Articles Posted in Client Alert

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Covered businesses will need to update policies and procedures for responding to customer inquiries about collection, use, sale and disclosure of customers’ personal information or face stiff enforcement actions.

Takeaways

  • The California Consumer Privacy Act of 2018 provides consumers with broad rights to control use of their personal information by covered businesses.
  • Covered businesses will need to review and revise their existing privacy policies to make the required disclosures and to provide two methods for customers to inquire about use of their personal information.

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The future of the Department of Labor’s Fiduciary rule is in limbo following the Fifth Circuit’s decision striking it down “in toto.”

Takeaways

  • The future of the Fiduciary rule is uncertain, particularly in light of the Fifth Circuit’s decision vacating the rule.
  • Retirement plan fiduciaries should continue to stay apprised of the viability of the Fiduciary rule with an eye towards the services provided by their plans’ investment advisors.
  • Industry experts are hopeful that the DOL and SEC will coordinate their efforts to provide clear guidance to investment advisers and broker-dealers, plan fiduciaries and plan participants.

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This alert contains a summary of the primary annual and periodic compliance-related obligations that may apply to investment advisers registered with the Securities and Exchange Commission (the “SEC”) or with a particular state (“Investment Advisers”), and commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”) registered with the Commodity Futures Trading Commission (the “CFTC”) (collectively with Investment Advisers, “Managers”).[1]  Due to the length of this Alert, we have linked the topics to the Table of Contents and other subtitles for easy click-access.

This summary consists of the following segments: (i) List of Annual Compliance Deadlines; (ii) New Developments; (iii) 2018 National Exam Program Examination Priorities; (iv) Continuing Compliance Areas; and (v) Securities and Other Forms Filings.

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The ICO boom in 2017 brings with it questions of jurisdiction and compliance, and a need for further guidance.

Takeaways

  • The benefits of ICOs in raising capital, as well as in providing a marketing push for a new business model, are so significant that it is difficult to foresee them disappearing.
  • Large offerings backed by established players will have a big advantage over smaller ICOs by startups reluctant to pay associated compliance costs.
  • It is in the best interests of all legitimate and honest ICO sponsors that they do not operate in a gray market.

2017 has seen a boom in token presales and “initial coin offerings” (collectively, ICOs), which involve the sale to investors of customized “digital tokens” in exchange for established cryptocurrencies, most frequently Bitcoin or Ether. Many promoters had heralded ICOs as a fundraising method similar to initial public offerings (IPOs) of securities, with the benefit that they were unregulated. However, in the United States and certain other jurisdictions, regulators have now staked out their turf in ICOs, causing sponsors and digital exchange platforms to re-think their approach to compliance.

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On June 9, 2017, the Department of Labor (DOL) regulation updating the definition of “fiduciary” for purposes of ERISA became effective, along with a series of new and updated prohibited transaction exemptions.  The DOL regulation expands the types of activities that can give rise to fiduciary status, and applies not only to plans subject to ERISA but also to self-directed IRAs.  While the DOL is still reviewing whether changes should be made to the regulation to reduce the regulatory burden, and both the DOL and Congress are considering more drastic action such as full repeal, for the time being the regulation is in effect.

A broad reading of the definition of “fiduciary” under the new rule could cause investment fund managers to become fiduciaries to ERISA and IRA investors in their funds, and to prospective investors, regardless whether a fund they manage is a “plan assets” fund.  Fund managers may need to take action now, notifying benefit plan investors, obtaining representations and/or amending subscription applications.

Private investment funds that limit ERISA plan and IRA investments to below 25% of each class of equity interests (or that qualify as a Venture Capital Operating Company (VCOC) or a Real Estate Operating Company (REOC)) are still exempt from ERISA with respect to most of their activities—their investment transactions and compensation arrangements are exempt from ERISA’s fiduciary rules and from the prohibited transaction restrictions of ERISA and the Internal Revenue Code.  However, under the new DOL regulation, certain types of marketing and outreach activities to new and current benefit plan investors could be viewed as “recommendations” to invest in (or continue investing in) a fund, and thus may become subject to the new fiduciary rules.

Not every marketing or outreach activity will give rise to fiduciary status, and an exemption is available for communications with financially sophisticated plan fiduciaries.  Please contact us to discuss how you can qualify for an exemption from fiduciary status and/or take necessary other action with respect to IRA and ERISA investors.

For more detailed information about the DOL fiduciary rule, please read our Alert.

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Report of Foreign Bank and Financial Accounts now due on Tax Day, with auto-extension for six months.

Takeaways

  • US. citizens and resident aliens who have an interest in, or signature authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during the year are required to file a FBAR report with the Financial Crimes Enforcement Network (FinCEN).
  • In December 2016, FinCEN announced that the deadline for filing has been changed from June 30 to April 15 to coincide with the time for filing federal income tax returns (April 18 for 2017).
  • FinCEN has now granted filers who miss the new deadline an automatic six month extension (October 16, 2017).

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The following are some of the important annual compliance obligations investment advisers either registered with the Securities and Exchange Commission (the “SEC”) or with a particular state (“Investment Adviser”) and commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”) registered with the Commodity Futures Trading Commission (the “CFTC”) should be aware of.

This summary consists of the following segments: (i) List of Annual Compliance Deadlines; (ii) 2017 Enforcement Priorities In The Alternative Space; (iii) New Developments; and (iv) Continuing Compliance Areas.

Table of Contents

Page

Table of Annual Compliance Deadlines……………………………………………………………. 3

2017 Enforcement Priorities In The Alternative Space………………………………………. 5

New Developments………………………………………………………………………………………. 7

 

CONTINUE READING…

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On December 5, 2016, a Notice of reporting requirements was filed in the Federal Register by the U.S. Department of Treasury informing the public of the Treasury’s mandatory survey, due every 5 years, of ownership of foreign securities by U.S. residents as of December 31, 2016.  All U.S. persons who meet the reporting requirements must respond to, and comply with, this survey on Form TIC-SHC by March 3, 2017.

Who Must Report? 

i. Fund Managers and Investors.  U.S. persons who own foreign securities for their own portfolios and/or who invest in foreign securities on behalf of others (referred to as ‘‘end-investors’’), including investment managers and fund sponsors such as:

  • Managers of private and public pension funds
  • Hedge fund managers
  • Managers and sponsors of private equity funds, venture capital companies and similar private investment vehicles
  • Managers and sponsors of commingled funds such as money market mutual funds, country funds, unit-investment funds, exchange-traded funds, collective-investment trusts, and similar funds
  • Foundations and endowments
  • Trusts and estates
  • Insurance companies
  • U.S. affiliates of foreign entities that fall into the above categories.

These U.S. Persons must report on Form SHC if the total fair value of foreign securities—aggregated over all accounts and for all U.S. branches and affiliates of their firm—is $200 million or more as of the close of business on December 31, 2016.

ii.  Custodians. U.S. persons who manage, as custodians, the safekeeping of foreign securities for themselves and other U.S. persons (including affiliates in the U.S. of foreign entities). These U.S. persons must report on Form SHC if the total fair value of the foreign securities whose safekeeping they manage on behalf of U.S. persons—aggregated over all accounts and for all U.S. branches and affiliates of their firm—is $200 million or more as of the close of business on December 31, 2016.

iii.  Those Notified. U.S. persons who are notified by letter from the Federal Reserve Bank of New York. These U.S. persons must file Schedule 1, even if the recipient of the letter is under the reporting threshold of $200 million and need only report ‘‘exempt’’ on Schedule 1. U.S. persons who meet the reporting threshold must also file Schedule 2 and/or Schedule 3.

What To Report?

Information on holdings by U.S. residents of foreign securities, including equities, long-term debt securities, and short-term debt securities (including selected money market instruments).

How To Report?

Completed reports on Form TIC-SHC can be submitted electronically or mailed to the Federal Reserve Bank of New York, Statistics Function, 4th Floor, 33 Liberty Street, New York, NY 10045–0001. Inquiries can be made to the survey staff of the Federal Reserve Bank of New York at (212) 720–6300 or email: SHC.help@ny.frb.org.   Inquiries can also be made to Dwight Wolkow at (202) 622–1276, email: comments2TIC@do.treas.gov

When To Report?

The report must be submitted by March 3, 2017.

Additional information including technical information for electronic submission can be obtained from the Form SHC Instructions available here.

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To increase the transparency of fees and expenses paid to alternative funds, every California public pension plan must require each alternative fund in which they invest to make various disclosures, and California public pension plans are required to disclose that information during meetings open to the public.

Assembly Bill 2833 was signed into law by California Governor Jerry Brown on September 14, 2016. Beginning January 1, 2017, the new law mandates that California public pension plans (PPPs), whether at the state, county or city level, require all private equity funds, venture funds, hedge funds or absolute return funds, whether a limited partnership, limited liability company or similar legal structure (Alternative Funds), to make disclosures of fees and expenses paid by PPPs. In turn, the PPPs must disclose such information during meetings open to the public.

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The CFTC’s recent enforcement against Bitfinex’s financed trading activities demonstrates the Commission’s increasing interest in virtual currency and digital assets.

The U.S. Commodity Futures Trading Commission (CFTC) is further expanding its oversight of virtual currency exchanges and digital assets in general. On June 2, 2016, Bitfinex (a Hong Kong-based bitcoin and cryptocurrency exchange) settled with the CFTC following an investigation into its trading activities. The CFTC charged that the exchange offered illegal off-exchange financed retail commodity transactions, and that Bitfinex had failed to register as a Futures Commission Merchant (FCM) as required by law. As a result, Bitfinex will pay $75,000 in civil penalties.

This action is more evidence of the CFTC’s interest in not only bitcoins, but any digital asset that can be considered a commodity. Transactions in decentralized digital tokens (such as Ether, DAO Tokens, Safecoins, Factoids, and Bitcrystals) are becoming more common, and so is regulatory interest.

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Read this article and additional publications at pillsburylaw.com/publications-and-presentations.  You can also download a copy of the Client Alert here.