Aug. 25, 2022

Form PF Proposal Comments: Suggestions to Tailor the One‑Business‑Day, Stress‑Related Reporting Requirements (Part Two of Two)

Among the array of reforms in the 236 pages of the SEC’s January 2022 proposed amendments to Form PF (Proposal), arguably the most worrisome for hedge fund managers relates to the new Section 5 created therein that would require them to make filings within one business day of the occurrence of certain stress-related events. Comment letters submitted by industry professionals that were reviewed by the Hedge Fund Law Report expressed myriad concerns about the requirement, ranging from the haste of the reporting to the types of events triggering a report. This two-part series summarizes a subset of representative comment letters in anticipation of final Form PF reforms in the coming months. This second article notes certain critiques of the one-business-day reporting requirement and the stress-related reporting events in the new Section 5 of Form PF that would trigger such reporting. The first article detailed general observations in the comment letters about the Proposal’s scope, intent and purpose, as well as the scope of the definition of hedge funds. See our two-part series: “Proposed Form PF Amendments Would Require Prompt Reporting of Certain Stress Events and Enhanced Reporting by Large Liquidity Fund Advisers” (Mar. 3, 2022); and “Practical Impact of the Proposed Form PF Amendments on Fund Managers and Reasons for Industry Backlash” (Mar. 10, 2022).

CPRA Draft Regulations: Essential Takeaways and Ten Actions to Take Now

Offering businesses a long-awaited roadmap to compliance, albeit one with clarifications and finalization that remain outstanding, the California Privacy Protection Agency (CPPA) has released its first draft of regulations for the California Privacy Rights Act (CPRA). At a recent meeting, the CPPA voted to begin the formal rulemaking process for the draft regulations. In a guest article, Troutman Pepper attorneys examine how those draft regulations provide clarification on many topics of CPRA compliance and enforcement – such as dark patterns, reasonable expectations of privacy, contracting requirements, opt-out preference signals, the right to correct and the notice at collection – and offer implementation steps to take now. See “Preparing for CPRA Compliance: Jurisdictional Focus or a More Holistic Approach?” (Jun. 16, 2022).

SEC Action and Commissioner Peirce’s Statement Shed Light on CCO Liability

Although SEC Commissioners and staff members have issued informal guidance on when a CCO can be held personally liable for a compliance failure, considerable uncertainty remains, compounded by the often-limited information provided in SEC settlement orders. A recently settled enforcement proceeding against an investment adviser and its CCO involved what appears to be a relatively egregious case of a CCO who allegedly repeatedly failed to enforce the firm’s compliance policies with respect to its representatives’ outside business activities. The resolution also prompted a statement from Commissioner Hester M. Peirce, who parsed the settlement order through the lens of the CCO liability framework proposed by the Compliance Committee of the New York City Bar Association. This article reviews the alleged compliance failures, the terms of the resolution and Peirce’s observations, with additional commentary from Morgan Lewis partners Lance C. Dial, Kelly L. Gibson and Christine M. Lombardo. See “Six Takeaways From the SEC’s FY 2021 Enforcement Results” (Jan. 27, 2022); and “How CCOs Can Avoid Personal Liability for Organizations’ Compliance Failures” (Mar. 11, 2021).

SEC Does About‑Face on Proxy Voting Rules (Part One of Two)

A divided SEC recently reversed portions of the final rules it adopted in 2020 pertaining to the activities of proxy advisory firms, eliminating some conditions to the availability of certain exemptions from proxy solicitation requirements. It also proposed amendments to the rules governing shareholder proposals that will likely make it harder for public companies to exclude those proposals from their proxy materials. In each case, SEC Chair Gary Gensler, along with Commissioners Caroline A. Crenshaw and Allison Herren Lee, supported the action, while Commissioners Hester M. Peirce and Mark T. Uyeda did not. This two-part series distills the substance of the latest rulemaking, the SEC’s rationale and the views of the dissenting Commissioners. This first article analyzes the proxy voting guidance and rules introduced in 2019 and 2020, as well as the new rule issued in July 2022. The second article will explore the proposed amendments to the shareholder proposal rules. See “Fireside Chat With SEC Chair Gensler: Reporting; Voting and Proxies; Individual Accountability; and Market Structure Issues (Part Two of Two)” (Dec. 2, 2021).

Compliance Survey Finds Data Management Challenges, Rising Costs and Increasing Uptake of RegTech

A recent study of financial services firms found that data management is one of the most widely experienced compliance challenges. Regulatory technology (RegTech) firm SteelEye recently surveyed 170 U.S. and U.K. compliance and operating officers at banks, as well as buy- and sell-side firms, to learn about compliance challenges; compliance program priorities, staffing, expenditures and costs; uptake of RegTech; artificial intelligence and machine learning; and the impact of Brexit. This article discusses the key findings from the study, with insights from SteelEye CEO Matt Smith. See “Personal Liability and Compliance Resourcing Are Top Concerns Among CCOs, Surveys Show” (Jan. 13, 2022).