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This is a reminder that the 2016 IARD account renewal obligation for investment advisers (including exempt reporting advisers) starts this November. An investment adviser must ensure that its IARD account is adequately funded to cover payment of all applicable registration renewal fees and notice filing fees.

Key Dates in the Renewal Process:

November 16, 2015 – Preliminary Renewal Statements which list advisers’ renewal fee amount are available for printing through the IARD system.

December 18, 2015 – Deadline for full payment of Preliminary Renewal Statements. In order for the payment to be posted to its IARD Renewal account by the December 18 deadline, an investment adviser should submit its preliminary renewal fee to FINRA through the IARD system by December 14, 2015.

December 29, 2015 – January 2, 2016 – IARD system shut down. The system is generally unavailable during this period.

January 4, 2016 – Final Renewal Statements are available for printing. Any additional fees that were not included in the Preliminary Renewal Statements will show in the Final Renewal Statements.

January 15, 2016 – Deadline for full payment of Final Renewal Statements.

For more information about the 2016 IARD Account Renewal Program including information on IARD’s Renewal Payment Options and Addresses, please visit http://www.iard.com/renewals.asp

Please contact us if you have questions.

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U.S. Investment advisers, other financial services providers, and pooled investment vehicles – private and public funds – involved in certain cross-border transactions must file.

Background

The U.S. Department of Commerce’s Bureau of Economic Analysis (“BEA”) is conducting its next five-year “Benchmark Survey of U.S. Financial Services Providers and Foreign Persons” on Form BE-180. The survey is mandatory and collects data on cross-border trade and financial services transactions of U.S. financial services providers, including investment advisers and other asset managers, broker-dealers and banks. BE-180 covers cross-border purchase and sales transactions that occurred or were charged during the U.S. reporter’s 2014 fiscal year. BE-180 is one of a series of benchmark surveys[1] measuring international trade transactions and collecting data for use in various economic studies.

Who Is Required to Report

Each U.S. individual and entity that is a “financial services provider” and meets the reporting requirements must file form BE-180. Financial services providers include investment advisers and their pooled vehicles such as hedge funds, private equity funds, pension funds, mutual funds and real estate funds, and broker-dealers.[2]

Filing Thresholds

The reporting requirement applies to each U.S. individual or entity that is a financial services provider with (i) either[3] sales or purchases directly with non-U.S. individuals or entities in excess of $3 million or more on a consolidated basis during the 2014 fiscal year, or (ii) sales or purchases directly with non-U.S. individuals or entities of less than $3 million, that were notified by the BEA about the survey. Any U.S. individual or entity that is notified by the BEA about the survey but has no transactions of the types of services covered must complete pages 1-3 of the survey.

Reportable Transactions

Reportable financial transactions include investment management and advisory services, brokerage services, underwriting, custodial services, credit-related services, securities lending, and electronic funds transfer services – transactions involving cross-border payments, such as advisory or sub-advisory fees, brokerage commissions, custodial fees and securities lending fees.

Reportable data include the transactional counterparty’s location by country and the relationship between the U.S. reporter and its counterparty (i.e., foreign affiliates or unaffiliated foreign persons). You may have easy access to some of the required data (such as through your administrator or internal accounting systems). However, as with the other BE forms, obtaining some of the required information may involve additional legwork and cooperation with cross-border counterparties, which should be considered in meeting the deadlines.

Filing Deadline and Extensions

The BEA has granted automatic extensions to the original October 1 filing deadline, as follows:

File no later than November 1, 2015 if:

  • You were notified of the BE-180 survey by BEA and have a BE-180 identification number below 140012490.
  • You were NOT notified of the BE-180 survey by BEA and do NOT have a BE-180 identification number.

File no later than December 1, 2015 if:

  • You were notified of the BE-180 survey by BEA and have a BE-180 identification number above 140012490.

Additional extensions to each filing deadline will be granted by the BEA if a request is submitted by November 1, 2015 as instructed by the BEA.

Penalties

Failure to file a required report can lead to civil and criminal penalties.

Confidential Treatment

Like it is the case with the other BE forms, information reported on BE-180 is confidential and may be used for only analytical or statistical purposes.

Sources

Form BE-180 is available online here.

Instructions for new filers are available here.

Form instructions are available here.

FAQs regarding the BE-180 benchmark survey are available here.

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[1] See our alerts and articles on other BEA survey forms here.

[2] Additional entities included in the definition are commercial banking entities, bank holding companies, financial holding companies, savings institutions, check cashing and debit card issuing entities, underwriters, investment bankers, providers of securities custody services, insurance carriers, insurance agents, insurance brokers, and insurance services providers.

[3] The $3 million threshold applies to purchases and sales separately, and must be reported on separate schedules to the BE-180. Consequently, a U.S. reporter, for example, that only exceeds the threshold for sales but does not reach the threshold for purchases, is only required to complete the schedule relating to sales.

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The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking on August 25, 2015 which, among other things, would add SEC-registered investment advisers to the “financial institutions” regulated under the Bank Secrecy Act (BSA). This represents another step by the U.S. government to expand the professions and industries deemed anti-money laundering (AML) gatekeepers. Covered investment advisers will face new AML program, reporting and record-keeping requirements, with implications for hedge, private equity and other funds; money managers; and public or private real estate funds.

FinCEN has long expressed an interest in regulating investment advisers, which it believes may be vulnerable to or may obscure money laundering and terrorist financing. Should the rule become final, SEC-registered investment advisers would be included in the regulatory definition of “financial institution” and, as a consequence, required to establish and implement appropriately comprehensive written AML programs and comply with a variety of reporting and recordkeeping requirements under the BSA. Investment advisers that already implemented AML programs would need to evaluate them to ensure they comply with BSA requirements.

Who are Covered “Investment Advisers”?

Investment advisers provide advisory services, such as portfolio management, financial planning, and pension consulting, to many different types of clients, including institutions, private funds and other pooled investment vehicles, pension plans, trusts, foundations and mutual funds. According to the proposed rule, an “investment adviser” would be defined as “[a]ny person who is registered or required to register with the SEC under section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(a)).”

The definition would cover all investment advisers, including subadvisers, subject to Federal regulation which, generally speaking, would include advisers that have $100 million or more in assets under management. This includes investment advisers engaging in activities with publicly or privately offered real estate funds. Small- and medium-sized investment advisers that are state-registered and other investment advisers that are exempt from SEC registration requirements would not be captured by the proposed rule. FinCEN indicated, however, that future rulemaking may include those types of advisers.

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On August 6, 2015, the Treasury and the IRS issued Notice 2015-54, which implements a Clinton-era tax provision intended to prevent U.S. taxpayers from using the partnership provisions of the Code to shift built-in gain on property contributed to a partnership to non-U.S. affiliates of the transferor that are partners in the transferee partnership. These rules were announced in reaction to Treasury’s and the IRS’s belief that U.S. taxpayers have been using partnership structures that adopt Section 704(c) methods, special allocations under Section 704(b) and inappropriate valuation techniques with a view towards shifting income to their foreign affiliates.

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In the Federal Register for July 23, 2015, the Treasury Department published proposed regulations regarding the circumstances under which partnership allocations and distributions will be treated as disguised payments for services. These proposed regulations are aimed at attempts by investment fund managers to convert ordinary, management fee income into tax-favored long-term capital gains through the use of management fee waivers.

The proposed regulations draw heavily on the legislative history to Internal Revenue Code section 707(a)(2)(A), enacted as part of the Deficit Reduction Act of 1984 (P.L. 98-369), which provides that allocations and distributions to a partner by a partnership will be disregarded and instead treated as disguised payments for services if the performance of such services and the related direct or indirect allocation and distribution, taken together, are properly characterized as a transaction between the partnership and a partner acting other than in his capacity as a member of the partnership.

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Related post: Proposed Treasury Regulations May End Private…

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On July 15, 2015, the Wage and Hour Division of the U.S. Department of Labor (DOL) issued Administrator’s Interpretation No. 2015-1, adopting a very expansive interpretation of the definition of employees under the Fair Labor Standards Act (FLSA) under which many workers currently treated as independent contractors will need to be reclassified as employees. The Administrator’s Interpretation identifies the issue of a worker’s economic dependence as the most important factor in distinguishing between independent contractors and employees. The Administrator’s Interpretation puts employers on notice that “the FLSA covers workers of an employer even if the employer does not exercise the requisite control over the workers, assuming the workers are economically dependent on the employer.”

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  • Mandatory reporting required by the Bureau of Economic Analysis on Form BE-10 – 2014 Benchmark Survey of U.S. Direct Investment Abroad
  • Investment managers, general partners, hedge funds and private equity funds are among those that may have to file

What is BE-10?

BE-10 is a benchmark survey of U.S. direct investment abroad, conducted once every five years by the Bureau of Economic Analysis (“BEA”) of the U.S. Department of Commerce. The purpose of the survey is to obtain economic data on the operations of U.S. parent companies and their foreign affiliates. The BE-10 survey is conducted pursuant to the International Investment and Trade in Services Survey Act, and the filing of reports is mandatory pursuant to Section 5(b)(2) of that Act. BE-10 reports are kept confidential and used for statistical analysis.

What is the filing deadline?

May 29, 2015 – if you are a U.S. Reporter (defined below) filing to report fewer than 50 Foreign Affiliates (defined below).

June 30, 2015 – if you are a U.S. Reporter filing to report 50 or more Foreign Affiliates.

Extensions. The BEA will consider reasonable requests for extensions if received before the applicable due date of the report. Extension requests should “enumerate the substantive reasons necessitating the extension” on the form provided by the BEA.

Who must file?

All U.S. persons that had direct or indirect ownership or control (each, a “U.S. Reporter”) of at least 10%[i] of the voting stock of a foreign business enterprise (a “Foreign Affiliate”) at any time during the entity’s 2014 fiscal year must file.

Any U.S. general partner or investment manager of a private fund could be a U.S. Reporter, and any hedge fund, private equity fund, or other private fund could be either a U.S. Reporter or a Foreign Affiliate, if they meet the above criteria.

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[i] A U.S. Reporter’s ownership interest in a Foreign Affiliate may be held indirectly through a directly held Foreign Affiliate that owned the given foreign enterprise. You must “look through” all intervening foreign enterprises in the chain to determine whether you hold a foreign business enterprise to the extent of 10% or more. To calculate your ultimate ownership percentage, multiply the direct ownership percentage in the first Foreign Affiliate by that first Foreign Affiliate’s direct ownership percentage in the second enterprise in the chain, multiplied by the direct ownership percentage for all other intervening enterprises in the ownership chain, until you reach the ownership percentage in the final foreign business enterprise. To illustrate, if a U.S. Reporter owned 50% of Foreign Affiliate A directly, and A owned 75% of foreign business enterprise B which, in turn, owned 80% of foreign business enterprise C, the U.S. Reporter’s percentage of indirect ownership of B would be 37.5% (the product of the first two percentages), its indirect ownership of C would be 30% (the product of all three percentages), and B and C (as well as A) would be considered Foreign Affiliates of the U.S. Reporter.

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Annual Compliance Obligations—What You Need To Know

As the new year is upon us, there are some 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.

See upcoming deadlines below and in red throughout this document.

The following is a summary of the primary annual or periodic compliance-related obligations that may apply to Investment Advisers, CPOs and CTAs (collectively, “Managers”).  The summary is not intended to be a comprehensive review of an Investment Adviser’s securities, tax, partnership, corporate or other annual requirements, nor an exhaustive list of all of the obligations of an Investment Adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) or applicable state law.  Although many of the obligations set forth below apply only to SEC-registered Investment Advisers, state-registered Investment Advisers may be subject to similar and/or additional obligations depending on the state in which they are registered.  State-registered Investment Advisers should contact us for additional information regarding their specific obligations under state law.

List of annual compliance deadlines:

State registered advisers pay IARD fee November-December (of 2014)
Form 13F (for 12/31/14 quarter-end) February 17, 2015*
Form 13H annual filing February 17, 2015
Schedule 13G annual amendment February 17, 2015
Registered CTA Form PR (for December 31, 2014 year-end) February 17, 2015
TIC Form SLT January 23, 2015 (for December 2014)
TIC Form SHCA March 6, 2015
TIC B Forms Monthly report (December 2014) – by January 15, 2014Quarterly report (December 31, 2014) – by January 20, 2014
Affirm CPO exemption March 2, 2015
Registered Large CPO Form CPO-PQR December 31 quarter-end report March 2, 2015
Registered CPOs filing Form PF in lieu of Form CPO-PQR December 31 quarter-end report March 31, 2015
Registered Mid-Size and Small CPO Form CPO-PQR year-end report March 31, 2015
SEC registered advisers and ERAs pay IARD fee Before submission of Form ADV annual amendment by March 31, 2015
Annual ADV update March 31, 2015
Delivery of Brochure April 30, 2015
Delivery of audited financial statements (for December 31, 2014 year-end) April 30, 2015
California Finance Lender License annual report (for December 31, 2014 year- end) March 15, 2015
Form PF filers pay IARD fee Before submission of Form PF
Form PF for large liquidity fund advisers (for December 31, 2014 quarter end) January 15, 2015
Form PF for large hedge fund advisers (for December 31, 2014 quarter end) March 2, 2015
Form PF  for smaller private fund advisers and large private equity fund advisers (for December 31, 2014 fiscal year-end) April 30, 2015
FBAR Form FinCEN Report 114 (for persons meeting the filing threshold in 2014 and those persons whose filing due date for reporting was previously extended by Notices 2013-1, 2012-2, 2012-1, 2011-2 and 2011-1) June 30, 2015
FATCA information reports filing for 2014 by participating FFIs March 31, 2015
Form D annual amendment One year anniversary from last amendment filing.

* Reflects an extended due date under Exchange Act Rule 0-3.  If the due date of filing falls on a Saturday, Sunday or holiday, a report is considered timely filed if it is filed on the first business day following the due date.

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The U.S. House of Representatives took a major positive step towards increasing the nation’s cyber security posture today when, on a voice vote, it passed H.R. 3696, the “National Cybersecurity and Critical Infrastructure Protection Act.”

The NCCIP bill, co-sponsored by House Homeland Security Chairman Mike McCaul, Ranking Member Bennie G. Thompson, Subcommittee Chair Patrick Meehan, and Subcommittee Ranking Member Yvette Clarke, clarifies a number of roles and responsibilities of the Department of Homeland Security (DHS), and it also strengthens key public/private partnerships.

One of the most interesting and potentially helpful elements of the NCCIP bill is in Title II, Section 202. There, the House approved additional language to be inserted into the Support Anti-Terrorism by Fostering Technologies Act of 2002 (the SAFETY Act). The language would add the term “qualifying cyber incident” to the SAFETY Act, thereby making it perfectly clear that cyber attacks unconnected to “acts of terrorism” may trigger – at the discretion of the Secretary of Homeland Security – the liability protections offered by the SAFETY Act.

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Written by: Ildiko Duckor

The California Commissioner of Business Oversight (“Commissioner”) recently amended California’s custody rule 10 C.C.R. Section 260.237 (the “New Custody Rule”).  The New Custody Rule will be effective on April 1, 2014.

All investment advisers licensed or required to be licensed in California must comply with the New Custody Rule.  California Exempt Reporting Advisers are not affected.

What is “having custody?”

Holding or having authority to obtain possession of client funds or securities, for example:

  • Possession of client funds or securities unless received inadvertently and returned to the sender promptly.
  • Any arrangement (such as a general power of attorney) that authorizes you to withdraw client funds or securities maintained with a custodian by instructing the custodian.
  • Any capacity with authority to access to client funds or securities (such as general partner of a limited partnership, managing member of a limited liability company or trustee of a trust).

If you “have custody” of assets.

  • Qualified Custodian.  You must maintain those assets with a “qualified custodian” such as a bank, trustee, or prime broker.
  • Notice on ADV.  You must notify the Commissioner on your ADV that you have or may have custody.
  • Notice to Clients*. You must notify your client in writing of the custodian’s name and address, and the manner in which the assets are maintained, and any changes to this information.
  • Quarterly Custodian’s Account Statement*.  You must reasonably ascertain that the custodian sends quarterly account statements with specific information to each client (for example, by being cc-d on electronic statements the custodian sends).
  • Surprise Exam*.  You must retain a CPA (by written agreement) to have an annual “surprise exam” of client assets, and report the examination and any resignation of the CPA on your ADV.
  • Internal Control Report.  If you or your affiliate serves as the qualified custodian:
    • The CPA firm conducting the surprise exam must be registered with and subject to examination by the PCAOB.
    • You must obtain an annual internal control report with specified content.
  • Exceptions.  There are certain exceptions from some of the New Custody Rule’s requirements for mutual fund shares, certain private securities, and for advisers that “have custody” only because they deduct fees (if certain conditions are also satisfied).

Fund Managers’ Obligations.

If you are a general partner of an investment limited partnership or a managing member of a limited liability company (or are in a similar position with respect to a pooled fund vehicle):

  • Quarterly Investor Account Statement.  You must send to all fund investors quarterly account statements showing:
    • the total amount of all additions to and withdrawals from the fund,
    • a listing of all additions to and withdrawals from the fund by an investor,
    • the opening and closing value of the fund at the end of the quarter,
    • the total value of an investor’s interest in the fund at the end of the quarter, and
    • a listing of securities positions on the closing date of the statement pursuant to FASB Accounting Standards Codification 946-210-50-4 through 6.
  • Independent Expense Verification*.  You must retain (by written agreement) an independent accountant or attorney obligated to act in your investors’ best interests and send him/her all invoices or receipts with details regarding calculations, so the independent person can:
    • review all fees, expenses and withdrawals from the fund,
    • determine that payments conform to the fund agreement, and
    • forward to the custodian approval for payments of the invoices.
  • Audited Fund Exceptions*.  You need not comply with the following requirements:  Notice to Clients, Quarterly Custodian’s Account Statement, Surprise Exam and Independent Expense Verification; if:
    • Your fund is audited annually, in accordance with GAAP, by an independent CPA registered with and subject to examination by the PCAOB.
    • The audited financials are distributed to all investors and the Commissioner within 120 days of the end of the fund’s fiscal year.
    • A final liquidation audit is performed, in accordance with GAAP, upon the fund’s liquidation, and the audited financials are distributed to investors and the Commissioner promptly upon completion of the audit.
    • The independent CPA is required by agreement to notify the Commissioner on Form ADV if it resigns or is terminated.
    • You notify the Commissioner that you intend to use the audit exception route.

For further details and interpretation of the intricacies of the New Custody Rule as they apply to you, please contact your Pillsbury Investment Funds and Investment Management team member.