Overview As firms prepare their annual ADV updates or review their compliance programs, one area […]
As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly review and summary of FINRA, SEC, and NFA notices and bulletins to assist our clients in keeping abreast of notable regulatory developments and deadlines in an effort to strengthen their compliance and regulatory initiatives.
Per Notice 21-41, FINRA has adopted important changes to its continuing education (CE) and registration rules to train registered persons more effectively while accommodating registered persons, particularly women and underrepresented minorities, whose personal circumstances take them away from the industry for a time. The changes to Rules 1210 and 1240: (1) provide eligible individuals who terminate any of their representative or principal registration categories the option of maintaining their qualification for any terminated registration categories by completing annual CE through a new program, the Maintaining Qualifications Program (MQP); (2) require registered persons to complete CE Regulatory Element annually for each representative or principal registration category that they hold; and (3) expressly allow firms to consider other required training toward satisfying an individual’s annual CE Firm Element and extend the Firm Element requirement to all registered persons.
The changes relating to the MQP (paragraph (c) of Rule 1240) and the Financial Services Affiliate Waiver Program (FSAWP) (Rule 1210.09) will become effective March 15, 2022.
All other changes, including the changes relating to the Regulatory Element, Firm Element and the two-year qualification period, will become effective January 1, 2023.
There were no Special Notices in November.
Per Release No. IA-5904, the SEC adopted amendments to the rule under the Advisers Act that permits investment advisers to charge performance-based compensation to “qualified clients.” The rule defines “qualified client” with reference to specific dollar amount thresholds, which are required to be adjusted every five years to account for the effects of inflation. These amendments replace specific dollar amount thresholds in the rule’s “qualified client” definition with references to the SEC’s “most recent order,” as defined by the amended rule, containing the specific dollar amount thresholds adjusted for inflation.
The amendments were effective on November 10, 2021.
Per Release No. 34-93596, the SEC amended the Federal proxy rules to enhance the ability of shareholders to elect directors though the proxy process in a manner consistent with their ability to vote in person at a shareholder meeting. Specifically, the SEC is requiring the use of a universal proxy card in all non-exempt solicitations involving director election contests, except those involving registered investment companies and business development companies. To facilitate the use of a universal proxy card, the SEC also amended the Federal proxy rules to establish certain notice, minimum solicitation, filing, formatting and presentation requirements, along with other related rule changes consistent with the adoption of a universal proxy requirement. In addition, the SEC adopted new disclosure requirements relating to voting standards and further requiring certain voting options for all director elections, whether or not contested.
The rules are effective January 31, 2022.
The rule changes the SEC adopted in this document will become effective for any shareholder meeting featuring an election contest held after August 31, 2022.
Some of the rule amendments adopted in this document will apply to all director elections, not just those that are contested. While these changes do not require coordination and notice to the other party, as is required in a contested election, they do involve enhanced disclosure of the legal effect of votes under the applicable voting standard for the election. The amendments also impose new voting options where the applicable voting standards give effect to abstain or withhold votes. Given these changes, the SEC determined that the same transition period for compliance (for shareholder meetings held after August 31, 2022) is appropriate for all of the rule amendments adopted in this document.
Per Release No. 34-93518, the SEC is proposing amendments to rules to convert the filing of certain applications, confidential treatment requests, and forms from paper to electronic submission. Specifically, the SEC proposes to amend its rules to require that the following types of filings be submitted via its Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system: applications for orders under any section of the Investment Advisers Act of 1940 (“Advisers Act”) and confidential treatment requests for filings made under section 13(f) of the Securities Exchange Act of 1934 (“Exchange Act”). The SEC also proposes rule amendments to harmonize the requirements for the submission of applications for orders under the Advisers Act and the Investment Company Act of 1940 (“Investment Company Act”). In addition, the SEC proposes to amend other rules and a form to require the electronic submission of Form ADV-NR through the Investment Adviser Registration Depository (“IARD”) system. The SEC also proposes to require non-resident general partners and non-resident managing agents to amend their Form ADV-NR within 30 days whenever any information contained in the form becomes inaccurate by filing with the Commission a new Form ADV-NR. Further, the SEC is re-proposing amendments to Form 13F to require managers to provide additional identifying information. Finally, the SEC is re-proposing certain technical amendments to Form 13F, including modernizing the structure of data reporting and amending the instructions on Form 13F for confidential treatment requests in light of a recent decision of the U.S. Supreme Court.
Per Release No. 33-11005, the SEC is proposing rule and form amendments to update filing requirements under its Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system. The proposed amendments would mandate the electronic filing or submission of most of the documents that are currently permitted electronic submissions under Regulation S-T, including all filings on Form 6-K and filings made by multilateral development banks; mandate the electronic submission in portable document format (“PDF format”) of the “glossy” annual report to security holders; mandate the electronic filing of the certification made pursuant to the Exchange Act and its rules that a security has been approved by an exchange for listing and registration; mandate the use of Inline eXtensible Business Reporting Language (“Inline XBRL”) for the filing of the financial statements and accompanying notes to the financial statements required by Form 11-K; and allow for the electronic submission in PDF format of certain foreign language documents.
Per Release No. 34- 93595, the SEC is proposing amendments to the Federal proxy rules governing proxy voting advice. The SEC is proposing these amendments in light of feedback from market participants on those rules and certain developments in the market for proxy voting advice. The proposed amendments would remove a condition to the availability of certain exemptions from the information and filing requirements of the Federal proxy rules for proxy voting advice businesses. In addition, the proposed amendments would remove a note that provides examples of situations in which the failure to disclose certain information in proxy voting advice may be considered misleading within the meaning of the Federal proxy rules’ prohibition on material misstatements or omissions. Finally, the release includes a discussion regarding the application of that prohibition to proxy voting advice, in particular with respect to statements of opinion.
Per Release No. 34-93613, the SEC is proposing a rule to increase the transparency and efficiency of the securities lending market by requiring any person that loans a security on behalf of itself or another person to report the material terms of those securities lending transactions and related information regarding the securities the person has on loan and available to loan to a registered national securities association (“RNSA”). The proposed rule would also require that the RNSA make available to the public certain information concerning each transaction and aggregate information on securities on loan and available to loan.
Per Release No. 34-93614, the SEC is proposing amendments to the electronic recordkeeping requirements for broker-dealers, security-based swap dealers (“SBSDs”), and major security-based swap participants (“MSBSPs”).
The SEC is proposing amendments to the introductory text of Rule 17a-4(f) to make the rule more technology neutral. In particular, the phrase “electronic storage media” would be replaced with the phrase “electronic recordkeeping system” throughout the rule, including in the introductory text. The SEC is proposing a conforming amendment to Rule 18a-6(e) to replace the phrase “electronic storage system” with the phrase “electronic recordkeeping system” throughout the rule, including in the introductory text. Consistent with this proposal, the amendments to Rule 18a-6(e) would replace the term “electronic storage system” throughout the rule with the term “electronic recordkeeping system,” including in the introductory text. In addition, the SEC is proposing amendments to the introductory text of Rules 17a-4(f) and 18a-6(e) solely to improve clarity and readability, but that otherwise are not intended to alter the meaning of either introductory text.
Interim Final Rules
There were no interim final rules in November.
There were no interpretive releases in November.
There were no policy statements in November.
Notices to Members
Per Notice I-21-34:
FCM and IB Members—FinCEN updates its list of FATF-identified jurisdictions with AML/CFT deficiencies
On October 26, 2021, the Financial Crimes Enforcement Network (FinCEN) issued a news release announcing that the Financial Action Task Force (FATF) reissued its list of jurisdictions with strategic AML/CFT deficiencies. NFA Member futures commission merchants and introducing brokers should review this release to ensure that their AML programs have the most current information on FATF-identified jurisdictions with AML/CFT deficiencies and revise their AML programs accordingly. A copy of the news release is available on FinCEN's website.
Per Notice I-21-35:
NFA Announces Nominations Made by the 2021 Nominating Committee
In accordance with NFA Bylaw 406, the Office of the Secretary has received from the 2021 Nominating Committee a list of its nominees for positions on NFA's Board of Directors and 2022 Nominating Committee. The list of nominees included with this Notice shall serve as notification to NFA Members of the candidates proposed by the 2021 Nominating Committee.
NFA Bylaw 406 requires that each petition identify the position to which the nomination pertains, and that all petitions must be received by the Secretary within 21 days of the date of this Notice. Therefore, if you wish to submit nominations by petition, please make sure that such petitions are received by the Secretary of NFA on or before December 2, 2021. Petitions received after that date will not be considered.
NFA Bylaw 409 provides that each Member shall designate an Executive Representative, who among other things, has the sole authority to sign nomination petitions on behalf of the Member. Members may designate an Executive Representative through NFA's website by completing an electronic Executive Representative contact form. Only firm personnel who are Security Managers or are authorized to view, update and file information in NFA's Online Registration System (ORS) may complete the Executive Representative Contact form. If a Member does not complete this form and designate an Executive Representative, the Member's membership contact listed in ORS will be deemed to be the Executive Representative. If a Member designated an Executive Representative last year, it is not necessary to do so again unless the person designated as the Executive Representative has changed.
Per Notice I-21-36:
Request for Public Representative Nominations for NFA's Board of Directors
The terms of five of NFA's current Public Representatives—Ronald H. Filler, Arthur W. Hahn, Jim Marshall, Mary M. McDonnell, and Michael H. Moskow—will expire at the Board of Directors' (Board) regular Annual Meeting on February 17, 2022. NFA is seeking nominations to fill the five Public Representative vacancies. NFA's Articles of Incorporation (Articles) permit Public Representatives to be nominated by either NFA Members or non-Members.
At its regular Annual Meeting, on February 17, 2022, the Board will elect, by majority vote, from among the nominees five Public Representatives to serve on the Board for two-year terms.
NFA requests that Public Representative nominations be submitted by January 7, 2022 so that NFA's Executive Committee can review the potential nominees at its meeting on January 20, 2022.
Per Notice I-21-37:
Action encouraged: Complete Firm Application and Annual Registration Update processes prior to December 3, 2021
On December 4, 2021, NFA will update the Firm Application and Annual Registration Update in the Online Registration System (ORS). In order to complete these updates, all incomplete Firm Application (FIRMAPPL) and Annual Registration Update (FIRMARU) processes will be deleted. Therefore, NFA encourages firms to complete any FIRMAPPL or FIRMARU process listed on the Processes Not Complete page in ORS no later than December 3, 2021. This system implementation will not affect any completed applications or processes.
To implement these updates, ORS will be unavailable from 8:00 a.m. CT/9:00 a.m. ET until 5:00 p.m. CT/6:00 p.m. ET on Saturday, December 4, 2021.
If you have questions, please contact NFA's Information Center (312-781-1410 or 800-621-3570 or email@example.com).
There were no News Releases in November.
Cybercrime is constantly developing. With attacks becoming more prevalent and sophisticated. Now is the time to perform a cybersecurity check for your firm to ensure not only compliance with industry standards, but confirm the firm’s ability to prevent, detect, and respond to evolving cyber threats. Prevention begins with training; make certain that in addition to proper security measures, applicable personnel has been rigorously trained with respect to information and technology security measures.
Regulatory Exam Preparedness
Regulators have been out in force throughout the pandemic and continue to do so. We have observed trends toward lengthy, deeper dive exams, conducted remotely. Firms should consider initiatives aimed at identifying and remediating regulatory gaps in their programs, particularly with respect to current exam focus area trends.
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:
p. (646) 346-2468
p. (917) 568-6470