On Sept. 25, 2019, the SEC adopted Rule 6c-11 under the Investment Company Act of 1940, as amended (“1940 Act”). The new rule allows sponsors of exchange-traded funds (“ETFs”) to launch and operate ETFs without first obtaining individual exemptive orders from the SEC. Subject to satisfying certain conditions, the rule provides for blanket exemptive relief from sections of the 1940 Act and other securities laws for many, though not all, ETFs that are structured as open-end investment companies. The adoption of the rule will streamline the process for establishing new ETFs and will level the playing field among ETFs subject to the rule by establishing consistent conditions that must be met by such ETFs. While certain types of ETFs, including those structured as unit investment trusts (“UITs”) or operating as inverse or leveraged ETFs, will still require exemptive relief, the new rule provides the opportunity for many new ETFs to launch more quickly and less expensively than in the past.

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SEC Releases Final Interpretation of the Standard of Conduct for Investment Advisers

The SEC has, for some time, been reviewing the standard of conduct required of investment advisers and broker-dealers under federal securities laws. Recently, these various initiatives concluded with the publication of four final items of guidance.

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New Fund-of-Funds Rule for Registered Funds Under SEC Consideration

The SEC is currently considering a rulemaking proposal designed to streamline and enhance the regulatory framework for registered funds-of-funds under the Investment Company Act of 1940.

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OCIE Focusing on Safeguarding of Customer Information and Books and Records Retention

OCIE has recently issued three risk alerts relating to the safeguarding of customer information and books and records obligations. In addition, the SEC’s staff has sent inquiries requesting information on advisers’ use of cloud storage providers.

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National Futures Association Adopts Interpretive Notices Regarding Internal Controls and Cybersecurity

Effective April 1, 2019, the NFA adopted two interpretive notices that impose additional obligations regarding formal supervision of key financial functions and expand and clarify past guidance on addressing cybersecurity risks.

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To read the full Updateclick here.

On Aug. 20, 2019, the Federal Deposit Insurance Corporation (“FDIC”) and the Office of the Comptroller of the Currency (“OCC”) approved a final rule to amend the regulations adopted in 2013 implementing Section 13 of the Bank Holding Company Act, commonly referred to as the “Volcker Rule.” While the Final Rule is largely similar to the Notice of Proposed Rulemaking issued by the agencies on May 30, 2019, it does contain important modifications from the Proposed Rule. The other three agencies charged with implementing the Volcker Rule — the Commodity Futures Trading Commission, Federal Reserve Board and the Securities and Exchange Commission — are expected to approve the Final Rule in the coming days.

This Alert analyzes the Final Rule as it would affect a banking entity’s investments in, or sponsorship of, private investment funds. Read more here.

For more SRZ Alerts related to the Volcker Rule, see “Volcker Rule Update: Agencies Announce They Will Not Enforce Rule for Foreign Funds Until July 2021” and “Volcker Rule Update: Agencies Adopt Final Rule to Exclude Community Banks and Modify the Name-Sharing Restriction.”

On July 12, 2019, the staffs of several divisions within the SEC published a statement on the transition away from the London Interbank Offered Rate (“LIBOR”). The panel banks which currently report information used to establish LIBOR for different currencies have committed to do so through 2021. After 2021, it is likely that LIBOR will cease to be reported, and, even if it is reported after 2021, it may no longer be a viable representation of interbank borrowing costs for the applicable tenors. In a July 15, 2019 speech, Andrew Bailey, chief executive of LIBOR’s regulator, the Financial Conduct Authority of the United Kingdom, stated that the “base case” assumption for firms’ planning should be no publication of LIBOR after the end of 2021.

Learn more here.

Are the US advertising rules important for all UK managers?

As U.S. advertising rules fall under U.S. anti-fraud statutes, whether a U.K. fund manager is registered with the SEC or not, there are specific rules managers need to comply with for their U.S. marketing materials. In this SRZ FAQ video, special counsel Brad Caswell discusses these rules and their effect on U.K. fund managers. Watch here.

EMIR REFIT enters into force on Monday, 17 June 2019.

Under EMIR REFIT, financial counterparties are required to calculate their aggregate month-end average positions in derivatives for the previous 12 months to determine whether they exceed one or more of the clearing thresholds specified in EMIR. The definition of FC includes alternative investment funds and UCITS.

Learn more here.

The National Futures Association, the self-regulatory organization for the commodity futures and swaps industry, recently updated its rules to impose “swaps proficiency requirements” on associated persons of NFA members that engage in swaps-related activities. These requirements are likely to be applicable to a significant number of hedge fund advisers (i.e., advisers that are, or are required to be, registered with the Commodity Futures Trading Commission and to be NFA members). While most private equity sponsors are not likely to fall within the scope of any NFA licensing requirement, they should take this opportunity to confirm that the basis for any exemption remains valid.

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On April 18, 2019, the Financial Crimes Enforcement Network of the U.S. Department of the Treasury announced the assessment of a civil money penalty against Eric Powers for willfully violating the registration, program and reporting requirements of the Bank Secrecy Act and its implementing regulations. Between December 2012 and September 2014, Mr. Powers acted as a peer-to-peer (“P2P”) currency exchanger of convertible virtual currency, conducting activities that qualified as money transmission, as defined in 31 C.F.R § 1010.100(ff)(5), and were therefore subject to BSA obligations. This is FinCEN’s first enforcement action against a P2P virtual currency exchanger and the first time FinCEN has penalized a virtual currency exchanger for failure to file Currency Transaction Reports.

Read more here.

On April 3, 2019, the U.S. Securities and Exchange Commission published a framework aimed at assisting in determining whether a digital asset is a security. Alongside the Framework, the SEC also published a no-action letter for TurnKey Jet, Inc., the first ever no-action letter for a digital asset enterprise.

This is an important development for any parties interested in developing, selling or investing in digital assets, as it is the most robust analysis yet published on how the SEC sees these assets and finally provides concrete information on how to avoid an SEC enforcement action in an industry that has recently suffered from regulatory uncertainty. The Framework and the conditions the SEC notes in advising TurnKey that it will not recommend an enforcement action, however, lead to the conclusion that, in the eyes of the SEC, digital assets cannot be used to raise capital without implicating U.S. securities laws. Furthermore, many of the Framework’s considerations go beyond the traditional test for determining whether an asset is a security. A thorough understanding of the SEC’s position as reflected in these documents is essential for any party interested in dealing with digital assets.

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On March 15, 2019, the U.S. Securities and Exchange Commission charged a private fund manager and its former chief operating officer with manipulating the price of an asset sold by one client to another. The SEC’s orders charge Talimco LLC and its former Chief Operating Officer Grant Rogers with breaching their fiduciary duties in violation of the anti‑fraud provisions of the Investment Advisers Act of 1940. This action exemplifies the SEC’s continued focus on cross trades and on internal controls relating to conflicts of interest.

Read more here.