The SEC, just a few days ago, announced an enforcement action against a trust company for failure to exercise substantial investment authority over their collective trust funds. According to the SEC, because of this failure, the trust was not entitled rely on the Section 3(c)(11) under the Investment Company Act and was therefore operating unregistered investment companies. This SEC’s action is curious to say the least; it is first statement by the SEC in recent memory which addresses Section 3(c)(11)’s bank-maintained requirement. The action does not allege client harm and does not serve to advance any stated concern by the SEC regarding bank collective trust funds which are bank-regulated products. By bringing last week’s case, the SEC raises the question of what constitutes “substantial investment authority” for purposes of the “maintained by a bank” requirement, but offers no sense of the SEC’s expectations or where the SEC may be headed more generally with respect to bank collective trust funds.
All posts by Clifford E. Kirsch, Editor
Expansion of the pool of accredited investors
On August 26, 2020, the SEC adopted certain amendments that expand the pool of eligible investors in exempt private offerings, which may provide additional sources of capital to business development companies, closed-end funds and other private funds. The Amendments:
- expand the definition of “accredited investor” under Regulation D of the Securities Act of 1933, as amended (the Securities Act), to add new categories of natural persons and entities that can qualify, irrespective of their wealth.
- also expand the entities eligible as “qualified institutional buyers” under Rule 144A offerings to be consistent with the amendment to the “accredited investor” definition.
- adopt revisions to certain related rules, such as testing the waters under Rule 163B of the Securities Act.
Moving forward under the SEC’s new variable product summary prospectus framework
After more than a decade, the SEC finally adopted a new disclosure framework for registered variable annuity contracts and variable life insurance policies. This sweeping overhaul of the current variable contract prospectus disclosure framework will put variable contract disclosures on a level playing field with mutual funds.
Why Compliance Officers Have Even More to Worry About
The issues presented by the case are troubling because if the court sustains the disciplinary action, it could lead to 1) dozens of CCOs being charged every year for their firms’ deficient procedures, even if they acted in good faith; and 2) a strict liability standard applying to “should have known” liability.
Why FINRA’s 529 Plan Self-Reporting Initiative Matters a Year Later For Participating and Non-Participating Firms
Over a year ago, on January 28, 2019, FINRA announced its 529 Plan Share Class Initiative (the Initiative) to encourage firms to self-report potential violations of rules governing 529 plan share class recommendations. FINRA’s concern centered around the potential that supervisory programs were not reasonably designed to determine whether representatives were making suitable share class recommendations given the varying time horizons of beneficiaries. Approximately 100 broker-dealers elected to participate. Other firms decided not to participate. The deadline for participation in the Initiative has long since passed, however, the issues and regulatory concerns underlying the Initiative remain relevant for both participating and non-participating firms.