Feb. 24, 2022

A Look at the NSCP’s Firm and CCO Liability Framework

In the last few years, the SEC has increasingly gone after CCOs for securities violations – or at least that is how it feels to the CCO community. In fact, in December 2020, the National Society for Compliance Professionals (NSCP) conducted a survey of its members on the topic of CCO liability. Nearly all respondents were either very or somewhat concerned that regulators may have expanded the role of CCOs and the scope of their duties by imposing personal liability on them. Similarly, most respondents were very or somewhat concerned that personal liability would be imposed without recognition that a CCO is acting in good faith in a high-volume, high-pressure environment. In response to those concerns, the NSCP recently released a Firm and CCO Liability Framework (NSCP Framework). This article explains how the NSCP Framework was created, presents the core of the NSCP Framework, discusses its goals and compares it to the New York City Bar Association’s CCO liability framework, with commentary from Genna N. Garver, partner at Troutman Pepper and member of the NSCP’s Regulatory Advisory Committee. For discussion of the NSCP survey, see “Personal Liability and Compliance Resourcing Are Top Concerns Among CCOs, Surveys Show” (Jan. 13, 2022).

SEC Risk Alert Reflects Growing Concerns About and Focus on Private Funds

In June 2020, the SEC Division of Examinations (Examinations) issued a risk alert on its observations from examinations of private fund advisers. Examinations recently issued a follow-up risk alert (Risk Alert) that sets forth additional observations pertaining to failures to act in accordance with disclosures; misleading performance and marketing materials; inadequate investment due diligence and due diligence of service providers; and use of “hedge” clauses. This article details the key takeaways from the new Risk Alert, with commentary from Shivani Choudhary and Vivek Pingili, managing director and director, respectively, at ACA Group; Ellen Kaye Fleishhacker, partner at Arnold & Porter; Victoria Hogan, president of NorthPoint Compliance; and Michael J. Osnato, Jr., partner at Simpson Thacher. See our two-part coverage of Examinations’ 2020 risk alert on private funds: “Focus on Conflicts; Fees and Expenses; and MNPI” (Aug. 6, 2020); and “Key Takeaways for Managers” (Aug. 13, 2020).

U.S. Treasury Initiates Survey of Foreign Securities Holdings

The U.S. Department of the Treasury recently published a notice that it is conducting a mandatory benchmark survey of ownership of foreign securities, including certain money market instruments, by U.S. persons (Survey). It is conducting the Survey with the assistance of the Federal Reserve System and the Federal Reserve Bank of New York (FRBNY). The purpose of the Survey is to collect data for use in computing the U.S. balance of payments accounts; calculating international investment positions; and formulating economic policy. Fund managers and other U.S. persons required to report information on the foreign securities they own must file Form SHC with FRBNY by March 4, 2022. This article analyzes the filing requirement, with practical insights from Julien Bourgeois, partner at Dechert; and Philip S. Gross, partner at Kleinberg Kaplan. For further thoughts from Bourgeois, see “A Guide for Private Fund Managers to Evaluate Whether They Are Required to File TIC Form SHL” (Aug. 8, 2019). For more from Gross, see “Key Tax Issues Fund Managers Must Consider” (Jun. 10, 2021); “2020 Year‑End Tax‑Planning Considerations for Fund Managers” (Dec. 10, 2020); and “Considerations for Hedge Fund Managers When Evaluating Management Shares for Their Cayman Funds” (Jun. 20, 2019).

Asset Allocators Discuss the Evolution of ESG Data, Disclosure and Standards

Although demand for consideration of environmental, social and governance (ESG) factors in the investment process has grown dramatically, there remains a dearth of clear standards and definitions, as well as consistent data. A recent SS&C Intralinks program brought together a group of asset managers and industry professionals to discuss how the ESG arena is evolving, including the fitful moves toward standardization and the challenges associated with ESG disclosure. The program was hosted and moderated by Joe Cuillinane, sales executive at SS&C Intralinks. This article discusses the key takeaways from the program. See “Morgan Lewis Attorneys Discuss the Global ESG Landscape” (Aug. 19, 2021); as well as our two-part coverage of IOSCO’s ESG consultation report: “Risk of Greenwashing and Regulatory Approaches” (Aug. 5, 2021); and “Investor Education, Impediments and Recommendations” (Aug. 19, 2021).

How In‑House Expertise Can Help Outside Counsel

When faced with a compliance-related crisis, most fund managers reach out to outside counsel for advice and support. Law firms can offer critical resources, including seasoned attorneys with years of investigatory experience under their belts, but they often lack hands-on, in-house experience with compliance programs. That can lead to misunderstandings and stress. With that in mind, Amy Schuh, a former executive at HP, Merck and Cognizant, has taken her in-house experience to Morgan Lewis to help build out an ethics and compliance practice. The Hedge Fund Law Report recently spoke with Schuh about the reasoning behind her move and how law firm teams can benefit from integrating in-house know-how into their practices. See our two-part series “Perspectives From In‑House and Private Practice”: Hedge Fund Culture, Law Firm Selection and Counterparty Risk (Aug. 11, 2016); and Family Offices, Broker-Dealer Registration issues and Impact of Capital, Liquidity and Margin Requirements (Aug. 25, 2016).