Each week, we are giving you our weekly report highlighting the top compliance news articles from various industry news publications. We have selected the most relevant and important news articles related to registered investment adviser (RIA) compliance and regulatory issues. This week’s recap focuses on Continuing Education rules, a Securities and Exchange Commission (SEC) cyber rule proposal, and proposed private fund acquisition disclosure speed changes.
Here are our top investment adviser compliance articles for the week of February 4th, 2022:
1. Three states implement continuing education rules for IARs (Author – Investment News., Investment News)
This article discusses the requirements for investment adviser representatives (IAR) new continuing education rules. Maryland, Mississippi and Vermont are the first states to implement continuing education requirements for investment adviser representatives, the three states adopted the model rule last year. They are based on a model adopted by the North American Securities Administrators Association (NASAA) in November 2020. The model requires an IAR to complete six credits of IAR regulatory and ethics content offered by an authorized provider, with at least three hours covering the topics of ethics. In addition, an IAR must complete six credits of IAR products and practice content offered by an authorized provider. The credits must be earned within a 12-month period every year.
2. SEC cyber rule proposal poses challenges for small advisers (Author – Mark Schoeff Jr., Investment News)
A rule proposal raises the compliance stakes and could pose challenges for small advisers. On Wednesday, the SEC voted to release a proposal that would require RIAs and investment companies to develop written policies and procedures to address cybersecurity risks that could harm clients or fund investors. The proposal would require advisers to report cyberattacks to the SEC, disclose them on their Form ADV and maintain books and records related to cybersecurity. The proposal comes after years of cybersecurity guidance from the SEC, which also has brought an enforcement case based on existing customer protection rules. The push on the topic has caused many advisers to develop cyber policies, which may present significant challenges, particularly for small advisers. A cybersecurity rule would most likely require RIA firms to spend more time on compliance. Additional insights are discussed in the article.
3. Hedge Funds Face SEC Rule For Speedier Disclosure Of 5% Stakes (Author –Ben Bain and Matt Robinsons, Financial Advisor)
In a new rule proposed by the Securities and Exchange Commission (“SEC”), fund managers and other investors would only have 5 days to disclose whether they have acquired a substantial stake in a company, down from the current 1o day limit. In addition, any amendments to the filing would need to be submitted within one business day of the original filing. This new rule, along with other recent proposals, represents the SEC’s push for clarification and more transparency in the private fund industry. Disclosing these investments “can have a material impact on a company’s share price. It is important that shareholders get that information sooner,” stated SEC Chairman Gary Gensler.
4. SEC Proposes New Cybersecurity Rules (Author – Patrick Donachie, WealthManagement.com)
Earlier this week the Securities and Exchange Commission (“SEC”) proposed new cybersecurity management rules to bolster the requirements already in place for advisers and firms across the industry. SEC Chairman Gary Gensler explained that the new rules would add additional record-keeping requirements as well as demanding advisers to report “significant” cyber incidents to the SEC. Gensler share his support of the new rules, stating “I believe they could give clients and investors better information with which to make decisions, create incentives to improve cyber hygiene, and provide the Commission with more insight into intermediaries’ cyber risks.”
5. Will the SEC Ban 12b-1 Fees? (Author –Melanie Waddell, ThinkAdvisor)
Melanie Waddell discusses the recent decline in the use of 12b-1 fees due to the Securities and Exchange Commission’s (“SEC”) crack down on conflicts surrounding the fees, and what those in the industry have to say about it. Waddell reached out to experts across the industry to weigh in on whether or not the SEC will repeal 12b-1 fees in the future. Experts say that the decline in 12b-1 fees is a direct result of the growing popularity of fee-based practices, which offers more freedom for the client since those fees can be negotiated, unlike many 12b-1 fees. However, others are saying that 12b-1 fees, if “highly regulated and supervised by boards”, are the “lesser evil” when it comes to distribution compensation and that the current structure should not be messed with.
Don’t forget to check out last week’s top RIA compliance news articles that focus on the SEC recent private fund risk alert, Form PF proposed amendments, the upcoming proposal of cybersecurity rules, and the Department of Labor (DOL) Fiduciary Rule enforcement date.