The Securities and Exchange Commission has proposed to amend rules and forms under both the Investment Advisers Act of 1940 and the Investment Company Act of 1940 to require registered investment advisers, certain advisers that are exempt from registration, registered investment companies, and business development companies, to provide additional information regarding their environmental, social, and governance (“ESG”) investment practices.
The proposed rule is available HERE.
In today’s press release, the Securities and Exchange Commission announced the adoption of rules and amendments to require certain documents, including Form ADV-NR, filed by investment advisers, institutional investment managers, and certain other entities to be filed or submitted electronically. Form ADV-NR is the appointment of agent for service of process by a non-resident general partner or a non-resident managing agent of any investment adviser (domestic or non-resident), including exempt reporting advisers. The amendments also make technical amendments to modernize Form 13F and enhance the information provided. The new rules and form amendments will be effective 60 days after publication in the Federal Register. The amendments to Form 13F will be effective on January 3, 2023.
The press release is available HERE and text of the Final Rules is available HERE.
Enhanced Focus on Private Funds, ESG, and Operational Resiliency
The Securities and Exchange Commission’s Division of Examinations today announced its 2022 examination priorities. The Division will focus on private funds, environmental, social and governance (ESG) investing, retail investor protections, information security and operational resiliency, emerging technologies, and crypto-assets.
The Securities and Exchange Commission today voted to propose amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds. The proposed amendments are designed to enhance the Financial Stability Oversight Council’s (FSOC) ability to assess systemic risk as well as to bolster the Commission’s regulatory oversight of private fund advisers and its investor protection efforts in light of the growth of the private fund industry.
Today, the Securities and Exchange Commission announced it had finalized reforms under the Investment Advisers Act to modernize rules that govern investment adviser advertisements and payments to solicitors. The amendments create a single rule that replaces the current advertising and cash solicitation rules. The final rule is designed to comprehensively and efficiently regulate investment advisers’ marketing communications.
An expanded universe of individuals and entities will be able to participate as “accredited investors” in securities offerings as a result of recent SEC rulemaking.
TAKEAWAYS
On August 26, 2020, the Securities and Exchange Commission (the SEC) adopted amendments to the definition of “accredited investor” in Rule 501(a) of Regulation D under the Securities Act of 1933 (the Amendments). The Amendments, which will become effective 60 days after they are published in the Federal Register, expand the pool of individuals and entities that qualify as accredited investors. The definition of accredited investor is relevant, among other things, to the operation of Rule 506 of Regulation D, which is a safe harbor under Section 4(a)(2) of the Securities Act. Rule 506 is the most commonly-used exemption for private offerings, accounting for the vast majority of the trillions of dollars raised through unregistered offerings every year. Unregistered, private offerings of securities have supplanted public offerings as the dominant form of capital-raising in the United States. Since regulatory requirements are much greater for offerings that include non-accredited investors, an overwhelming majority of Rule 506 offerings are offered only to accredited investors.
Read this article and additional Pillsbury publications at Pillsbury Insights.
More of this will be covered at an ALI CLE webinar, sponsored by Pillsbury, later this month that focuses on Regulation D Offerings and Private Placements. To find out more about this webinar and to register, please visit https://www.ali-cle.org/course/Regulation-D-Offerings-Private-Placements-2020-VCCP0922
We urge our clients to consult Pillsbury’s comprehensive COVID-19 Resource Center for information regarding Responding to a Global Crisis, Business Interruption, Cybersecurity, Employer Concerns and other general matters related to the COVID-19 pandemic. We also recommend the following specific measures to mitigate risks of business interruption and regulatory noncompliance resulting from the COVID-19 pandemic.
The California Consumer Privacy Act (CCPA), a broad statute which imposes new data privacy obligations on certain companies that do business in California, will become effective on January 1, 2020. Fund managers and other investment advisers (“Advisers”) and certain of their affiliates that are currently subject to data privacy laws pursuant to the Gramm-Leach-Bliley Act (GLBA) or the UK General Data Protection Regulation (GDPR) may have additional obligations to consider and prepare for as the CCPA compliance deadline approaches.
SEC Risk Alert regarding safety of customer records and cloud vendor diligence.
As part of its cybersecurity sweep, the SEC has examined risks related to the storage of customer records and information by investment advisers on cloud-based storage platforms and issued a Risk Alert, “Safeguarding Customer Records and Information in Network Storage – Use of Third Party Security Features.” The sweep focused on vendor due diligence and oversight and registered advisers’ monitoring of data and customer information safety. Among other information, OCIE sought vendor contracts (including service level agreements); vendor reviews; risks assessments of cloud service providers, including data encryption, data loss prevention, books & records exposure, identity and access management; and policies and procedures and their alignment to technology standards.
The Risk Alert identified as the main compliance issues related to cloud-based storage (i) Misconfigured network storage solutions (inadequately configured security settings to protect against unauthorized access; lack of policies and procedures addressing the security configuration); (ii) Inadequate oversight of vendor-provided network storage solutions (lack of, or inadequate, policies, procedures, contractual provisions that security settings on vendor-provided network storage solutions were configured in accordance with the firm’s standards); and (iii) Insufficient data classification policies and procedures (firms’ policies and procedures did not identify the different types of data stored electronically by the firm and the appropriate controls for each type of data).
The Risk Alert encourages investment advisers to review their practices, policies, and procedures with respect to the electronic storage of customer information and to consider any necessary improvements, and to actively oversee vendors. The SEC included helpful recommendations for cyber/cloud risk management, including the implementation of policies and procedures designed to support the initial installation, on-going maintenance, and regular review of the network storage solution; guidelines for security controls and baseline security configuration standards to ensure that each network solution is configured properly; and vendor management policies and procedures that include, among other things, regular implementation of software patches and hardware updates followed by reviews to ensure that those patches and updates did not unintentionally change, weaken, or otherwise modify the security configuration.
Please contact your counsel at Pillsbury’s Investment Funds Group if you need help with reviewing and enhancing your cloud storage and related policies.
This is a reminder about the upcoming annual compliance deadlines that may or may not apply to you.
Please click HERE to open a summary chart of the filing deadlines.
Please feel free to contact us if you have questions or need assistance with any of these filings.
Sincerely,
Pillsbury IFIM Group
Investment Fund Law Blog