Announcements and analysis of key fintech, regulatory and compliance issues as they unfold.

Brandon Klerk Brandon Klerk

Speaking Engagement: Municipal Advisor & Broker-Dealer Exam Priorities and Best Practices

National Society  of Compliance Processional’s (NSCP) 

Join Brandon Klerk, Founder of Halyard Compliance LLC, at the NSCP’s 2020 National Conference for an interactive session on Broker-Dealer and Municipal Advisor Exam Best Practices.

Attendees will learn how to best prepare for a regulatory exam, including reviewing exam priorities, recent request lists, interview tips, records production, tracking, and when and how to respond to prospective findings and deficiencies.  Case studies and hypothetical situations will allow attendees to apply hands-on application of the learning objectives.

Learning Objectives:

  • Understand the various examination types and regulatory objectives

  • Learn how high-risk representatives and activities will impact examinations

  • Discuss best practices for managing the examination process and the use of external resources (i.e. consultants, attorney’s, tech support, etc.)

  • Identify when, and when not, to address findings with examiners

Register Here: https://national.nscpconferences.org/

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Brandon Klerk Brandon Klerk

Regulatory Update: MSRB Notice 2020-09 – Extends Deadlines and other Relief

Municipal Advisors and Municipal Broker Dealers

The Municipal Securities Rulemaking Board (MSRB) filed a proposed rule change with the U.S. Securities and Exchange Commission (SEC) to provide regulatory relief on a temporary basis to brokers, dealers and municipal securities dealers (“dealers”) and municipal advisors (collectively, “regulated entities”) in light of the operational challenges due to the disruptions to normal business operations as a result of the coronavirus disease (COVID19) pandemic.

Please see the notice of complete details.  Here are some highlights:

  • Dealers & Advisors – Rule G-3:  Annual continuing education program (“firm element”);

  • Dealers – Rule G-3:  Annual continuing education program (“regulatory element”);

  • Dealers – Rule G-27:  office inspections;

  • Dealers – Rule G-27:  Annual Compliance Meeting;

  • Dealers – Rule G-27:  Annual Compliance Program Review/Controls Testing:

  • Dealers & Advisors – Rule A-11 & A-12: Suspension of Certain Late Fees;

  • Advisors – Rule G-3:  Series 54 deadline for Municipal Advisor Principals;

  • Advisors – Rule G-44(d): Annual CEO Certification,

  • and more….

Ref: http://msrb.org/~/media/Files/Regulatory-Notices/Announcements/2020-09.ashx??n=1

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Brandon Klerk Brandon Klerk

Compliance News: Financial Industry Coronavirus (COVID-19) Resources (Update 033120)

Financial Industry Coronavirus (COVID-19) Resources

Regulator Updates

Exchange & CCP Guidance

Common Practices

Cybersecurity and Infrastructure Security Agency (CISA)

Industry Operations

General Coronavirus (COVID-19) Resources

World Health Organization (WHO)

Centers for Disease Control and Prevention (CDC)

Government Resources

State Government Resources

Common Practices

Market Close Information

Industry Operations

Industry Associations 

Other

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Brandon Klerk Brandon Klerk

Compliance News: SEC Provides Additional Temporary Regulatory Relief to Market Participants

The Securities and Exchange Commission announced that it is providing additional temporary regulatory relief to market participants in response to the effects of the Coronavirus Disease 2019 (COVID-19). The actions announced today involve (1) parties needing to gain access to make filings on the EDGAR system, (2) certain company filing obligations under Regulation A and Regulation Crowdfunding, and (3) a filing requirement for municipal advisors.

Press Release

SEC Provides Additional Temporary Regulatory Relief and Assistance to Market Participants Affected by COVID-19 – https://www.sec.gov/news/press-release/2020-74

“SEC continues to closely monitor the impact of COVID-19 on investors and capital markets

FOR IMMEDIATE RELEASE
2020-74

Washington D.C., March 26, 2020 —

Today, the Securities and Exchange Commission announced that it is providing additional temporary regulatory relief to market participants in response to the effects of the Coronavirus Disease 2019 (COVID-19). The actions announced today involve (1) parties needing to gain access to make filings on the EDGAR system, (2) certain company filing obligations under Regulation A and Regulation Crowdfunding, and (3) a filing requirement for municipal advisors.

Temporary Relief from Form ID Notarization Requirement

The first set of relief seeks to address potential issues filers may have in securing the notarization required to gain access to make filings on the EDGAR system. The Commission has adopted a temporary final rule that provides relief from the notarization requirement from March 26, 2020 through July 1, 2020, subject to certain conditions. Among those conditions are that the filer indicates on its manually signed Form ID that it could not provide the required notarization due to circumstances relating to COVID-19, and that the filer submits a PDF copy of the notarized manually signed document within 90 days of obtaining an EDGAR account.

Compliance with Regulation A and Regulation Crowdfunding

To address potential compliance issues for Regulation A and Regulation Crowdfunding issuers, the Commission adopted temporary final rules that extend the filing deadlines for specified reports and forms that companies must file pursuant to those regulations. The rules provide, subject to certain conditions, affected companies with an additional 45 days to file certain disclosure reports that would otherwise have been due between March 26, 2020 and May 31, 2020. Among other conditions, a company relying on the temporary final rules must promptly disclose to its investors such reliance and when a company files the required report or form, it must disclose that it is relying on the temporary final rules and state the reasons why, in good faith, it could not file such report or form on a timely basis.

Annual Update to Form MA for Municipal Advisors

To address potential compliance issues municipal advisors may have in timely submitting annual update filings (Form MA-A), the Commission issued a temporary conditional exemptive order  that provides, subject to certain conditions, affected municipal advisors with an additional 45 days to file annual updates to Form MA that would have otherwise been due between March 26, 2020 and June 30, 2020.  Among other conditions, the municipal advisor must be unable to meet the filing deadline for its annual update to Form MA due to circumstances related to current or potential effects of COVID-19 and must provide a brief description of the reasons why it could not timely file.”

***

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Brandon Klerk Brandon Klerk

Compliance News: FINRA Coronavirus (COVID-19) Pandemic Resources & FAQs

Due to the coronavirus pandemic (COVID-19), FINRA has provided temporary relief for member firms from rules and requirements in the Frequently Asked Questions page linked below. The relief provided does not extend beyond the identified rules and requirements. F

As coronavirus-related risks decrease, member firms should expect to return to meeting any regulatory obligations for which relief has been provided. When appropriate, FINRA will publish a Regulatory Notice announcing a termination date for the regulatory relief that will provide member firms with time to make necessary operational adjustments.

Frequently Asked Questions Related to Regulatory Relief Due to the Coronavirus Pandemic

https://www.finra.org/rules-guidance/key-topics/covid-19/faq

FINRA Coronavirus Pandemic Page

https://www.finra.org/rules-guidance/key-topics/covid-19

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Brandon Klerk Brandon Klerk

Compliance News: Employee Remote Working Considerations and COVID-19

As companies encourage employees to work remotely in unprecedented numbers, Compliance Departments as well as IT and HR Departments will be faced with increased challenges, such as those related to:

  • Cybersecurity

  • Communication Networks

  • Office Supervision and Business Disruptions

  • Business Continuity Planning

The following is a high-level summary of some of the potential considerations that may apply to your firm depending upon your business model and regulator(s).

Cybersecurity

Employees working remotely will access company networks through a number of networks, including Office/365, Outlook Web Access (OWA), Citrix and more.   Remote access increases companies potential explosion to cybercriminals.  Companies will want to assess their cybersecurity policies and procedures in light of increased employee usage.  Policy and procedure reviews may include assessments of system and network vulnerability, firewalls, penetration testing, user authentication and more.

The Cybersecurity and Infrastructure Security Agency (CISA) warns individuals to remain vigilant for scams related to Coronavirus Disease 2019 (COVID-19). Cyber actors may send emails with malicious attachments or links to fraudulent websites to trick victims into revealing sensitive information or donating to fraudulent charities or causes. Exercise caution in handling any email with a COVID-19-related subject line, attachment, or hyperlink, and be wary of social media pleas, texts, or calls related to COVID-19.

CISA encourages individuals to remain vigilant and take the following precautions.

Communication Networks

Companies may consider reminding employees of company approved communication channels (e.g., corporate Outlook email, Bloomberg messaging, etc.), as most regulatory regimes (e.g., broker-dealers, investment advisors, etc.) have supervisory and records maintenance requirements.   Companies may consider conducting electronic communication reviews through their compliance systems to ensure that employees are communicating through approved communication channels.  Additionally, it is important that companies ensure that their employees have access to the company network to access these approved communication channels.   Compliance Departments may also consider remote employee attestations and/or checklists to assist in ensuring that employees have the resources they need, and an understanding of current compliance policies and procedures, to conduct their job compliantly.

Office Supervision and Business Disruptions

A number of regulators have issued reminders of supervisory requirements since the spread of COVID-19 began.  Please feel free to visit www.HalyardCompliance.com for a helpful list of notices and announcements that the regulators and government agencies have issued to date.  As an enhancement, in certain circumstances companies may consider a reasonable risk based approach to supplement current policies and procedures, such as ‘compliance check-ups’ via webinars, emails, phone, network and system checks and other means of auditing certain processes and procedures remotely.  It is important to remember that until additional regulatory guidance is issued to the contrary, companies are required to adhere to current rules and regulations applicable under their respective regulatory regime(s).

Business Continuity Planning

Companies should ensure that their Business Continuity Plan (BCP) is adequate in addressing global pandemics.  The BCP should consider related topics, such as restrictions on travel, working remotely, working from alternative office locations and other measure to help prevent the spread of COVID-19.

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Brandon Klerk Brandon Klerk

Compliance News: Financial Industry Coronavirus (COVID-19) Resources

Financial Industry Coronavirus (COVID-19) Resources

Regulator Updates

Exchange & CCP Guidance

Common Practices

Cybersecurity and Infrastructure Security Agency (CISA)

Industry Operations

General Coronavirus (COVID-19) Resources

World Health Organization (WHO)

Centers for Disease Control and Prevention (CDC)

Government Resources

State Government Resources

Common Practices

Market Close Information

Industry Operations

Industry Associations 

Other

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Brandon Klerk Brandon Klerk

Compliance News: FINRA, SEC, MSRB and NFA Issue Regulatory Notices Regarding Coronavirus

In light of recent public health concerns regarding the spread of Coronavirus, U.S. regulators have issued a number of Regulatory Notices and public announcements related to Coronavirus. Topics include supervision, branch offices, cybersecurity, business continuity planning, regulatory filings, cooperation with regulators and more.  You may find links to these notices below.

Please continue to monitor your respective regulator’s communications for additional information.

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Brandon Klerk Brandon Klerk

Regulatory Update: SEC Proposal – Improvements to Regulation CF, Reg D and Reg A

On March 4th, 2020, The Securities and Exchange Commission (SEC) proposed a set of amendments to the exemptive framework under the Securities Act of 1933 that is intended to simplify, harmonize, and improve certain aspects of the framework to promote capital formation while preserving or enhancing important investor protections.

Regulation CF / Title III – Highlights:

  • No Investment Limits for Accredited Investors…

  • Capital Raise Limit Increased to $5mill…

  • Special-Purpose-Vehicles (SPV) Allowed…

  • SAFEs No Longer Allowed…

  • Testing the Waters Allowable…

  • And much more….

 You can read the SEC’s summary here: https://www.sec.gov/news/press-release/2020-55

You can read the complete text here: https://www.sec.gov/rules/proposed/2020/33-10763.pdf

NOTE: This is not a complete discussion of the proposal and should not be construed as regulatory advise. Please contact us for additional information.

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Brandon Klerk Brandon Klerk

News & Notes: SEC Cybersecurity and Resiliency Observations Report

2020 OCIE Cybersecurity and Resiliency Observations Report

Topic: OCIE has observed various industry practices and approaches to managing and combating cybersecurity risk and the maintenance and enhancement of operational resiliency.

Key takeaway: OCIE encourages market participants to review their practices, policies and procedures with respect to cybersecurity and operational resiliency.

https://www.sec.gov/report/ocie-cybersecurity-resiliency-observations

https://www.sec.gov/files/OCIE%20Cybersecurity%20and%20Resiliency%20Observations.pdf

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Brandon Klerk Brandon Klerk

Regulatory Update: FINRA’s 2020 Examination Priorities Letter

FINRA’s 2020 Risk Monitoring and Examination Priorities Letter describes areas of focus for FINRA’s 2020 risk monitoring, surveillance and examination programs.  FINRA member firms are now grouped into one of five main firm business models: Retail, Capital Markets, Carrying and Clearing, Trading and Execution, and Diversified. FINRA 2020 priorities include:

  • Regulation Best Interest (Reg BI) and Form CRS

  • Communications with the Public

  • Private Placement Retail Communications

  • Cash Management and Bank Sweep Programs

  • Sales of Initial Public Offering (IPO) Shares

  • Trading Authorization

  • Direct Market Access Controls

  • Best Execution

  • Disclosure of Order Routing Information

  • Vendor Display Rule

  • Digital Assets

  • Contractual Commitment Arising From Underwriting Activities

  • and much more…

You may read the full letter here: https://www.finra.org/rules-guidance/communications-firms/2020-risk-monitoring-and-examination-priorities-letter

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Brandon Klerk Brandon Klerk

Regulatory Update: SEC Office of Compliance Inspections and Examinations Announces 2020 Examination Priorities

The Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and Exchange Commission (SEC) announces examination priorities for fiscal year (FY) 2020.  Priorities include:

OCIE’s 2020 examination priorities are found in the OCIE Press Release:

“Retail Investors, Including Seniors and Those Saving for Retirement – OCIE will continue its focus on the protection of retail investors, including the various intermediaries that serve and interact with retail investors and the investments marketed to, or designed for, retail investors. Examinations in these areas will include reviews of disclosures relating to fees, expenses, and conflicts of interest.

Market Infrastructure – OCIE will continue its focus on entities that provide services critical to the functioning of our capital markets, including clearing agencies, national securities exchanges, alternative trading systems, and transfer agents. Particular attention will be focused on the security and resiliency of entities’ systems.

Information Security – OCIE will continue to prioritize cyber and other information security risks across the entire examination program.

Focus Areas Relating to Investment Advisers, Investment Companies, Broker-Dealers, and Municipal Advisors – OCIE will continue its risk-based examinations for each type of these registered entities. In particular, examinations of registered investment advisers (RIAs) will focus on RIAs that have never been examined, including new RIAs and RIAs registered for several years that have yet to be examined. These examinations will include RIAs advising retail investors as well as private funds.  Investment company examinations will focus on mutual funds and exchange-traded funds, the activities of their RIAs, and the oversight practices of their boards of directors. Broker-dealer examinations will focus on issues relating to the preparation for and implementation of recent rulemaking, along with trading practices. Municipal advisor examinations will include review of registration and continuing education requirements and municipal advisor fiduciary duty obligations to municipal entity clients.

Anti-Money Laundering Programs – OCIE will continue to review for compliance with applicable anti-money laundering (AML) requirements, including whether entities are appropriately adapting their AML programs to address their regulatory obligations.

Financial Technology (Fintech) and Innovation, Including Digital Assets and Electronic Investment Advice – OCIE recognizes that advancements in financial technologies, methods of capital formation and market structures, as well as registered firms’ use of new sources of data (often referred to as “alternative data”), warrant ongoing attention and review. OCIE also will continue to identify and examine SEC-registered firms engaged in the digital asset space, as well as RIAs that provide services to clients through automated investment tools and platforms, often referred to as “robo-advisers.”

FINRA and MSRB – OCIE will continue its oversight of the Financial Industry Regulatory Authority (FINRA) by focusing examinations on FINRA’s operations, regulatory programs, and the quality of FINRA’s examinations of broker-dealers and municipal advisors. OCIE will also continue to examine the Municipal Securities Rulemaking Board (MSRB) to evaluate the effectiveness of its operations and internal policies, procedures, and controls.

The published priorities for FY 2020 are not exhaustive and will not be the only areas OCIE focuses on in its examinations, risk alerts, and investor and industry outreach. While the priorities drive OCIE’s examinations, the scope of any examination is determined through a risk-based approach that includes analysis of a given entity’s history, operations, services, products offered, and other risk factors.

The collaborative effort to formulate the annual examination priorities starts with feedback from examination staff who are uniquely positioned to identify the practices, products, services and other factors that may pose risk to investors or the financial markets. OCIE staff also takes into account input and advice from the Chairman and other Commissioners, staff from other SEC divisions and offices, and other federal financial regulators.”

https://www.sec.gov/news/press-release/2020-4

https://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2020.pdf

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Brandon Klerk Brandon Klerk

Regulatory Update: SEC Proposes to Update the Definition of “Accredited Investor”

The SEC is proposing a update to the definition of accredited investor, which would add new categories of qualifying natural persons and entities and to make certain other modifications to the existing definition.

The proposed new categories include:

  • add new categories of natural persons that may qualify as accredited investors based on certain professional certifications or designations or other credentials or their status as a private fund’s “knowledgeable employee;”

  • expand the list of entities that may qualify as accredited investors and allow entities meeting an investments test to qualify;

  • add family offices with at least $5 million in assets under management and their family clients; and

  • add the term “spousal equivalent” to the definition.

The SEC’s proposal release states  “The proposed amendments are intended to update and improve the definition in order to identify more effectively institutional and individual investors that have the knowledge and expertise to participate in our private capital markets and therefore do not need the additional protections of registration under the Securities Act of 1933. Specifically, the proposed amendments would add new categories of natural persons that may qualify as accredited investors based on certain professional certifications or designations or other credentials or their status as a private fund’s “knowledgeable employee;” expand the list of entities that may qualify as accredited investors and allow entities meeting an investments test to qualify; add family offices with at least $5 million in assets under management and their family clients; and add the term “spousal equivalent” to the definition. We are also proposing amendments to the qualified institutional buyer definition in Rule 144A under the Securities Act that would expand the list of entities that are eligible to qualify as qualified institutional buyers.” – SEC Release Nos. 33-10734; 34-87784; File No. S7-25-19

https://www.sec.gov/rules/proposed/2019/33-10734.pdf

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Brandon Klerk Brandon Klerk

Regulatory Update: SEC Proposes Significant Amendments to Investment Adviser Advertising Rule

The advertising rule for Investment Advisors, Rule 206(4)-1, has not been amended significantly since it was first adopted in 1961. The changes proposed by the SEC are motivated by the SEC’s desire to create a more “principles-based” approach to advertising regulation. Notice from the SEC follows:

Press Release

SEC Proposes to Modernize the Advertising and Cash Solicitation Rules for Investment Advisers

FOR IMMEDIATE RELEASE
2019-230

Washington D.C., Nov. 4, 2019 —

The Securities and Exchange Commission today announced that it has voted to propose amendments to modernize the rules under the Investment Advisers Act addressing investment adviser advertisements and payments to solicitors. The proposed amendments are intended to update these rules to reflect changes in technology, the expectations of investors seeking advisory services, and the evolution of industry practices.

“The advertising and solicitation rules provide important protections when advisers seek to attract clients and investors, yet neither rule has changed significantly since its adoption several decades ago,” said SEC Chairman Jay Clayton. “The reforms we have proposed today are designed to address market developments and to improve the quality of information available to investors, enabling them to make more informed choices.”

The proposed amendments to the advertising rule would replace the current rule’s broadly drawn limitations with principles-based provisions. The proposed approach would also permit the use of testimonials, endorsements, and third-party ratings, subject to certain conditions, and would include tailored requirements for the presentation of performance results based on an advertisement’s intended audience.

The proposed amendments to the solicitation rule would expand the current rule to cover solicitation arrangements involving all forms of compensation, rather than only cash, subject to a new de minimis threshold. They also would update other aspects of the rule, such as who is disqualified from acting as a solicitor under the rule.

The public comment period will remain open for 60 days following publication of the proposal in the Federal Register.

* * *

FACT SHEET

Investment Adviser Advertisements; Compensation for Solicitations

Nov. 4, 2019

Highlights

The Commission today voted to propose amendments to the rules that prohibit certain investment adviser advertisements and payments to solicitors, respectively, under the Investment Advisers Act of 1940 (the “Act”). Neither rule has been amended significantly since its adoption in 1961 and 1979, respectively. Since that time, the Commission and our staff have continued to learn about adviser marketing and solicitation practices, as those practices have evolved significantly with advancements in technology and the changes within the asset management industry and its investor base. The proposed amendments to Rule 206(4)-1 and Rule 206(4)-3 are designed to respond to these changes.

The Commission has also voted to propose amendments to Form ADV, the investment adviser registration form, and Rule 204-2, the books and records rule, which would reflect the changes proposed to the advertising and solicitation rules.

Proposed Amendments to Advertising Rule

The proposed amendments to Rule 206(4)-1 would replace the current rule’s broadly drawn limitations with more principles-based provisions, as described below.

  • Definition of Advertisement.  The proposal would update the definition of “advertisement” so that it is flexible enough to remain relevant and effective in the face of advances in technology and evolving industry practices.

    • The definition would include any communication, disseminated by any means, by or on behalf of an investment adviser, that offers or promotes investment advisory services or that seeks to obtain or retain advisory clients or investors in any pooled investment vehicle advised by the adviser.

    • The Commission proposed exclusions from this definition for:  (1) live oral communications that are not broadcast, (2) responses to certain unsolicited requests for specified information, (3) advertisements, other sales material, or sales literature that is about a registered investment company or a business development company and is within the scope of other Commission rules; and (4) information required to be contained in a statutory or regulatory notice, filing, or other communication.

  • General Prohibitions.  The proposed rule would prohibit the following advertising practices:

    1. making an untrue statement of a material fact, or omission of a material fact necessary to make the statement made, in light of the circumstances under which it was made, not misleading;

    2. making a material claim or statement that is unsubstantiated;

    3. making an untrue or misleading implication about, or being reasonably likely to cause an untrue or misleading inference to be drawn concerning, a material fact relating to the investment adviser;

    4. discussing or implying any potential benefits without clear and prominent discussion of associated material risks or other limitations;

    5. referring to specific investment advice provided by the adviser that is not presented in a fair and balanced manner;

    6. including or excluding performance results, or presenting performance time periods, in a manner that is not fair and balanced; and

    7. being otherwise materially misleading.

  • Testimonials and Endorsements.  The proposal would permit testimonials and endorsements, subject to specified disclosures, including whether the person giving the testimonial or endorsement is a client and whether compensation has been provided by or on behalf of the adviser.

  • Third-Party Ratings.  The proposed rule would permit third-party ratings, subject to specified disclosures and certain criteria pertaining to the preparation of the rating.

  • Performance Information Generally.  The proposal would prohibit including in any advertisement:

    • Gross performance results unless it provides (or offers to provide promptly) a schedule of fees and expenses deducted to calculate net performance;

    • Any statement that the calculation or presentation of performance results has been approved or reviewed by the Commission;

    • Performance results from fewer than all portfolios with substantially similar investment policies, objectives, and strategies as those being offered or promoted in the advertisement, with limited exceptions;

    • Performance results of a subset of investments extracted from a portfolio, unless it provides or offers to provide promptly the performance results of all investments in the portfolio; and

    • Hypothetical performance, unless the adviser adopts and implements policies and procedures reasonably designed to ensure that the performance is relevant to the financial situation and investment objectives of the recipient and the adviser provides certain specified information underlying the hypothetical performance.

  • Performance Information in a Retail Advertisement. The proposed rule would provide additional protections for an advertisement targeted to a retail audience:  (1)requiring the presentation of net performance alongside any presentation of gross performance, and (2)requiring generally the presentation of the performance results of any portfolio or certain composite aggregations across 1-, 5-, and 10-year periods.

  • Internal Pre-Use Review and Approval.  In addition, the proposed amendments would require advertisements to be reviewed and approved in writing by a designated employee before dissemination, except for advertisements that are:  (1) communications disseminated only to a single person or household or to a single investor in a pooled investment vehicle; or (2) live oral communications broadcast on radio, television, the internet, or any other similar medium.

Proposed Amendments to Solicitation Rule

The proposed amendments to Rule 206(4)-3 would largely make refinements in scope, written agreement content, and disclosure requirements, as described below.

  • Scope.

    • All Forms of Compensation.  The proposed rule would apply regardless of whether an adviser pays cash or non-cash compensation to a solicitor.  Non-cash compensation would include directed brokerage, awards or other prizes, and free or discounted services.

    • Private Fund Solicitors.  The proposed rule would apply to the solicitation of current and prospective investors in private funds, rather than only to the solicitation of current and prospective clients of the adviser.

    • Exempt Arrangements.  The proposed rule would substantially retain the current rule’s partial exemptions for (1) solicitors that refer investors for impersonal investment advice, and (2) solicitors that are employees or otherwise affiliated with the adviser.  However, these arrangements would no longer be subject to the current rule’s written agreement requirement.  The proposal would also add two new full exemptions for: (1) de minimis compensation to solicitors, and (2) advisers that participate in certain nonprofit programs.

    • Disqualified Solicitors.  The proposed rule contains an expanded list of disciplinary events for which persons would be disqualified from acting as a solicitor, with a limited exception.

  • Written Agreement.  Under the proposed rule, an adviser that compensates a solicitor for solicitation activities would be required to enter into written agreement with the solicitor, unless an exemption applies.  The proposed rule would require that the written agreement include: (1) a description of the solicitation activities and compensation, (2) a requirement that the solicitor perform its solicitation activities in accordance with certain provisions of the Advisers Act, and (3) a requirement that solicitor disclosure be delivered to investors.  The proposed rule would eliminate the current rule’s requirements that the solicitor agree to deliver the adviser’s Form ADV brochure and perform its solicitation activities consistent with the instructions of the adviser.

  • Disclosure Requirements. The solicitor disclosure required under the proposed rule would continue to highlight for investors the solicitor’s financial interest in the client’s choice of an investment adviser.  Our proposal would modify the current solicitor disclosure to include additional information about a solicitor’s conflict of interest. Our proposal would eliminate the current rule’s requirement that the adviser obtain from each investor acknowledgments of receipt of the disclosures.

  • Oversight of Solicitors. The proposed rule would require that the adviser have a reasonable basis for believing that the solicitor has complied with the rule’s written agreement, including complying with the solicitor disclosure requirement. This requirement would be largely the same as the current rule.

Proposed Amendments to the Books and Records Rule and to Form ADV

The proposed amendments to Rule 204-2 relate to the proposed amendments to the advertising and solicitation rules.

Finally, today’s proposal would amend Form ADV to provide additional information regarding advisers’ advertising practices to help facilitate the Commission’s inspection and enforcement capabilities.

Review of Relevant Staff Guidance

Staff in the Division of Investment Management have issued a number of no-action letters and other guidance addressing the application of the current advertising and solicitation rules.  The Commission’s release accompanying the proposed amendments includes a list of the relevant letters and guidance.  The staff is reviewing these letters to determine whether any should be withdrawn in connection with any adoption of the proposed amendments.

What’s Next?

The proposed amendments will be published on the Commission’s website and in the Federal Register.  The public comment period will remain open for 60 days after publication in the Federal Register.

The Commission also approved for use two short-form tear sheets (“feedback flyers”) to gather information. Investors are encouraged to submit additional feedback about their experiences with adviser marketing on the investor feedback flyer. Smaller advisers are encouraged to submit additional feedback about how the proposed rules would affect them on the adviser feedback flyer The feedback flyers are available on the Commission’s website.

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Brandon Klerk Brandon Klerk

Regulatory Update: Regulation Best Interest (Reg BI) Compliance Resource Center

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Regulatory Update: FINRA Publishes 2019 Report on Examination Findings and Observations

FINRA today published its 2019 Report on FINRA Examination Findings and Observations. The report reflects key findings and observations identified in recent examinations, and contains effective practices that could help firms improve their compliance and risk management programs. It summarizes findings and observations across a range of topics, including:

Learn more here: https://www.finra.org/media-center/newsreleases/2019/finra-publishes-2019-report-examination-findings-and-observations

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Brandon Klerk Brandon Klerk

Conference: Join Halyard at the NSCP’s 2019 Annual National Conference

Join Halyard at the National Society of Compliance Professional’s (NSCP) premier event in Baltimore, MD, October 21-23 — From discussing best practices for implementing regulatory changes to exploring the benefits of diversity and inclusion, attendees will receive great insight and practical tools to take back to their firms. Whether hearing from expert panels, engaging in hands-on learning in labs, or sharing with other compliance professionals in forums and talk groups, we’re confident you’ll leave the National Conference more prepared for the future.

For more information, visit the NSCP’s Conference Page and Speaker’s Page here.

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Brandon Klerk Brandon Klerk

Regulatory Update: MSRB Rule G-17 and Response to Comments on SR-MSRB-2019-10

In response to suggestions from commenters, the Municipal Securities Rulemaking Board (MSRB) filed with the U.S. Securities and Exchange Commission (SEC) amendments to its proposal to revise 2012 interpretive guidance under MSRB Rule G-17, on conduct of municipal securities and municipal advisory activities. Among other revisions, the amendment would clarify when underwriters in a syndicate must provide disclosures to an issuer regarding the specific characteristics of a recommended transaction and exclude dealers serving as a primary distributor in a continuous offering of municipal fund securities from the disclosure requirements of the notice.

Read the MSRB’s response to comments here.
View the amendment here.

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Brandon Klerk Brandon Klerk

Resources: FINRA Releases Reg BI and Form CRS Firm Checklist

“FINRA is providing this checklist to help members assess their obligations under the SEC’s Regulation Best Interest (Reg BI) and Form CRS Relationship Summary (Form CRS). This checklist explains key differences between FINRA rules and Reg BI and Form CRS. The checklist is not a substitute for any rule. Only the rule can provide definitive information regarding its requirements. Interpretive questions should be directed to the SEC, at IABDQuestions@sec.gov. You should carefully review the SEC’s new rules and interpretations, related Federal Register notices and the SEC’s Small Entity Compliance Guides, which provide important information on the new obligations.” – FINRA

Access the Checklist here: https://www.finra.org/sites/default/files/2019-10/reg-bi-checklist.pdf

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Brandon Klerk Brandon Klerk

Regulatory Update: FINRA NTM 19-31, Disclosure Innovations in Advertising and Other Communications with the Public

FINRA issued this Notice in an effort to responds to questions that FINRA has received regarding how they can comply with FINRA rules when communicating with customers—particularly when using websites, email and other electronic media—while ensuring fair and balanced presentations.  These questions include:

Q1. Technology and advances in communication have provided members with new ways of communicating with investors. How does FINRA view innovative design techniques in member communications?

Q2. Many disclosures in marketing materials have become quite extensive. Are all of these disclosures required by FINRA?

Q3. Is it necessary to disclose risks, costs or other drawbacks in a communication that are unrelated to its content?

Q4. If disclosures are integrated into the body of a marketing message or other communication, must they be as extensive as disclosures presented in a separate footnote or disclaimer?

Q5. Members communicate with the public in a number of ways in addition to marketing messages. How does FINRA consider disclosures for non-promotional communications like educational materials or reference resources?

Read the NTM here: https://www.finra.org/rules-guidance/notices/19-31

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