Saying that 2023 was a big year for SEC rulemaking may be a little bit of an understatement given the number of proposed and final rules the SEC put out – many of which directly or indirectly impact private funds. In many respects, the burden of understanding this rulemaking and ensuring compliance with the many new requirements has fallen on the shoulders of fund managers’ CCOs and compliance departments. And, given that more new and/or amended rules are expected in 2024, that burden is likely to increase. To better understand the impact of the SEC’s aggressive rulemaking on compliance professionals, the Hedge Fund Law Report spoke to Todd Kaplan, founder and principal of Cloudbreak Compliance Group. This article presents Kaplan’s thoughts on recent SEC examinations, including a new interest in artificial intelligence; the lack of SEC guidance; the impact of new rulemaking on both CCOs and compliance consultants; what the compliance landscape may look like in 2024; and what fund managers and CCOs should do to prepare for challenges in the new year. For additional insights from Kaplan, see our two-part series on conflicts of interest questionnaires: “Why Fund Managers Need Them, and What They Should Cover” (Dec. 6, 2018); and “Who Should Complete Them, When They Should Be Completed and How Managers Can Use Them Effectively” (Dec. 13, 2018). Read full article …

The SEC Division of Examinations (Division) recently released its examination priorities (Priorities) for the SEC’s 2024 fiscal year. The Priorities include a message from Division leadership, which summarizes the Division’s activities in the SEC’s 2023 fiscal year and the Division’s commitment to increased engagement with the industry to promote compliance in a rapidly evolving financial landscape. This article summarizes key components of the Priorities, with a focus on elements of interest to private fund managers, and features insights from Carlo di Florio, global advisory leader for ACA Group and former Director of the Division when it was known as the Office of Compliance Inspections and Examinations, and Kristin Snyder, partner at Debevoise & Plimpton and former Deputy Director of the Division and Head of the Division’s Investment Adviser/Investment Company Program. See our two-part series on the 2023 Exam Priorities: “Private Funds Feature Prominently” (Apr. 13, 2023); and “Key Takeaways for Private Fund Managers” (Apr. 27, 2023). Read full article …

In February 2022, the SEC proposed comprehensive changes to modernize the beneficial ownership reporting regime under Section 13(d) of the Securities Exchange Act of 1934 and Regulation S‑T, including significantly shorter filing deadlines for Schedules 13D and 13G; inclusion of certain cash-settled derivatives in calculating whether a beneficial owner meets the reporting thresholds; and specifying when two or more persons would be deemed a “group” for reporting purposes under the disclosure regime. The SEC recently issued final rules shortening the filing deadlines for Schedules 13D and 13G. The compliance date for the revised Schedule 13D filing deadlines is February 5, 2024, while the compliance date for the revised Schedule 13G filing deadlines is September 30, 2024. In lieu of new rules addressing derivatives and group formation, however, the SEC issued guidance. “Thanks to the comment process and the SEC’s recognition of the concerns raised, most of the controversial pieces of the proposed rules were walked back,” Schulte Roth partner Eleazer Klein told the Hedge Fund Law Report. This article discusses the final rules and new guidance – and the compliance challenges they pose – with additional commentary from Klein and Schulte Roth partner Adriana Schwartz. See our two-part series “SEC Proposes Comprehensive Changes to Beneficial Ownership Rules”: Part One (Apr. 21, 2022); and Part Two (Apr. 28, 2022). Read full article …

Rule 206(4)‑7 under the Investment Advisers Act of 1940, known as the Compliance Rule, establishes the fundamental parameters for an investment adviser’s regulatory compliance program, including adopting appropriate policies and procedures; conducting an annual compliance review; and appointing a qualified CCO. A recent installment of ACA Group’s “Building a Gold Standard Compliance Program” series focused on identification and mitigation of conflicts of interest; minimum compliance program requirements; compliance manuals; compliance policies and procedures; desk procedures; and recent SEC compliance-related examination and enforcement activity. The program featured Jaqueline Hummel, director of thought leadership, and Myles Blechner, director – investment advisory consulting, at ACA Group. This article synthesizes their insights. See our three-part series on tailoring a compliance program: “Why Fund Managers Should Customize” (Jul. 16, 2020); “What Fund Managers Should Consider” (Jul. 23, 2020); and “When Fund Managers Should Review and Update” (Jul. 30, 2020). Read full article …

Advisers are not yet required to have policies for considering environmental, social and governance (ESG) criteria in their investment processes, but if they do, they must adhere to those policies – and be able to substantiate it. The SEC recently penalized DWS Investment Management Americas, Inc. (DIMA), an indirect subsidiary of Deutsche Bank, for failing to implement its disclosed ESG integration policy, related material misrepresentations and compliance policy deficiencies. The proceeding is another potent reminder that advisers must “say what they do and do what they say.” This article discusses the alleged deficiencies in DIMA’s ESG implementation, disclosures, policies and procedures, as well as the terms of the resolution. See “SEC 2023 Exam Priorities: Key Takeaways for Private Fund Managers (Part Two of Two)” (Apr. 27, 2023); and “SEC Sanctions Goldman Sachs for Failing to Follow ESG Policies and Procedures” (Feb. 16, 2023). Read full article …