FINRA’s CEO Wants Consolidated Rules for Investment Advisers and Brokers

On March 14th in Washington, Richard Ketchum the CEO of FINRA repeatedly remarked about the SEC’s inability to adequately oversee registered investment advisers. "If investors are to be protected, investment advisers need to be examined regularly and vigorously. It's as simple as that, and it is not happening under our current system," Ketchum stated. Ketchum also advocated brokers and investment advisers being governed by the same set of rules. To read the full article, please click here.

Massachusetts Proposes Criminal Background Checks for Advisers

The Massachusetts Securities Division has issued a proposal that would require a criminal background check of every person registering as an investment adviser representative. The proposed rule would require each person applying for registration to complete an acknowledgement form allowing the Massachusetts regulator to access the Criminal Offender Record Information system“ iCori”.

Massachusetts tends to be a leader among the states and proposes new rules that other states also adopt. We would not be surprised to see this spread throughout the country. To read the full story please click here.

New SEC Social Media Guidance

The SEC has posted guidance regarding whether certain interactive content posted in a real-time electronic forum (i.e., chat rooms or other social media) (“interactive content”) should be filed under the filing requirements of Section 24(b) of the Investment Company Act of 1940 (“1940 Act”) or Rule 497 under the Securities Act of 1933 (“1933 Act”) if it is not required to be filed under Financial Industry Regulatory Authority (“FINRA”) Rule 2210.

Whether a communication needs be filed depends on the content, context, and presentation of the communication and requires an examination of the underlying substantive information transmitted to the social media user and consideration of any other facts and circumstances, such as whether the interactive communication is merely a response to a request or inquiry from the social media user or is forwarding previously-filed content. The SEC has provided excellent examples in this release to help us understand where the line may lie in regards to filing.

To read the complete SEC guidance, please click here.

Red Oak Compliance Solutions is available to help with any questions you may have about this release or any others. We can provide guidance on all of your compliance needs. For more information or to request information on how we can help, please contact us.

SEC's Exam Priorities

The staff of the SEC’s National Examination Program Office of Compliance Inspections and Examinations (“NEP”) has published its examination priorities "to communicate with investors and registrants about areas that are perceived by the staff to have heightened risk." The staff highlighted the following issues: asset verification and custody including surprise exams and qualified custodians; undisclosed compensation arrangements either paid to an adviser from a product or paid by an adviser to a third party solicitor; performance reporting and advertising including aberrational performance claims and the accuracy of calculations; allocation of investment opportunities especially where advisers manage assets subject to a performance fee side-by-side with other clients; and fund governance including disclosure to fund boards and board oversight of service providers. The staff also identified new and emerging issues of focus: private equity and hedge fund managers newly registered because of Dodd-Frank; how dually registered firms decide whether to provide brokerage or advisory services; and the growing use of alternative products in registered fund structures. The staff makes clear that the priorities listed "are not exhaustive" but that the "NEP expects to allocate a significant portion of its resources throughout 2013 to the examination" of these issues.

Compliance personnel need to take this publication to heart and re-assess where they are at in regards to these exam priorities before the SEC arrives for an exam. Please click here to read the full release.

Red Oak Compliance Solutions is available to help. We can provide guidance on all of your compliance needs. For more information or to request information on how we can help, please contact us.

Adviser Applications- Common Deficiencies Notice

The Texas State Securities Board, the regulatory agency governing state registered investment advisers, recently issued a notice advising of common deficiencies found in investment adviser applications. While this information was compiled and release by the state, the notice serves as a general reminder of the importance of the information included in the Form ADV Parts 1 and 2 as well as other documents such as the client advisory agreement. Per the notice, the most common deficiencies were related to inconsistencies between Form ADV Part 1 and the Part 2 narrative primarily in the disclosure of types of clients, methods of compensation and fee schedules, and services offered.

To read the notice, please click here.

Red Oak Compliance Solutions is available to help. We can provide guidance on all of your compliance needs. For more information or to request information on how we can help, please contact us.

SEC Requires Adviser to Retain Outside Compliance Consultant

The SEC recently required a registered investment adviser to retain an outside compliance consultant for two years to help them build and implement a robust compliance program.

The registered investment adviser agreed to this to settle SEC charges that it failed to implement an adequate compliance program. The SEC alleges that two successive chief compliance officers were internal employees that had little compliance experience or training. The firm failed to conduct and document annual compliance reviews and tried to use written supervisory procedures from a predecessor broker-dealer firm as an adviser compliance manual.

Please click here for the full story.

SEC Initiatives Directed at Private Equity

The Chief of the Asset Management Unit in SEC Enforcement gave a speech on January 23, 2013 concerning their initiatives directed at private equity. The areas of concern discussed included valuation, insider trading and conflicts of interest that can lead to misappropriation, deal cherry-picking and other areas of misconduct. The SEC appears to have developed a level of expertise in the private equity space that was absent when registration requirements were introduced. The speech also outlined various cases the SEC has brought against private equity firms and other private fund firms that had similar issues. To read the full speech please click here.