Nov. 11, 2021

Exams of Non‑U.S. Advisers: The SEC’s Authority and Trends (Part One of Three)

All investment advisers that are registered with the SEC – including those that manage private funds – are subject to examination. Not even a global pandemic could stop the SEC’s Division of Examinations from conducting 2,128 exams in fiscal year 2020. Of course, those  exams were largely conducted remotely, and the success of remote exams may have contributed to the increase in exams of investment advisers based outside of the U.S. that some have observed over the last year or so. This first article in a three-part series discusses the SEC’s authority to conduct examinations of non‑U.S. advisers and the recent trend of more exams of those advisers. The second article will compare SEC exams of U.S. advisers to exams of non‑U.S. advisers and SEC exams to exams conducted by foreign regulators. The third article will provide practical tips for non‑U.S. advisers that may face an SEC exam for the first time. See our two-part series “Practical Guide for Private Fund Managers Navigating SEC Exams in the Biden/Gensler Era”: Part One (Jul. 8, 2021); and Part Two (Jul. 15, 2021).

Electronic Communications: Using Third Parties for Compliance, Mitigating Social Media Risks and Fulfilling Document Requests (Part Three of Three)

As with most compliance practices at private funds, a firm’s responsibilities to monitor, preserve and produce the electronic communications of its employees have far exceeded most firms’ in-house capacities. That is exacerbated by the pervasiveness of social media and other forms of electronic messaging that blur the line between personal and business messages. As a result, fund managers are forced to develop hybrid monitoring models that rely on service providers; to remain vigilant and nimble when overseeing the social media efforts of their employees; and to explore new techniques for capturing and archiving those communications in case the SEC or another regulator requests them in an examination. This final article in a three-part series explains ways that fund managers can work with service providers to capture, archive and surveil their employees’ electronic communications and social media practices. The first article supplied an overview of recent regulatory measures – ranging from guidance to enforcement actions – related to electronic communications, as well as certain trends that are exacerbating the topic’s significance for fund managers. The second article suggested several types of considerations that fund managers should weigh when preparing employee training regimens, as well as policies and procedures, directed at rooting out improper electronic communication practices. See “Business Emails Must Be Secure to Avoid SEC Enforcement Action” (May 12, 2016); and “Survey Highlights Compliance Professionals’ Attitudes and Practices Concerning Electronic Communications Compliance” (Feb. 9, 2012).

The Evolving Use of Managed Account Platforms and Platform Providers

A recent program presented by the Investment Management Due Diligence Association (IMDDA) examined the evolving use of managed account platforms (MAPs) and their providers (platform providers). The program covered the growth of MAPs and platform providers; their advantages and disadvantages; considerations when choosing a platform provider; and oversight of providers. Daniel Strachman, IMDDA’s co‑founder and managing director, moderated the discussion, which featured Abali Hoilett, co‑head, funds fiduciary, at Maples Group; and Benoit Sansoucy, vice president at Maples Group. This article reviews the key takeaways from the presentation. See our two-part series “Considerations for Hedge Fund Managers Looking to Join Managed Account Platforms”: Part One (Aug. 2, 2012); and Part Two (Aug. 9, 2012); as well as “Legal and Operational Due Diligence Best Practices for Hedge Fund Investors” (Jan. 5, 2012).

Using Technology and Outsourcing to Enhance Compliance Programs and Manage Conflicts of Interest

One of the challenges facing compliance personnel is gathering and monitoring information from multiple sources, both within and outside a firm. A panel at the fall 2021 virtual conference sponsored by ACA Group (ACA) examined how and when advisers and institutional investors are using technological solutions and outsourcing to improve their compliance programs in general and to manage conflicts of interest and best execution duties in particular. Jordan Schwartz, partner at ACA, moderated the discussion, which featured Michael A. Kitson, deputy CCO and counsel at Bridgewater Associates LP; Owen Schmidt, partner at Schulte, Roth & Zabel; and Heather Traeger, GC and CCO of the Teacher Retirement System of Texas. This article summarizes the key takeaways from the presentation. See “Using RegTech to Enhance Compliance” (Jun. 24, 2021).

Overview of Global Regulatory Enforcement on Conflicts, Fees, AML and Operational Resiliency in Key Jurisdictions (Part Two of Two)

The SEC is widely regarded as one of the most of aggressive and, in some senses, intimidating regulators across the global private funds market. Other regulators around the world are taking notice, however, and incrementally increasing their scrutiny of local fund managers in an attempt to crack down on bad conduct. To that end, Clifford Chance recently hosted a webinar on regulatory enforcement measures in the U.S., U.K., Europe, Singapore and Hong Kong. The program was moderated by Clifford Chance partner Dorian Drew and featured fellow attorneys Celeste Koeleveld, Donna Wacker, Kabir Singh, Antonio Golino, Ellen Lake and Benjamin Berringer. This second article in a two-part series highlights regulators’ efforts in each jurisdiction in certain high-risk areas, including market manipulation; anti-money laundering; fees and expenses; conflicts of interest; and operational resiliency. The first article outlined the general regulatory trends in each jurisdiction. For coverage of recent regulatory coordination between the SEC and Europe, see “Implications of the SEC-European Central Bank MOU on Security-Based Swaps” (Oct. 14, 2021).