Insights Past Issues

The beginning of each year provides an opportunity for investment advisers to review compliance and regulatory matters, including issues related to private investment funds and commodity pools.

On December 14, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations issued a Risk Alert reminding investment advisers of their recordkeeping obligations with respect to electronic messaging and summarizing their related observations from recent examinations.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations has released its 2019 National Exam Program Examination Priorities.

The Securities and Exchange Commission recently issued a no-action letter which allows broker-dealers to rely on investment advisers to perform some or all of their Customer Identification Program obligations under federal anti-money laundering legislation.

New treasury regulations proposed by the Internal Revenue Service on October 31 significantly diminish the sting of Section 956 for many US corporations that own stock in non-US corporations that have investments in US property.

The Internal Revenue Service recently provided excise tax relief for funds taxed as regulated investment companies that were required to increase their gross income because of the new Section 965 transition tax.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations issued a National Exam Program Risk Alert outlining the most common deficiencies that OCIE staff has identified in recent examinations of registered investment advisers’ best execution practices.

Under 1991 US guidance, if a non-US partner sold its interest in a US partnership, the selling partner would look through to the business of the partnership and would be required to file a US tax return and pay US tax if the partnership would have had income effectively connected to a US trade or business on a deemed sale of its assets. But that guidance was reversed in a tax court case. Then the US position was reversed again in the Tax Cuts and Jobs Act.

For non-US individuals and corporations that invest in real estate within the US, the rules that subject their gains to US federal income tax generally are found under Section 897. The Foreign Investment in Real Property Tax Act rules have often been attacked as a disincentive for overseas investors to enter the US real estate market.

On April 18, the Securities and Exchange Commission released a new interpretation addressing investment advisers’ fiduciary duties to their clients. The SEC’s proposed interpretive guidance reaffirms and clarifies duties owed by investment advisers to their clients under Section 206 of the Investment Advisers Act of 1940.

Today, the Securities and Exchange Commission voted 4 to 1 to propose highly anticipated new and amended rules and guidance relating to registered investment advisers’ and broker-dealers’ conduct and interactions with retail customers.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently published a Risk Alert that highlights frequently-identified investment adviser fee and expense compliance issues from exams of over 1,500 investment adviser examinations during the past two years.

This article describes the impact of the Tax Cuts and Jobs Act on securitization transactions. The article addresses in detail the new limitation on the deduction for business interest expense as well as the requirement that the transferee of an equity interest in a partnership engaged in a US trade or business withhold 10% of the amount realized unless the transferor certifies that it is a US person. 

In light of the increasing significance of cybersecurity incidents, the SEC published a press release and additional Commission-level guidance regarding disclosure obligations relating to cybersecurity risks and incidents, which reinforces and expands upon the SEC staff guidance provided in 2011 and addresses two additional topics.

Although recent legislation commonly referred to as the Tax Cuts and Jobs Act retained Section 956 of the Internal Revenue Code (and its notorious deemed dividend issue), the enactment of other changes may reduce the impact of Section 956 on taxpayers.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently released its 2018 National Exam Program Examination Priorities. Highlights from the 2018 exam priorities are reviewed in this Client Alert. 

The beginning of each year provides an opportunity for investment advisers to review compliance and regulatory matters, including issues related to private investment funds and commodity pools, which are briefly summarized in this alert.

On December 22, 2017, President Trump signed into law the most sweeping tax law changes in the last thirty years. Highlights of the new tax reform legislation as they impact individuals are summarized in this Client Alert.

Overlooked in the many discussions about the new tax laws are the consequences on trusts and estates and the high likelihood trusts and their beneficiaries will see larger income tax bills for the next seven years. This Client Alert focuses on how the tax changes will impact trusts and estates, identify some of the significant uncertainties and provide recommendations for fiduciaries.

On December 20, Congress passed the act commonly referred to as the Tax Cuts and Jobs Act of 2017. Although no provision of the Act was designed specifically to address securitization transactions, two new sets of rules are likely to have significant effects on at least some securitization transactions

On December 15, House and Senate conferees reached an agreement on the Tax Cut and Jobs Act and released the final version of the Bill, which is expected to be voted on this week in the House and Senate.

Both the House and Senate versions of the Tax Cuts and Jobs Act include a new provision that would impose an excise tax on the compensation paid by certain tax-exempt organizations if the compensation to a covered employee is more than $1 million.

Both the House and Senate versions of the Tax Cuts and Jobs Act include a new provision that would impose an excise tax on the compensation paid by certain exempt organizations, including certain state and local governmental entities, if the compensation to a covered employee is more than $1 million.

On November 2, Representative Brady released the “Tax Cuts and Jobs Act.” On November 9, the Senate Finance Committee released a “Description of the Chairman’s Mark of the ‘Tax Cuts and Jobs Act.’” This summary highlights four provisions in the proposed legislation that will be of particular interest to financial institutions.

On November 2, Representative Brady released the proposed text of the long-awaited federal income tax reform bill. The bill also includes a provision that appears aimed at subjecting public pension plans to unrelated business taxable income.

On November 2, Representative Kevin Brady released the proposed text of the long-awaited federal income tax reform bill. The bill also includes a provision that creates a limit on the deductibility of interest. If enacted, this provision could have potentially wide-reaching impacts on securitization transactions.

On November 2, Representative Brady released the proposed text of the long-awaited federal income tax reform bill. If enacted into law, the bill would eliminate all tax-exempt private activity bonds, tax credit bonds and all tax-exempt advance refunding bonds.

The staff of the Securities and Exchange Commission issued three no-action letters designed to assist broker‑dealers and investment advisers in addressing issues related to European Union directives and related legislation that will become effective on January 3, 2018.

The recently released “Unified Framework for Fixing Our Broken Tax Code” includes a proposed limitation on the deductibility of interest expense by corporations. Although this framework does not provide details as to the nature or scope of the proposed limitations, any such limitations will potentially affect the balance in preferences between debt and equity funding.

The Financial Industry Regulatory Authority, Inc. released additional guidance on social media and digital communications in Regulatory Notice 17-18. The guidance from FINRA is summarized in this article.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently published a Risk Alert that highlights frequently identified investment adviser advertising compliance issues. The Risk Alert identifies the advertising compliance issues most frequently identified in deficiency letters from investment adviser examinations.

The Department of Labor published its proposal to delay for 18‑months the more onerous provisions of the exemptions that were issued in connection with the DOL’s fiduciary rule. The exemptions were supposed to be fully effective January 1, 2018. Instead, the DOL has proposed that they become fully effective July 1, 2019.

The Department of Labor recently issued another set of FAQs, focusing on advisors to 401(k) plans. The FAQs generally address two issues. 

In a court filing on August 9, the Department of Labor notified the court that it recently submitted proposed amendments to the three exemptions to its fiduciary rule to the Office of Management and Budget.

In February 2017, the staff of the Securities and Exchange Commission’s Division of Investment Management issued guidance providing additional clarity on Rule 206(4)-2 under the Investment Advisers Act of 1940.

The Securities and Exchange Commission announced that it is requesting comments from retail investors and other interested parties on the standards of conduct applicable for broker-dealers and investment advisers.

Labor Secretary Alexander Acosta confirmed in an Op-Ed in the Wall Street Journal that the Department of Labor fiduciary rule will become applicable on June 9. Along with the Op-Ed, the DOL issued new Conflict of Interest FAQs related to the June 9, 2017 to January 1, 2018 transition period and Field Assistance Bulletin No. 2017-2.

The Financial Industry Regulatory Authority, Inc. recently released additional guidance on social media and digital communications. FINRA previously issued guidance on the use of social media communications in Regulatory Notice 10-06 and Regulatory Notice 11-39.

Yesterday the Department of Labor released the final rule delaying the applicability of the DOL fiduciary rule and the related prohibited transaction exemptions to June 9, 2017. The rule was originally set to become applicable on April 10, 2017.

The Department of Labor announced a proposed 60-day delay of the applicability date of the DOL fiduciary rule and related exemptions. The DOL has allowed a 15-day comment period providing all interested parties an opportunity to comment on the proposed delay.

The staff of the Securities and Exchange Commission’s Division of Investment Management recently issued new guidance providing additional clarity on Rule 206(4)-2 under the Investment Advisers Act of 1940.

The staff of the Securities and Exchange Commission’s Division of Investment Management recently released guidance on disclosure, suitability and compliance obligations for automated advisers—often referred to as “robo-advisers.”

The Financial Industry Regulatory Authority, Inc. recently proposed amendments that would create a new exception to FINRA’s prohibition on projecting performance. The proposed exception to FINRA Rule 2210 would permit a firm to distribute a customized hypothetical investment planning illustration.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently published a Risk Alert listing five compliance topics most frequently identified in deficiency letters to investment advisers following exams.

President Trump issued a memorandum directing the Department of Labor to conduct an analysis of the fiduciary rule’s potential impact. Depending on the results of its examination, the memorandum instructs the DOL to publish for notice and comment a proposed rule to rescind or revise the rule. 

The Department of Labor released on January 13 two sets of frequently asked questions to provide additional guidance on its new fiduciary rule. One set of FAQs is directed at consumers to better help them understand the Rule. The other set of FAQs is directed at financial service providers to address the regulation defining “investment advice.” 

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently released its Examinations Priorities for 2017.

The beginning of each year provides an opportunity for investment advisers to review annual compliance and regulatory matters, including issues related to private investment funds and commodity pools. This alert briefly summarizes some of the primary issues that advisers might consider in their 2017 annual review and update processes.

The Financial Industry Regulatory Authority, Inc. recently issued its annual Regulatory Examination Priorities Letter. This alert summarizes some of the more significant issues FINRA’s letter raises. 

The staff of the Securities and Exchange Commission’s Division of Investment Management has released guidance focused on disclosure issues and certain procedural requirements associated with mutual funds implementing intermediary‑specific variations to sales loads and adding new share classes.

The Municipal Securities Rulemaking Board recently published guidance on broker-dealer obligations when executing transactions involving a registered investment adviser that is authorized to exercise full discretion to buy and sell municipal securities on behalf on an account holder.

On October 27, the Department of Labor issued its first wave of FAQs to address certain questions that have arisen with respect to the DOL’s previously issued fiduciary rule. Generally, the Rule broadly defines who is a fiduciary under the Employee Retirement Income Security Act and the Internal Revenue Code.

The Securities and Exchange Commission recently approved new Financial Industry Regulatory Authority, Inc. pay‑to-play rules to regulate activities of FINRA member firms that engage in distribution or solicitation activities with government entities on behalf of investment advisers.

The Securities and Exchange Commission recently adopted changes to certain aspects of the reporting, disclosure and recordkeeping obligations of registered investment advisers including changes to Form ADV. 

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently issued a Risk Alert announcing that they will be undertaking an examination initiative focused on the risk that registered advisers may be making conflicted recommendations to their clients.

The Securities and Exchange Commission recently proposed a new rule and rule amendments under the Investment Advisers Act of 1940 that would require SEC-registered investment advisers to adopt and implement written business continuity and transition plans.

The Securities and Exchange Commission recently published a notice of its intention to adjust for inflation dollar amount thresholds for the “qualified client” definition under Investment Advisers Act of 1940 Rule 205-3. Under Rule 205-3, an investment adviser may charge performance-based fees to a “qualified client” meeting a minimum net worth or minimum assets.

On May 10, 2016 the U.S. Department of the Treasury published a white paper entitled “Opportunities and Challenges in Online Marketplace Lending.” The White Paper follows the “Request for Information” which the Department published in July 2015 to solicit public input on various topics concerning marketplace lending.

Pratt's Privacy & Cybersecurity Law Report republished a special edition of Chapman's To the Point! newsletter. 

This alert addresses several frequently asked questions related to sales of unit investment trusts registered under the Investment Company Act of 1940 by those persons deemed fiduciaries under the U.S. Department of Labor's recently released fiduciary rule.

Today the U.S. Department of Labor released its highly anticipated final rule to define the term “fiduciary” and address conflicts of interest in providing investment advice to retirement accounts.

In this edition:

• Use of Property Evaluations
• A Bank Customer’s Guide to Cybersecurity
• Certain Prepaid Cardholders Treated as Customers for CIP Requirements 

This Client Alert briefly summarizes some of the primary issues that advisers might consider in their 2016 annual review and update processes. 

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently released its Examinations Priorities for 2016. Firms should review their policies, procedures and business activities in light of OCIE’s stated 2016 priorities.

In December 2014, the Securities and Exchange Commission approved a new Municipal Securities Rulemaking Board best execution rule for transactions in municipal securities and related amendments applicable to “sophisticated municipal market professionals."

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently issued a Risk Alert providing information on the areas of focus for the SEC staff’s second round of cybersecurity examinations of registered investment advisers and broker-dealers. 

The National Futures Association recently submitted an interpretive notice proposal to the Commodity Futures Trading Commission that would require NFA members to establish information systems security programs.

The Financial Crimes Enforcement Network recently proposed rulemaking to prescribe minimum standards for anti-money laundering programs.

The Securities and Exchange Commission recently set the compliance date for the ban on certain payments to third-party solicitors under Rule 206(4)-5 of the Investment Advisers Act of 1940 as July 31, 2015.

The staff of the Securities and Exchange Commission’s Division of Investment Management recently published guidance on investment adviser Code of Ethics exceptions to personal securities transaction reporting for securities transactions occurring in certain types of trusts or investment management accounts where the beneficiary or account holder has limited or no discretionary investment authority. 

This Client Alert summarizes the Securities and Exchange Commission proposed changes to certain aspects of the reporting, disclosure, and recordkeeping obligations of registered investment advisers. 

On May 20, 2015, the Securities and Exchange Commission proposed changes to certain aspects of reporting and disclosure obligations of registered investment advisers and investment companies. 

The staff of the Securities and Exchange Commission’s Division of Investment Management recently published guidance for registered investment advisers and registered investment companies related to cybersecurity preparedness in their business practices. 

The staff of the Securities and Exchange Commission recently issued guidance to remind affiliates of registered investment companies that the receipt of gifts or entertainment may violate Section 17(e)(1) of the Investment Company Act of 1940.

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations recently issued its 2015 Regulatory and Examinations Priorities Letter.

The Securities and Exchange Commission recently issued a no-action letter which grants relief to broker-dealers, allowing them to rely on investment advisers to perform some or all of their Customer Identification Program obligations under federal anti-money laundering legislation.

The beginning of each year provides an opportunity for investment advisers to review annual compliance and regulatory matters, including issues related to private investment funds and commodity pools.

The Securities and Exchange Commission approved the Municipal Securities Rulemaking Board’s proposal to implement a “best execution” standard for municipal securities transactions.

The Securities and Exchange Commission is seeking comments on the first ever explicit “best execution” rule for municipal securities transactions proposed by the Municipal Securities Rulemaking Board.

The following is a summary of certain proposed changes to the Real Estate Investment Trust provisions of the Internal Revenue Code included in recent legislative proposals.

Legislative proposals by House Ways and Means Committee Chair Dave Camp would expand the scope of the unrelated business taxable income rules so that state and local pension funds would be subject to tax on certain investment income, including, in some instances, income from investment funds.

Recently proposed legislation would generally (i) require sale treatment when a C corporation elects to become a regulated investment company or transfers assets to a RIC, (ii) treat certain RIC shares as United States real property interests subject to tax by non-U.S. persons on disposition, and (iii) provide that RIC dividends received through foreign corporations would not be eligible for a dividends received deduction.

The Tax Reform Act of 2014 intends to simplify and consolidate the individual taxation scheme by consolidating, changing, or eliminating a variety of current tax benefits and the tax rates.

In March 2014, the U.S. Department of the Treasury released its general explanation of the tax proposals in the Obama administration’s proposed fiscal year 2015 budget.

Federal income tax reform has been the subject of numerous congressional discussions and committee hearings over the last year.

Legislative proposals by House Ways and Means Committee Chair Dave Camp would repeal the 4% LIHTC and change the way LIHTCs are allocated by the States.

On February 26, 2014, Representative David Camp, chair of the House Ways and Means Committee, released draft legislation referred to as the Tax Reform Act of 2014 that proposes to amend major portions of the Internal Revenue Code to provide for comprehensive tax reform.

If your firm is a registered investment adviser that has never been examined by the Securities and Exchange Commission, you might want to prepare to see SEC examiners in the near future.

For the first time in its history the Municipal Securities Rulemaking Board has proposed a “best execution” rule for municipal securities transactions.

Recent legislative tax reforms proposed by Senate Finance Committee Chairman Max Baucus could have far reaching tax and other economic consequences to many holders of interests in real estate and tangible personal property, whether as investors, lessors, or other business users.

The Municipal Securities Rulemaking Board recently requested comment on whether to require dealers to seek “best execution” of customer orders for municipal securities and provide detailed guidance to dealers on how best execution concepts would be applied to municipal securities transactions. 

The Commodity Futures Trading Commission (the “CFTC”) recently issued final rule changes:

 • narrowing the exclusion from the definition of commodity pool operator (“CPO”) available to mutual funds and other registered investment companies (“RICs”) and their advisers;

 • eliminating an exemption from CPO registration available to private fund operators (but keeping another exemption that had also been proposed to be eliminated);

•  narrowing and rescinding certain exemptions from commodity trading advisor (“CTA”) registration;

 • adding certain risk disclosure statements for CPOs and CTAs with respect to swaps; and

 • making certain changes to reporting and certification obligations for entities required to register as CPOs and

• CTAs and entities relying on exclusions and exemptions from registration. 

The Financial Industry Regulatory Authority, Inc. recently announced that the previously approved rule change relating to the “best execution” obligation of broker-dealers will become effective on May 31, 2012. The Securities and Exchange Commission approved the rule change earlier this year, but FINRA did not announce an effective date at that time. New FINRA Rule 5310 and related Supplementary Material replace current NASD Rule 2320. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires the Securities and Exchange Commission (“SEC”) to conduct a study of legal and regulatory requirements applicable to broker-dealers, investment advisers, and associated persons who provide personalized investment advice and recommendations about securities to retail customers.  

The Securities and Exchange Commission recently approved a rule change proposed by the Financial Industry Regulatory Authority, Inc. relating to the “best execution” obligation of broker-dealers.