Mar. 12, 2020

Encryption for Fund Managers: Policies and Procedures; Role of Legal and Compliance; and Third Parties (Part Three of Three)

Establishing a comprehensive written information security plan that addresses key management, cloud data security and the interplay of encryption with other security tools is necessary for proper data security. Legal and compliance personnel must work closely with the technology team to develop policies and procedures, as well as to manage the data security of third-party service providers with which they contract. This article, the third in a three-part series, evaluates the policies and procedures a manager should enact; the role of legal and compliance personnel; and the management of third parties with respect to data security. The first article discussed the basics of encryption, when it should be used and challenges with implementing it. The second article analyzed the legal and regulatory framework surrounding encryption, including various federal and state laws. See our two-part series “The Challenges and Benefits of Multi-Factor Authentication in the Financial Sector”: Part One (Nov. 2, 2017); and Part Two (Nov. 9, 2017).

The Global Whistleblowing Legal Landscape and Best Practices in the U.S. and U.K.

To address the fragmentation (or lack) of whistleblowing law in Europe, the E.U. has sought to harmonize whistleblowing protection with a new directive. Meanwhile, the U.K. government has stated it does not intend to implement the directive in light of the U.K.’s withdrawal from the E.U. In a guest article, Sidley attorneys Sara George, David Smith, Lauren Cuyvers and Isaac Lara contrast the position under the new directive and in the U.K. with the position in the U.S. where, unlike in Europe, financial incentives are available to whistleblowers in certain circumstances. The article considers recent developments and enforcement trends, and it provides practical steps organizations can implement to help ensure robust and effective whistleblower protection and, in turn, minimize the risks associated with wrongdoing. See “SEC and CFTC Whistleblower Awards Continue to Grow” (Jan. 17, 2019).

IFI Global Panel: ESG Will Fundamentally Transform Investing in the Coming Decade

Investing that incorporates environmental, social and governance (ESG) criteria is likely to upend traditional investment criteria in the coming decade, according to the diverse panel of speakers at a recent seminar sponsored by research provider IFI Global Ltd. (IFI). Simon Osborn, CEO of IFI, moderated the discussion, which featured Christopher J. Addy, CEO of due diligence provider Castle Hall; William Altman, director of research at ESG fund manager 17 Asset Management; Michael Johnson, group head of fund services at Crestbridge; and Sean Wilke, partner at compliance firm Greyline Partners, LLC. The speakers’ consensus was that, although difficult to define and measure, ESG investing is here to stay and could become the driving force behind investing in the future – especially if ESG principles can be shown to deliver alpha. This article discusses the key takeaways from the presentation. See our two-part series on ESG factors in hedge fund investing: “Past, Present and Future” (Nov. 10, 2016); and “Designing an ESG Investing Policy” (Nov. 17, 2016).

FINRA Outlines Its 2020 Risk Monitoring and Exam Priorities

FINRA recently issued its 2020 Risk Monitoring and Examination Priorities Letter (Letter), which outlines focus areas for its risk monitoring, market surveillance and examination activities in the coming year and offers practical considerations that firms may use to evaluate and improve their compliance, supervision and risk management programs. The Letter covers four broad areas under FINRA’s domain: sales practices and supervision; market integrity; financial management; and firm operations. This article presents the key takeaways from the Letter. For more on FINRA priorities, see “Report Highlights Common Broker-Dealer Compliance Shortcomings” (Jan. 24, 2019); and “FINRA Outlines Its Regulatory and Examination Priorities for 2018” (Feb. 8, 2018).

CFTC Fines Wells Fargo $10 Million for Violating Swaps Business Conduct Rules

Investment advisers should by now be well aware of the SEC’s compliance rule (Rule 206(4)‑7), which requires them to maintain policies and procedures reasonably designed to ensure compliance with relevant securities laws and regulations. A recent CFTC settlement order against Wells Fargo Bank, N.A. (Wells Fargo) is an important reminder that firms subject to the CFTC’s jurisdiction must also be cognizant of the CFTC’s business conduct standards and its analog of the compliance rule – and that the CFTC continues to focus on swaps and derivatives. Wells Fargo, which has been registered with the CFTC as a swap dealer since 2012, entered into a forward currency contract at a price that was to be based on the actual prices of the bank’s spot trades on behalf of the counterparty. Wells Fargo, however, allegedly lacked a system to track those prices and, as a result, provided inaccurate information to its counterparty. This article analyzes the terms of the forward currency contract; the alleged misconduct and violations; and the settlement terms. For discussion of the CFTC business conduct standards, see “A ‘Clear’ Guide to Swaps and to Avoiding Collateral Damage in the World of ERISA and Employee Benefit Plans (Part Two of Four)” (Aug. 4, 2016).

Erik Bergman Joins Day Pitney’s Stamford, CT Office

Day Pitney announced that Erik Bergman has joined the firm’s Stamford, Connecticut office as counsel in the investment management and private funds group. Bergman advises investment advisers; private fund managers; individual and institutional investors; broker-dealers; and placement agents on a wide range of federal and state regulatory and compliance matters. In addition, he counsels clients on private investment fund structuring and formation; offering documents; side letters and other investor agreements; distribution and marketing arrangements; and service provider agreements, as well as the development and implementation of compliance programs and procedures. For commentary from another Day Pitney partner, see our two-part series “Structuring, Regulatory and Tax Guidance for Asia-Based Hedge Fund Managers Seeking to Raise Capital from U.S. Investors”: Part One (Aug. 9, 2012); and Part Two (Aug. 16, 2012).