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 changes to Form PF for private equity and hedge fund advisors, a Securities and Exchange Commission’s (SEC) cybersecurity rule, and a SEC warning on regulatory gray areas.
Here are our top investment adviser compliance articles for the week of January 21st, 2022:
1. SEC Proposes Changes to Form PF for Private Equity, Hedge Fund Advisors (Author – Melanie Waddell, ThinkAdvisor)
Melanie Waddell discusses the SEC’s proposed amendments to the Form PF and how SEC-registered investment advisors would be impacted. The SEC’s proposal would “require certain reporting on key events and would decrease the reporting threshold for large private equity advisors and require them to provide additional information to the SEC about the funds they advise”. Gary Gensler, Chairman of the SEC, expressed his support for the proposal, citing that if adopted “it would help federal regulators to assess systemic risk,” and would “bolster the Commission’s oversight of private fund advisers and the protection of investors in those funds”.
2. Cybersecurity Rule Would Clarify What SEC Expects of Advisers (Author – Mark Schoeff Jr., Investment News)
The SEC has put a lot of emphasis on the importance of cybersecurity over the last few years but has never actually laid out their full expectations for advisers. The agency is hoping to change that this year by issuing a Cybersecurity rule that would provide more guidance to advisers and ensure their preparedness should a cyberattack occur. Tiffany Smith, partner at WilmerHale, explains further, “the SEC wants to make sure the policies, procedures and practices we had in place before the pandemic are still appropriate. It’s about refreshing processes so they account for the current environment and the risks we’re facing.”
3. Gensler Warns Financial Industry Not to Push Into Regulatory Gray Areas (Author – Mark Schoeff Jr., Investment News)
During an online event hosted by the Exchequer Club of Washington, Securities and Exchange Commission (“SEC”) Chairman Gary Gensler answered several questions about regulatory responsibilities and enforcement actions. While addressing the audience regarding regulatory gray areas, Gensler explained that “if you’ve got a client that’s sort of in that ambiguity, step back from that line and think about the spirit of what we’re trying to do, about investor protection, about anti-fraud, about disclosure.” Gensler continued by calling on financial industry interest groups for assistance, stating that “you’re part of making sure there’s trust in capital markets.”
4. Hedge Funds Face New SEC Disclosures As Gensler Cracks Down (Author – Robert Schmidt and Ben Bain, Financial Advisor)
The SEC plans to propose on Wednesday that large hedge funds and private-equity firms submit confidential forms to the SEC within one business day when there are significant changes to their prime-brokerage relationships, available cash, or counter-party defaults. The proposal would be one of the SEC’s most significant steps to increase oversight of hedge funds and private equity firms since Gensler took over. “It would help federal regulators to assess systemic risk,” Gensler said in a statement ahead of a vote to propose the rule changes, adding that it would strengthen “protection of investors in those funds”. Hedge funds and private equity firms have consistently pushed back against any efforts by the SEC to expand the type of data they must privately disclose, arguing that the proprietary information could fall into the hands of unauthorized users through a data breach.
5. SEC Chief Wants Advisors, BDs to Improve ‘Cyber Hygiene’ (Author – Melanie Waddell, ThinkAdvisor)
Gensler said Monday that he’s asked SEC staff to make recommendations for the commission’s consideration around how to strengthen financial sector registrants’ cybersecurity hygiene and incident reporting, taking into consideration guidance issued by the Cybersecurity and Infrastructure Security Agency and others. “I think such reforms could reduce the risk that these registrants couldn’t maintain critical operational capability during a significant cybersecurity incident,” Gensler said, “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.” Cybersecurity expert John Reed Stark, president of John Reed Stark Consulting and former chief of the SEC’s Office of Internet Enforcement, told ThinkAdvisor Monday in an email that Gensler “has signaled in his early speeches and congressional testimony that cybersecurity would become a top priority during his tenure – and he has clearly begun making good on his promise.”
Don’t forget to check out last week’s top RIA compliance news articles that focus on the Form CRS and the term “fiduciary”, the SEC’s 30-day comment period for rule proposals, and the search for candidates for the SEC Investor Advisory Committee.