 14 percent last year). Rounding out the five hottest topics were COVID-specific Business and Continuity Plan concerns (17 percent) and Digital Assets (17 percent).
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SEC Ramping Up Scrutiny of Cybersecurity at Investment Advisers

By Peter Chan, Amy Greer, Brian Hengesbaugh, Valerie Mirko, and Harry Valetk, Baker McKenzie*

The U.S. Securities and Exchange Commission (“SEC”) continues to ramp up its examination and enforcement focus on cybersecurity at financial institutions, including scrutiny of firms’ actual implementation and deployment of their procedures in response to discovery of cyber breach incidents. Not surprisingly, the SEC’s most intense focus concerns the protection of client and customer information. On August 30, 2021, the SEC announced three settled enforcement actions against U.S. registered investment adviser and broker-dealer firms for alleged failures related to their cybersecurity policies and procedures resulting from email account takeovers, which exposed the personal information of thousands of customers and clients at each firm. By these actions, the SEC somewhat cryptically signals its expectation that multi-factor authentication (“MFA”) for email accounts containing sensitive client and customer information should be in place, which is a departure from earlier SEC cases. Within a couple of weeks of these enforcement actions, SEC Chair Gensler noted in testimony before the Senate Banking Committee that SEC staff is developing a proposal for the Commission’s consideration on cybersecurity risk governance in the investment management area.
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Peter Chan, Amy Greer, Brian Hengesbaugh, Valerie Mirko, and Harry Valetk


IAA, Others Urge SEC to Reconsider New Rule’s Impact on Fixed Income Markets

SEC Staff Grants Three-Month Compliance Date Extension

The IAA and other trade associations are expressing significant concerns about the potential application of a recently amended broker-dealer rule on the fixed income securities markets. The rule, Exchange Act Rule 15c2-11, prohibits dealers from publishing quotes on securities unless certain information review requirements are met. The information review requirements are intended to prevent pump-and-dump and similar schemes that defraud retail investors in the over-the-counter (OTC) equity market. While the rule has historically been targeted to protect retail investors from OTC equity market fraud, the rule as written could apply to fixed income markets and trading.
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SEC Chair Gensler Takes Aim at Potential Alternative Rate to LIBOR

SEC Chair Gary Gensler has singled out his preference for the Secured Overnight Financing Rate (SOFR) as the alternative reference rate to the London Interbank Offered Rate (LIBOR). Speaking before the Alternative Reference Rates Committee (ARRC), Gensler specifically signaled his disapproval of a potential LIBOR replacement rate advocated for by some commercial banks: the Bloomberg Short-Term Bank Yield Index (BSBY).
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SEC Considers Potential Rulemaking on Complex Exchange-Traded Products

Gensler Orders Staff Review, Commissioners Weigh In

SEC Chair Gary Gensler has directed SEC staff to review the potential risks of complex exchange-traded products – including leveraged and inverse ETFs – and present rulemaking proposals to address the risks as part of a “broader look” at those products.
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Adviser Charged with Investing Client Assets in More Expensive Share Classes to Avoid Paying Transaction Fees 

The SEC has filed a complaint against a Missouri-based adviser and its president, who is also the firm’s CCO, for allegedly investing client assets in more expensive mutual fund share classes so that the adviser could avoid paying transaction fees, and not fully disclosing that practice and the related conflicts of interest. Most of the adviser’s clients were in wrap fee programs.
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SEC COMMISSIONER PEIRCE KEYNOTE AT 2021 IAA COMPLIANCE CONFERENCE–In her keynote conversation with IAA President & CEO Karen Barr, SEC. Commissioner Hester Peirce discussed her concerns about recent agency initiatives involving climate change and ESG initiatives and other challenges facing the SEC.

MORE IAA VIDEOS – including sessions with SEC officials at our 2021 Compliance Conference and videos on Diversity, Equity & Inclusion – are on our VIDEOS page.