Category Archives: Standard of Care

Compliance, Enforcement, Standard of Care

Enforcement appears as messages disappear part II: Steep penalties imposed in personal messaging cases

October 4, 2022 Clifford E. Kirsch Leave a comment

Sixteen firms settled with the Securities and Exchange Commission and Commodity Futures Trading Commission for failing to maintain and preserve business-related communications.

Total civil penalties for these settlements and similar actions brought in December 2021 exceed $2 billion.
The settlements stem from a risk-based investigation into whether broker-dealers, swap dealers, and other registrants are retaining business-related communications made on personal devices.
Companies can take certain proactive measures now to ensure their record retention policies and controls sufficiently mitigate risk stemming from employee use of text messaging applications, including third-party platforms such as WhatsApp, on their personal devices.

Read more here.

Compliance, Standard of Care

Successfully Navigating Client Complaints

October 3, 2022 Richard Chen Leave a comment

With any significant downturn in the markets, client complaints invariably increase.

The difference between successfully navigating a client complaint (and avoiding litigation) often turns on whether an adviser has an effective gameplan for handling complaints and how that gameplan is executed.

An effective gameplan should address the following:

How the adviser initially responds to the complaint;
When and how the adviser communicates with the client;
How the adviser approaches investigating the complaint; and
How the adviser resolves the complaint.

SEC New Marketing Rule

September 19, 2022 Richard Chen Leave a comment

In a Risk Alert published today on the new Marketing Rule, the SEC announced that there will be a number of upcoming specific national initiatives designed to verify adviser compliance with the new Rule, which requires full compliance by November 4, 2022.

The SEC cited a number of areas which will be reviewed including:

Verification that advisers have adopted policies and procedures reasonably designed to prevent violations of the Marketing Rule, including objective and testable means reasonably designed to prevent violations of the rule including conducting pre-reviews and approvals of advertisements, sampling advertisements utilized based on risk, and pre-approving advertising templates
Testing whether advisers have a reasonable basis for any statements of material facts in any advertisements
Verification that advisers are complying with performance reporting requirements including the proper use of net performance results, appropriate performance measurement periods, related performance, extracted performance, hypothetical performance, and predecessor performance
Verification that advisers are maintaining the books and records required by the new Marketing Rule.

Conflicts of Interest — Is Disclosure Enough?

September 12, 2022 Richard Chen Leave a comment

Don’t assume you can disclose away all conflicts of interest – that’s the latest warning and reminder from the SEC to investment advisers and broker-dealers from a recently-published staff bulletin.

As a reminder, an SEC-registered adviser owes clients a fiduciary duty of loyalty to eliminate a conflict of interest or, at a minimum, make full and fair disclosure of the conflict of interest such that a client can provide informed consent to the conflict.

In the bulletin, the staff pointed out several circumstances where conflicts must be eliminated and not merely disclosed. For example, the staff believes that eliminating a conflict is appropriate where the conflict is of a nature and extent that it would be difficult for the adviser to provide full and fair disclosure, and the investment adviser cannot mitigate the conflict such that full and fair disclosure and informed consent are possible.

SEC/CFTC Jointly Proposed Rule Regarding Form PF and Digital Assets

September 9, 2022 Richard Chen Leave a comment

Signaling its increasing scrutiny on investment advisers managing crypto assets, the SEC and CFTC recently jointly proposed a rule that would require private fund managers who are required to file Form PF to report information on digital asset investments held by their private funds.

The release defines a “digital asset” as an asset that is issued or transferred using distributed ledger or blockchain technology including, but not limited to, virtual currencies, coins, and tokens.

Among other things, reporting managers would need to provide a good faith estimate of the percentage of the reporting fund’s net asset value invested in digital assets as well as the dollar value of long and short positions in digital assets.

Read more here.