As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly review and summary of various FINRA, SEC, NFA, and FinCEN publications to assist our clients in keeping abreast of notable regulatory developments and deadlines in an effort to strengthen their compliance and regulatory initiatives.
Regulatory Notices
Per Regulatory Notice 24-11, FINRA is updating the set of interpretations of the margin rule. The new, updated set of interpretations is available on the FINRA website and is effective upon publication of this Notice. To assist members, FINRA is simultaneously making available a guide to the updated interpretations that includes a text comparison with the previous interpretations and other information about the updates.
Final Rules
Per Release No. IC-35305, the SEC is adopting a rule that adjusts for inflation the dollar threshold used in defining a “qualifying venture capital fund” under the Investment Company Act of 1940. The final rule also allows the SEC to adjust for inflation this threshold amount by order every five years and specifies how those adjustments will be determined. This rule implements the inflation adjustment requirements of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 relating to qualifying venture capital funds.
Per Release No. IC-35308, the SEC is adopting amendments to reporting requirements on Forms N-PORT and N-CEN that apply to certain registered investment companies, including registered open-end funds, registered closed-end funds, and unit investment trusts. The amendments will require more frequent reporting of monthly portfolio holdings and related information to the SEC and the public, amend certain reporting requirements relating to entity identifiers, and require open-end funds to report information about service providers used to comply with liquidity risk management program requirements. In addition, the SEC is providing guidance related to open-end fund liquidity risk management program requirements.
Proposed Rules
Per Release No. 33-11295, the SEC (together with the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Consumer Financial Protection Bureau, Federal Housing Finance Agency, Commodity Futures Trading Commission, and the Department of the Treasury) invite public comment on a proposed rule to establish data standards to promote interoperability of financial regulatory data across these agencies. Final standards established pursuant to this rulemaking will later be adopted for certain collections of information in separate rulemakings by the agencies or through other actions taken by the agencies. The agencies are proposing this rule as required by the Financial Data Transparency Act of 2022.
Interim Final Rules
There were no interim final rules in August.
Interpretive Releases
There were no interpretive releases in August.
There were no policy statements in August.
Notices to Members
Notice I-24-14
August 6, 2024
Action required: Every Member must assign Member Questionnaire "Enter and Submit" access in ORS
NFA Compliance Rule 2-52 and its related Interpretive Notice entitled NFA Member Questionnaire Requirements become effective on October 15, 2024 (See Notice to Members I-24-10). The Rule and Interpretive Notice require that the Member Questionnaire for a swap dealer-only Member be reviewed and submitted by an individual who is a principal of the swap dealer and that the Member Questionnaire for any other Member be submitted by an individual who is an associated person (AP) and principal of the Member (Qualified Individual). To designate a Qualified Individual(s) to submit the Member Questionnaire, each Member must assign the individual(s) "Enter and Submit" Questionnaire access in NFA's Online Registration System (ORS). NFA is issuing this Notice to inform Members that the capability to assign "Enter and Submit" access in ORS is now available and to provide instructions for assigning this access.
To assign "Enter and Submit" access:
Importantly, every Member must assign "Enter and Submit" access to at least one Qualified Individual. Individuals currently designated in ORS to submit the Questionnaire on a Member's behalf will no longer be able to submit the Questionnaire beginning on October 15, 2024, unless the Member completes the required steps outlined above.
Other users knowledgeable of the Member's operations may answer questions on the Questionnaire but will not be able to submit the Questionnaire. NFA has assigned "Enter" access to all Member users who are currently able to enter information or submit the Questionnaire on behalf of the Member, and those users will be able to continue entering information on the Questionnaire. To designate any additional individuals to answer questions, Members should follow steps 1, 2 and 3 above, select "Enter" from the drop-down menu and complete the required information.
NFA strongly encourages each Member to identify the AP/principal or principal, as applicable, who will review and submit the Questionnaire and assign "Enter and Submit" access to that individual prior to October 15, 2024. Any Questionnaire due on or after that date will not be accepted unless submitted by a Qualified Individual.
NFA News Releases
August 5, 2024
NFA permanently prohibits Glencoe, Ill. commodity pool operator East West Global LLC and its principal Luke Adrian from NFA membership and principal status
August 5, Chicago--NFA has permanently prohibited East West Global LLC (East West Global), a former NFA Member commodity pool operator located in Glencoe, Ill., from reapplying for membership and from acting or being listed as a principal of an NFA Member. NFA has also permanently prohibited Luke James Adrian (Adrian), a former principal and associated person of East West Global, from applying for NFA membership, reapplying for NFA associate membership and from acting or being listed as a principal of an NFA Member.
The Decision, issued by an NFA Hearing Panel, is based on a Complaint issued by NFA's Business Conduct Committee (BCC) and a settlement offer submitted by East West Global and Adrian. In the settlement offer, the firm and Adrian neither admitted nor denied the allegations in the Complaint.
The BCC's Complaint alleged that East West Global and Adrian violated NFA Compliance Rules 2-2(a), 2-4, 2-29(a) and 2-29(b) by engaging in a deceptive course of conduct involving a commodity pool they operated, called iFund Diversified I, LLC (the Fund). The Complaint alleged East West Global and Adrian made material changes to the Fund that involved how the firm and Adrian used participants' retirement funds, and which changed the entire tenor of the investment, but failed to adequately disclose the changes and their consequences to participants and failed to act in participants' best interests. The Complaint further alleges that East West Global and Adrian misled participants to believe they would receive their initial investments back, despite a substantial shortfall in the Fund, and used deceptive and misleading communications and promotional materials.
The complete text of the Complaint and Decision can be viewed on NFA's website.
August 20, 2024
NFA orders Puerto Rico-based commodity pool operator Ikigai Strategic Partners LLC and its principal Anthony Robert Emtman to jointly pay a $150,000 fine
August 20, Chicago--NFA has ordered Ikigai Strategic Partners LLC (Ikigai Strategic), an NFA Member commodity pool operator located in Rio Grande, Puerto Rico, and Anthony Robert Emtman, a principal and associated person of Ikigai Strategic, to jointly pay a $150,000 fine.
The Decision, issued by an NFA Hearing Panel, is based on a Complaint issued by NFA's Business Conduct Committee (BCC) and a settlement offer submitted by Ikigai Strategic and Emtman, in which they neither admitted nor denied the allegations in the Complaint.
In its Decision, the Hearing Panel found that Ikigai Strategic and Emtman committed the alleged violations set forth in the Complaint. Among other things, the Complaint alleged that Ikigai Strategic permitted one of the pools the firm operates to make a prohibited advance of pool assets to an affiliate that Emtman and another Ikigai Strategic principal own. The Complaint also alleged that the firm and Emtman acted contrary to high standards of commercial honor and just and equitable principles of trade regarding the prohibited advance by engaging in conduct that placed the firm's and Emtman's interests above their obligations to the pool and its participants. Further, the Complaint alleged that Ikigai Strategic commingled pool funds with the assets of another pool, failed to provide necessary disclosures to pool participants and failed to comply with recordkeeping and reporting obligations. Finally, the Complaint alleged that Ikigai Strategic and Emtman failed to supervise the firm's operations and its employees.
The complete text of the Complaint and the Decision can be viewed on NFA's website.
FinCEN News Releases
FinCEN Reminds Financial Institutions to Remain Vigilant to Suspicious Transactions Associated with Synthetic Opioids
August 26, 2024
WASHINGTON—During Overdose Awareness Week as the nation honors and remembers loved ones lost to the drug overdose epidemic, the Financial Crimes Enforcement Network (FinCEN) reminds financial institutions to monitor for and report suspicious transactional activity related to the illicit fentanyl supply chain and the trafficking of illicit fentanyl and other synthetic opioids. FinCEN continues its efforts to marshal resources and expertise to combat the trafficking of illicit fentanyl through its participation in the Department of the Treasury’s Counter-Fentanyl Strike Force.
FinCEN has previously published the following resources on the trafficking of fentanyl, fentanyl analogues, and other synthetic opioids and the precursor chemicals and associated manufacturing equipment needed to synthesize these deadly drugs:
FinCEN continues to work with law enforcement and the private sector to combat the opioid crisis. FinCEN is convening information exchange sessions to bring together the public and private sectors for discussions on ways to deepen collaboration against financial crime threats that devastate communities and undermine the integrity of the global financial system.
This past spring, FinCEN partnered with IRS Criminal Investigation (CI) to launch its “Promoting Regional Outreach to Educate Communities on the Threat of Fentanyl” (PROTECT) series of FinCEN Exchange events that are being held in U.S. cities that are highly impacted by the opioid epidemic as part of Treasury Department’s Counter-Fentanyl Strike Force. To date, PROTECT events have been held in Boston, Massachusetts; Tucson, Arizona; Miami, Florida; and just this month, FinCEN and CI hosted two additional PROTECT events in Portland, Oregon and Denver, Colorado. The Portland event, held on August 13, included a threat briefing from government officials on fentanyl and drug trafficking organizations. The Denver event, held on August 20, included region-specific insight from the Rocky Mountain High Intensity Drug Trafficking Area teams on money laundering trends.
FinCEN Issues Final Rules to Safeguard Residential Real Estate, Investment Adviser Sectors from Illicit Finance
August 28, 2024
Rules Address Critical Vulnerabilities in the U.S. Financial System, Protect National Security
Today, as part of ongoing efforts to combat illicit finance and protect U.S. national security, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued two rules to help safeguard the residential real estate and investment adviser sectors from illicit finance. Both rules deliver on key lines of effort outlined in the Biden-Harris administration’s U.S. Strategy on Countering Corruption.
“The Treasury Department has been hard at work to disrupt attempts to use the United States to hide and launder ill-gotten gains,” said U.S. Secretary of the Treasury Janet L. Yellen. “That includes by addressing our biggest regulatory deficiencies, including through these two new rules that close critical loopholes in the U.S. financial system that bad actors use to facilitate serious crimes like corruption, narcotrafficking, and fraud. These steps will make it harder for criminals to exploit our strong residential real estate and investment adviser sectors.”
The final residential real estate rule will require certain industry professionals to report information to FinCEN about non-financed transfers of residential real estate to a legal entity or trust, which present a high illicit finance risk. The rule will increase transparency, limit the ability of illicit actors to anonymously launder illicit proceeds through the American housing market, and bolster law enforcement investigative efforts.
The final investment adviser rule will apply anti-money laundering/countering the financing of terrorism (AML/CFT) requirements—including AML/CFT compliance programs and suspicious activity reporting obligations—to certain investment advisers that are registered with the U.S. Securities and Exchange Commission (SEC), as well as those that report to the SEC as exempt reporting advisers. The rule will help address the uneven application of AML/CFT requirements across this industry.
As part of the rulemaking process, Treasury carefully considered public feedback and consulted extensively with industry groups, intergovernmental partners, and other key stakeholders—including through listening sessions during the public comment periods—to develop rules that will be both effective and administrable while reducing potential burdens on businesses, including small businesses.
Our Perspective
Regulators continue to demonstrate their commitment to protecting investors by aggressively pursuing bad actors and reviewing and updating regulations to guard investors against constantly evolving threats.
The best approach to regulatory compliance is a proactive one. Staying ahead of the curve by taking note of statements and guidance released by regulators and using them as a barometer to assess the current regulatory climate can help ensure that a firm is prepared for a regulatory exam. Rather than scrambling to rectify issues or meet deadlines, a thorough, active compliance program that considers and incorporates regulatory developments is in a better position to satisfy regulators and preserve operations so they can best serve their clients.
For more information, please contact:
Mitch Avnet
p. (646) 346-2468
David Amster
p. (917) 568-6470
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