Publication
EPA Guidelines for ‘landfill buffers’ & industry separation distances finalised
In January 2023, we provided an update on the Victorian Environment Protection Authority draft Separation Distance Guideline and Landfill Buffer Guideline.
Global | Publication | December 31, 2015
During 2015, the Securities and Exchange Commission (“SEC”) has been active both in pur-suing enforcement actions and releasing guidance updates on its various rules and initiatives. The following summary highlights recent updates regarding:
In a February 2015 address to the IA Watch 17th Annual Compliance Conference, [1] Julie Riewe, Co-Chief of the Asset Management Unit of the Division of Enforcement (the “AMU”), stated that, in nearly every ongoing matter, the AMU seeks to examine, at least in part, whether adviser has discharged its fiduciary obli-gation to identify conflicts of interest and has either (i) eliminated them or (ii) mitigated them and disclosed their existence to boards or investors. The SEC has brought a number of actions under Section 206(4)-7 of the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”), which requires investment advisers to adopt and implement written policies and procedures and to review them on an annual basis. [2] A number of recent enforcement actions brought by the SEC demonstrate this focus:
In light of these recent enforcement actions, it is important for firms to have an evolving compliance program. Investment advisers should reflect on how their businesses have changed and address new regulations, personnel and technologies. The SEC has demonstrated that it expects senior management to play a critical role in establishing and maintaining a strong ethical compliance culture by making compliance a priority for firms. Recently, the SEC has been focused on allocations of fees of expenses and clear disclosure of fees. Examiners repeatedly request and analyze marketing materials and fund documents, including private placement memoranda, and evaluate whether the allocation of fees and expenses between the fund and its manager and/or general partner has been clearly and accurately disclosed. Examiners will also assess whether the calculation of fees is appropriate and scrutinize portfolio company and third party fees as well.
Following several enforcement actions by the SEC against compliance personnel in the investment adviser space, there has been concern in the compliance community regarding the liability of chief compliance officers (“CCOs”). Over the past few months, SEC personnel have shared their perspectives. In November 2015, Andrew Ceresney, the Director of the Division of Enforcement, acknowledged the concern among the compliance community and sought to clarify certain considerations by the SEC before recommending actions against CCOs. [9] Ceresney noted that the “overwhelming majority” of the cases involve facts that demonstrate CCO’s conduct “crossed a clear line,” and that circumstances under which the SEC brings actions against CCOs generally fall into three categories: (i) CCOs affirmatively involved in misconduct that is unrelated to their compliance function, (ii) CCOs engaged in efforts to obstruct or mislead the SEC staff and (iii) CCOs who exhibited a wholesale failure to carry out their responsibilities. In an October 2015 address, SEC Chief of Staff Andrew “Buddy” Donohue challenged compliance professionals to be more proactive in their roles and stated that an elevated role would not expose compliance professionals to increased personal liability. [10] Aiming to reassure CCOs, Commissioner Mary Jo White also stated that the SEC does not “bring cases based on second guessing compliance officers’ good faith judgments, but rather when their actions or inactions cross a clear line that deserve sanction.” [11] Commissioner Luis Aguilar also denied that the SEC is taking too harsh of an enforcement stance against CCOs, and voiced concern that dialogue on CCO liability had created an “unwarranted fear in the CCO community.” Aguilar claimed that the enforcement actions should not raise undue concerns because the CCOs in these cases demonstrated egregious misconduct, including failure to implement policies and procedures to prevent an employee from misappropriating client accounts and failure to report a conflict of interest. [12]
Other SEC officials have expressed a different view. In June 2015, SEC Commissioner Daniel Gallagher voted against two settled SEC enforcement actions involving alleged violations of Rule 206(4)-7 [13] under the Investment Advisers Act by CCOs. Gallagher stated that these recent actions are part of a trend toward strict liability for CCOs under the rule and proposed that that the SEC re-examine the rule and consider whether amendments, or at a minimum staff or SEC guidance, are needed to clarify the roles and responsibilities of compliance personnel so that CCOs are not improperly held accountable for others’ misconduct. [14]
In light of the recent focus on compliance by the SEC, we encourage CCOs and counsel representing CCOs to engage in the following: [15]
Following up on last year’s Cybersecurity Roundtable and cybersecurity sweep examinations, the SEC’s Office ofCompliance Inspections and Examinations (“OCIE”) released a new Risk Alert [16] on September 15, 2015 announcing a second series of cybersecurity examinations, which will involve more testing to assess implementation of firm procedures and controls. The Risk Alert highlighted six primary areas on which OCIE intends to focus:
The Risk Alert also includes a sample request for information and documents as an Appendix.
The SEC recently announced that in FY September 2015, the SEC filed 807 enforcement actions covering a wide range of misconduct and obtained orders totaling approximately $4.2 billion in disgorgement and penalties. Of the 807 enforcement actions filed in fiscal year 2015, a record 507 were independent actions for violations of federal securities laws and 300 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceed-ings seeking bars against individuals based on criminal convictions, civil injunctions or other orders.
The SEC’s enforcement actions included the following topics: [17]
The SEC’s Division of Investment Management’s Risk and Examinations Office recently published a report that provides private fund industry statistics and trends, reflecting aggregated data reported by private fund advisers on Form ADV and Form PF from the first calendar quarter of 2013 through the fourth calen-dar quarter of 2014. [18] Most of the data is being made public for the first time.
The report includes statistics about the distribution of borrowings, an analysis of hedge fund gross notional exposure to net asset value and a comparison of average hedge fund investor and hedge fund portfolio liquidity. Some statistics as of December 2014 include:
The SEC intends to update the private funds statistics report periodically.
In June 2015, the SEC Investment Management Division issued a Guidance Update on personal securities transactions reports by registered investment advisers, [19] focusing on Codes of Ethics for registered investment advisers and their employees, which are required by Rule 204A-1. [20] As investment advisers conduct their annual reviews pursuant to Rule 206(4)-7, they should consider the guidelines in the Guidance Update. The Guidance Update pertains to Rule 204A-1 exceptions [21] for directors, officers and partners, and supervised persons (collectively, “access persons”) where an access person’s securities are held in accounts over which he or she has no direct or indirect influence or control (e.g., due to the establishment of a blind trust [22]) and notes the following:
Advisers may be able to implement additional policies and procedures to determine whether the access person actually had direct or indirect influence or control over the trust or account, rather than whether the third-party manager had discretionary or non-discretionary investment authority. Advisers may consider, for example:
[1] Transcript of Julie M. Riewe, Conflicts, Conflicts Everywhere – Remarks to the IA Watch 17th Annual IA Compliance Conference: The Full 360 View (Feb. 26, 2015).
[2] The SEC has also charged investment advisers under the anti-fraud provisions in the Investment Advisers Act of 1940 and the Investment Company Act of 1940.
[3] See In the Matter of Cherokee Investment Partners, LLC and Cherokee Advisers, LLC, Investment Advisers Act of 1940, Release No. 4258 (Nov. 5, 2015).
[4] See In the Matter of Fenway Partners, LLC, Peter Lamm, William Gregory Smart, Timothy Mayhew, Jr., and Walter Wiacek, CPA, Investment Advisers Act of 1940, Release No. 4253 (Nov. 3, 2015).
[5] See In the Matter of Blackstone Management Partners L.L.C., Blackstone Management Partners III, L.L.C., and Blackstone Management Partners IV L.L.C., Investment Advisers Act of 1940, Release No. 4219 (Oct. 7, 2015).
[6] See In the Matter of Kohlberg Kravis Roberts & Co., L.P., Investment Advisers Act of 1940, Release No. 4131 (June 29, 2015).
[7] 7 17 CFR 270.38a-1 (2004), Compliance procedures and practices.
[8] See In the Matter of BlackRock Advisors, LLC and Bartholomew A. Battista, Investment Advisers Act of 1940, Release No. 4065 (April 20, 2015).
[9] Transcript of Andrew Ceresney, 2015 National Society of Compliance Professionals, National Conference: Keynote Address (Nov. 4, 2015).
[10] Transcript of Andrew J. Donohue, Remarks at NRS 30th Annual Fall Investment Adviser and Broker-Dealer Compliance Conference (Oct. 14, 2015).
[11] Transcript of Mary Jo White, Opening Remarks at the Compliance Outreach Program for Broker-Dealers (July 15, 2015).
[12] Transcript of Luis A. Aguilar, The Role of Chief Compliance Officers Must be Supported (June 29, 2015).
[13] 17 CFR 275.206(4)-7 (2004), Compliance procedures and practices.
[14] Transcript of Daniel M. Gallagher, Statement on Recent SEC Settlements Charging Chief Compliance Officers With Violations of Investment Advisers Act Rule 206(4)-7 (June 18, 2015).
[15] For information on investment advisers who outsource compliance activities, please refer to OCIE, NEP Risk Alert, Examinations of Advisers and Funds That Outsource Their Chief Compliance Officers (Nov. 9, 2015).
[16] See OCIE, NEP Risk Alert, OCIE’s 2015 Cybersecurity Initiative (Sept. 15, 2015).
[17] For additional detail, please see SEC Announces Enforcement Results for FY 2015 (October 22, 2015).
[18] See Securities and Exchange Commission, Division of Investment Management, Risk and Examinations Office, Private Funds Statistics (October 16, 2015).
[19] See IM Guidance Update, SEC, June 2015.
[20] 174 CFR 275.204A-1.
[21] See Id. Rule 204A-1 requires that an adviser’s Code of Ethics must include requirements that certain advisory personnel report personal securities trading to provide a mechanism for the adviser and examiners to identify improper trades or patterns of trading.
[22] A blind trust is a legal arrangement in which a trustee manages funds for the benefit of someone (e.g., an access person) who has no knowledge of the specific management actions taken by the trustee and no right to intervene in the trustee’s management.
Publication
In January 2023, we provided an update on the Victorian Environment Protection Authority draft Separation Distance Guideline and Landfill Buffer Guideline.
Publication
In our previous articles, we highlighted that under Stage 1 of the nature reforms detailed in the Nature Positive Plan, the nature repair market was established.
Publication
In this article we explore the development of the human right to food under international law, and how climate change and biodiversity loss contribute to existing issues around global food insecurity, including the implications for First Nations peoples. We will also discuss the role of the private sector in protecting and improving secure access to healthy and nourishing food and how pro bono legal services can assist.
Subscribe and stay up to date with the latest legal news, information and events . . .
© Norton Rose Fulbright LLP 2023