Why Blockchain Custody Is So Difficult—The Simple Part

“There are no easy answers, but there are simple answers.”—President Reagan

In a January 2018 letter to the ICI and SIFMA, Director Dalia Blass of the SEC’s Division of Investment Management posed the following question, among many others:

To the extent a fund plans to hold cryptocurrency directly, how would it satisfy the custody requirements of the 1940 Act and relevant rules?”

There is a simple answer to this: “Just like our custodian satisfies these requirements with respect to most other financial assets held in our securities account.” But structural differences between cryptocurrencies and more traditional financial assets may make this harder than it sounds.

Best Interest or Disinterest—How Should We Label the Duties of an Investment Adviser?

By Stephen A. Keen on June 6, 2018 Posted in Compliance, Fiduciary Issues, U.S. Advisor Regulation

At lunch with my broker the other day (my tab naturally), I asked the waiter for a hamburger and soda, but my broker interjected and told him to bring me a kale salad, no dressing, and a carrot and beet smoothie. “I’m supposed to look after your best interest,” my broker said, “and you’re clearly a bit overweight. By the way, I have scheduled an hour with your personal trainer after lunch.” I couldn’t deny it; this was all in my “best interest.” Continue Reading

The SEC’s Fiduciary Rule Proposal — Implications for Investment Advisers (Part 4)

By Gwendolyn A. Williamson, Matthew S. Williams and Thomas Ahmadifar on May 21, 2018 Posted in Compliance, Dodd-Frank Act and FSOC, Fiduciary Issues, U.S. Advisor Regulation

Welcome back for Part 4, the final installment in our discussion of the SEC’s April 18, 2018 fiduciary rulemaking proposal (the “Proposal”). We will summarize the SEC’s proposed Regulation Best Interest (“Regulation BI”), which seeks to create a “best interest” fiduciary duty standard for broker‑dealer relationships with retail customers. We will then delve into some of the specific requirements and open questions surrounding the regulation.

The SEC’s Fiduciary Rule Proposal — Implications for Investment Advisers (Part 3)

By Gwendolyn A. Williamson, Alexandra Kambouris Alberstadt, Matthew S. Williams and Thomas Ahmadifar on May 11, 2018 Posted in Compliance, Dodd-Frank Act and FSOC, Fiduciary Issues, U.S. Advisor Regulation

Welcome back for Part 3 of our discussion of the SEC’s April 18, 2018, fiduciary rulemaking proposal (the “Proposal”). Here, we dive into the SEC’s proposed Form CRS Relationship Summary and its proposed amendments to Form ADV. We also discuss the proposed rulemaking to restrict broker‑dealers’ use of the term “adviser” and variations thereof.

The SEC’s Fiduciary Rule Proposal — Implications for Investment Advisers (Part 2)

By Gwendolyn A. Williamson, Alexandra Kambouris Alberstadt, Matthew S. Williams and Thomas Ahmadifar on May 3, 2018 Posted in Compliance, Dodd-Frank Act and FSOC, Fiduciary Issues, U.S. Advisor Regulation

This post continues our discussion of the SEC’s April 18, 2018, fiduciary rulemaking proposal (the “Proposal”). Here we address the Proposed Interpretation Regarding Standard of Conduct for Investment Advisers and Request for Comment on Enhancing Investment Adviser Regulation portion of the Proposal which would, in sum, (i) restate advisers’ fiduciary duties under the Advisers Act and (ii) impose a variety of new requirements on advisers similar to those applicable to broker-dealers.

The SEC’s Fiduciary Rule Proposal – Implications for Investment Advisers (Part 1)

By Gwendolyn A. Williamson, Alexandra Kambouris Alberstadt, Matthew S. Williams and Thomas Ahmadifar on April 23, 2018 Posted in Compliance, Dodd-Frank Act and FSOC, Fiduciary Issues, U.S. Advisor Regulation

On April 18, 2018, the SEC held an open meeting where it approved the long‑awaited and much-discussed fiduciary rulemaking proposal package. The proposal primarily recommends disclosure- and principles and procedures-based rules, and has garnered three main criticisms: (1) it would establish a “best interest” standard without defining the term; (2) while intending to provide clarity, it would likely generate litigation around the scope of the restated investment adviser fiduciary duty; and (3) it fails to cover how a new “relationship summary” disclosure would function in the robo-adviser context. Part one of this series provides a high‑level overview of the recent history behind the proposal and summarizes its key provisions. Forthcoming posts will discuss the proposal in greater detail and suggest key takeaways for investment advisers. Continue Reading

Ask and Ye Shall Receive: OCIE’s 2018 Examination Priorities – Part 2 of 2

By Gwendolyn A. Williamson and Alexandra Kambouris Alberstadt on February 16, 2018 Posted in Compliance, Cybersecurity, Registered Investment Companies, U.S. Advisor Regulation

This post continues our discussion of the 2018 examination priorities and guiding principles published by the SEC’s Office of Compliance Inspections and Examination (“OCIE”) on February 7. Continue Reading

Ask and Ye Shall Receive: OCIE’s 2018 Examination Priorities – Part 1 of 2

By Gwendolyn A. Williamson and Alexandra Kambouris Alberstadt on February 13, 2018 Posted in Compliance, Cybersecurity, Registered Investment Companies, U.S. Advisor Regulation

Industry professionals have noted that the SEC’s Office of Compliance Inspections and Examination (“OCIE”) was tardy in releasing their priorities list, although recent speeches from SEC officials have provided a preview of the issues in OCIE’s crosshairs. The full priority list was released on February 7.

The SEC’s examination priorities identify practices, products and services that reflect potentially heightened risks to investors and capital markets. As in prior years, the SEC’s priorities are thematic, covering: retail investors, including seniors and retirement savers; compliance and critical market infrastructure; FINRA and MSRB activities; cybersecurity; and anti-money laundering. The first of these priority areas is summarized below. Continue Reading

SEC Investment Management, Rulemaking and Enforcement Staff Outline Road Ahead

By Gwendolyn A. Williamson on December 19, 2017 Posted in Compliance, Registered Investment Companies

This post summarizes significant statements made by the staff of the Securities and Exchange Commission (SEC) at the December 7, 2017, ICI Securities Law Developments Conference. In her keynote address to the Conference, the Director of the SEC’s Division of Investment Management (the “Division”), Dalia Blass, revealed that the Division plans to take a fresh look at the “investor experience” and what the SEC “asks of fund boards.”

Family Offices and the Madness of Crowdsales

By Stephen A. Keen on September 15, 2017 Posted in Family Offices, Fiduciary Issues, U.S. Advisor Regulation

Recently, I have had an opportunity to review many “tokens” that can be transferred over the Ethereum blockchain and used for various “smart contracts.” Depending on their facts and circumstances, certain kinds of tokens being sold in so-called “initial coin offerings” were the subject of a recent SEC Section 21(a) report. I have also seen correspondence from family offices seeking to participate in these token offerings, in some cases before the developer has fully worked out the token. This raises a concern that a family office may wound itself trying to get in on the “cutting edge” of this new way to disseminate technology. Continue Reading