Sep. 24, 2020

Former OCIE Official Discusses SEC’s Latest Reg Flex Agendas

Under the Regulatory Flexibility Act, federal agencies must publish agendas of the regulations that are under development or review. To satisfy that requirement, the SEC typically releases both a short- and long-term “Reg Flex” agenda, with the items on the short-term agenda expected to be completed within a year. Since Jay Clayton became SEC Chair, he has pushed for those agendas to be less “aspirational” and more achievable. To that end, the SEC recently released its Spring Reg Flex Agendas for 2020. The short-term agenda contains 43 total items, including amendments to Form PF and the custody rule for investment advisers. Private fund managers should note that items listed as at the final rule stage on the short-term agenda include a harmonization of exempt offerings; amendments to the advertising rules; and amendments to the rules for compensation for solicitation – all of which are expected to see “final action” by October 2020. The Hedge Fund Law Report spoke to Jane Jarcho, special adviser at Promontory Financial Group and former Deputy Director of the SEC’s Office of Compliance Inspections and Examinations, about the latest Reg Flex agendas and the key agenda items for private fund managers. For our coverage of prior Reg Flex agendas, see “Key Takeaways for Private Fund Managers From SEC’s Latest Reg Flex Agenda” (Aug. 15, 2019); and “SEC’s Reg Flex Agenda Promotes Transparency While Adding Potential Compliance Burdens” (Mar. 15, 2018).

Cayman Islands Administrative Fines: How the Regime Works (Part One of Two)

The Cayman Islands have had an administrative fines regime (Regime) since December 2017, following the introduction of the Monetary Authority (Administrative Fines), Regulations 2017 (as amended, the Regulations). Initially, the scope of the Regulations was limited to breaches of certain provisions of the Cayman Anti-Money Laundering Regulations (Revised), which, as Cayman Islands fund vehicles are subject to the Cayman anti-money laundering regime, potentially had application to Cayman funds. The Regulations, however, were extensively amended in June 2020, providing the Cayman Islands Monetary Authority with the power to impose administrative fines for breaches of a wide range of laws, regulations and rules. As a result, the Regime is of greater relevance to Cayman funds, whether open- or closed-end; fund managers that are established or registered in the Cayman Islands; and, in certain cases, even their individual directors. In a guest article, the first in a two-part series, Mourant partner Sara Galletly and associate Alastair Lagrange review the current scope of the Regime, looking briefly at the nature of the Regime and the procedures for imposing and appealing fines. The second article will outline the key considerations relevant to open-end Cayman funds and their managers, identifying some of the more common breaches that can result in fines, so that those breaches can be avoided. For additional commentary from Mourant partners, see “Cayman Islands Hedge Fund Industry Touted Amid Local and Foreign Developments” (Apr. 20, 2017).

Key Compliance Issues Facing Credit Managers During the Pandemic

The coronavirus pandemic has roiled the credit markets and placed unprecedented financial stresses on businesses, creating opportunities for fund managers to pursue credit strategies and direct lending. A recent ACA Compliance Group (ACA) seminar examined the state of the credit markets and the compliance challenges facing managers that participate in them, especially managers wading into unfamiliar waters. The program featured Andrew Poole and Kimberly Versace, senior principal consultants at ACA, and Sabrina Fox, executive advisor at the European Leveraged Finance Association. This article summarizes their insights. See our two-part series on direct lending funds: “Structural Approaches to Address Liquidity Considerations and Ensure Regulatory Compliance” (May 28, 2020); and “Five Structures to Mitigate Tax Burdens for Various Investor Types” (Jun. 4, 2020). See also our two-part series on an Alternative Credit Council study on private credit: “Continued Growth in Private Credit, Despite Headwinds” (Jan. 16, 2020); and “Outlook for Private Credit” (Jan. 23, 2020).

FBI Sees Significant Risk That Private Funds Are Used for Money Laundering

Money laundering and terrorist financing remain pressing concerns of both law enforcement and regulatory agencies. A recent collection of leaked law enforcement documents includes an unclassified internal memorandum (Bulletin) that was prepared by the FBI on the potential use of private investment funds for money laundering. According to the Bulletin, the FBI is “highly confident” that private funds are being – and will continue to be – used for money laundering. This article discusses the FBI’s key assumptions and conclusions. For more on money laundering, see “ALFI Seminar: Navigating Changing E.U. Distribution, Marketing and AML Rules (Part Two of Two)” (Jun. 18, 2020); “Lessons Private Fund Managers Can Learn From U.S. Bancorp’s Settlement of AML Violations” (Apr. 26, 2018); and “FCA Fines Deutsche Bank £163 Million for Lax AML Controls, Warns Other Firms to Review AML Procedures” (Feb. 9, 2017).

Survey: Current Priorities and Challenges for Asset Managers

In the first quarter of 2020, WBR Insights asked 300 senior asset management professionals about their firms’ strategic priorities for the coming years and how they intend to pursue those goals. The survey also asked respondents whether they intend to look into new asset types and markets for asset growth, as well as about their regulatory and technological struggles; outsourcing and cost control issues; and data management and front office challenges. The recently issued survey report presents the results of the WBR Insights’ survey and Northern Trust’s insights. It explores how asset managers can use technology and outsourcing to control costs; assist with risk management and compliance; and facilitate expansion. This article explores the key findings from the survey report, with additional commentary from Ryan Burns, head of global fund services, North America, at Northern Trust. See “Transparency Tops Investment Considerations in Northern Trust Survey” (Jun. 29, 2017).