Dec. 9, 2021

Implications of Enforcement’s New Policy Requiring Admissions in Certain Settlements

Gurbir Grewal, new Director of the SEC’s Enforcement Division (Enforcement), recently spoke about Enforcement’s role in restoring the public’s faith in the financial markets and financial institutions. Among other things, Grewal noted the importance of crafting appropriate remedies for securities violations, including requiring admissions by violators settling enforcement actions. Grewal’s statements regarding admissions have raised concerns because the SEC’s practice has generally been not to require parties settling enforcement actions to admit wrongdoing. The Hedge Fund Law Report spoke to H. Gregory Baker, partner at Patterson Belknap and former Enforcement attorney, about this change in policy and the possible implications for the SEC and for the entities and individuals regulated by it, as well as Grewal’s comments regarding changes to the Wells process. For additional insights from Baker, see “SEC Sanctions Unregistered Fund Adviser for Regulation SHO Violations” (Sep. 30. 2021).

Hong Kong SFC Issues Consultation Conclusions on Management and Disclosure of Climate‑Related Risks by Fund Managers

The Hong Kong Securities and Futures Commission (SFC) recently issued its Consultation Conclusions on the Management and Disclosure of Climate-related Risks by Fund Managers (Conclusions), requiring fund managers managing collective investment schemes to take climate-related risks into consideration in their investment and risk management processes and make disclosures regarding those investment and risk management policies and processes. The Fund Manager Code of Conduct (FMCC) will be formally amended to incorporate the new requirements. On the same day, the SFC issued a circular to licensed corporations to set out expected standards for complying with the FMCC. In a guest article, Anne-Marie Godfrey and Ruby Ho, partner and associate, respectively, at Akin Gump, review the Conclusions’ new climate-related risk requirements and their application to fund managers based in Hong Kong. For more on recent developments in Asia, see “The Global Hedge Funds Landscape: Europe, Asia and the Middle East (Part Two of Two)” (Jul. 15, 2021); “Reformed QFII/RQFII Programs Facilitate Investment in China” (Apr. 8, 2021); and “Key Legal and Structural Considerations for Asian Equity Investments” (Sep. 10, 2020).

Recent Experiences With SEC Examinations and Enforcement: Cybersecurity, BCPs, Branch Offices and Disclosures (Part One of Two)

Although SEC examination and enforcement priorities remain relatively steady over time, with every new administration and SEC Chair come subtle shifts in focus areas and approaches. A recent seminar hosted by Brian T. Davis and Dimitri G. Mastrocola, partners at international recruiting firm Major, Lindsey & Africa, examined how SEC examination and enforcement efforts are shaping up under Chair Gary Gensler. The program featured Scott H. Moss and Eileen Overbaugh, partners at Lowenstein Sandler. This first article in a two-part series distills their insights on cybersecurity, business continuity plans, branch offices and disclosures. The second article will present their thoughts on the use of the word “may” in disclosures; conflicts of interest-related issues; cross trades and principal transactions; insider trading; responsible investing; and exams of new advisers. See our two-part coverage of the SEC’s 2021 examination and enforcement priorities: “Cybersecurity, Business Continuity and Conflicts of Interest” (Jul. 22, 2021); and “ESG, New Marketing Rule and Other Potential Focuses” (Jul. 29, 2021).

Ways CCOs Are Approaching ESG in Light of Growing SEC Scrutiny

Advisers are facing increasing SEC scrutiny over disclosures and practices around their use of environmental, social and governance (ESG) factors in the investment process. A recent ACA Group (ACA) program examined SEC initiatives, examination experiences and potential rulemaking pertaining to ESG investing and explored how advisers’ compliance teams are engaged in the firms’ ESG practices. ACA partner Crista DesRochers moderated the discussion, which featured Ranah Esmaili, partner at Sidley Austin and former SEC official; Wendy D. Fox, senior vice president and CCO at Ariel Investments; and Jennifer Lin, CCO of Fundamental Advisors LP. This article highlights the key points raised during the presentation. See “ACA Compliance Testing Survey: Compliance Programs Holding Up and Significant Growth in ESG Interest (Part One of Two)” (Oct. 14, 2021); “SEC Regional Heads Discuss SEC Structure and Priorities” (Sep. 23, 2021); and “Manager and Investor Interest in ESG Is Growing, According to Recent Global Hedge Fund Study (Part Two of Two)” (May 20, 2021).

ALFI Seminar Examines E.U. Funds Landscape and Regulatory Developments Affecting Distribution (Part Two of Two)

The Association of the Luxembourg Fund Industry (ALFI) recently held a Digipulse USA seminar at which funds industry professionals examined recent significant trends and regulatory developments in the funds industry and their impact on U.S. managers. The presentation was hosted by Marc‑André Bechet, deputy director general of ALFI. This second article in a two-part series discusses the new pre-marketing regime under the cross-border distribution of funds directive; distribution in Switzerland and post-Brexit U.K.; and retail alternative investment products. The first article examined the portions of the seminar that addressed the growth of the European funds industry; fund distribution in the E.U., including the relative costs and benefits of authorized funds versus private placements and passported funds’ need for authorized distributors. A future article will cover the parts of the seminar devoted to sustainable investing and anti-money laundering compliance. See our two-part series “ALFI Seminar: Navigating Changing E.U. Distribution, Marketing and AML Rules”: Part One (Jun. 11, 2020); and Part Two (Jun. 18, 2020).