Last week, the SEC announced a “Share Class Selection Disclosure Initiative” being led by the Asset Management Unit of the Division of Enforcement. This initiative warrants close examination for investment advisers who regularly recommend different mutual fund share classes for their clients and by their affiliated broker-dealers. This effort continues the SEC’s focus on 12b-1 fees, and provides the SEC with a vehicle to efficiently bring enforcement actions against those firms who have failed to properly disclose conflicts related to those fees. FINRA has not yet issued any related, formal pronouncements. Until FINRA issues guidance, affiliated broker-dealers concerned with how to handle any 12b-1 fee issues that they may have will need to consider FINRA’s “extraordinary cooperation” guidance. Continue reading “SEC Announces Share Class Selection Disclosure Initiative”
Broker-Dealer Law Blog
Articles by Broker-Dealer Law Blog:
SEC Issues MiFID II No-Action Relief and Allays Various Cross-Border Concerns
The SEC recently issued three no-action letters designed to provide market participants with greater certainty regarding their U.S. regulated activities as they engage in efforts to comply with the EU’s Markets in Financial Instruments Directive (MiFID II).
In a recent client alert, I provided a summary of all three no-action letters and explain that as a result of these no-action letters, existing soft-dollar and commission-sharing arrangements may continue, subject to certain new restrictions. Click here to read the client alert.
As background, MiFID II will require, for impacted EU parties, that research be priced separately from execution, starting on January 3, 2018. This represents a significant change from the current practice, whereby research is generally supplied as part of a bundle of services, with no explicit charge.
Absent new U.S. regulations or other relief, this change had the potential to cause a significant number of problems for U.S. advisers, funds and clients dealing with EU parties.
Political Contribution Limitations Now Also Mandatory for Broker-Dealers
The SEC’s Rule 206(4)-5 under the Investment Advisers Act of 1940 (Advisers Act), aka the Pay-to-Play Rule, was partially delayed until recently, when FINRA adopted a complementary Rule. Broker-dealers that engage in distribution or solicitation activities with a government entity on behalf of any investment adviser need to pay close attention to the rule changes. I have outlined the rules, penalties and new FINRA rule below.
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The SEC’s 2017 Cybersecurity Alert and New Cyber Unit
In August 2017, the SEC’s Office of Compliance Inspection and Examinations (OCIE) issued a Risk Alert outlining observations from its “Cybersecurity 2 Initiative,” which was built upon its 2014 “Cybersecurity 1 Initiative.” Notably, this alert offered a rare industry compliment, describing “an overall improvement” in cybersecurity practices and processes since the Cybersecurity 1 Initiative. Below we summarize the OCIE staff’s observations, certain criticisms and their descriptions of robust policies, procedures and practices.
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