Jan. 5, 2023

Compliance Corner Q1‑2023: Regulatory Filings and Other Considerations Hedge Fund Managers Should Note in the Coming Quarter

This twenty-third installment of the Hedge Fund Law Report’s quarterly compliance update, authored by ACA Group consultants Valerie Speare, Grazia Gatti and Dan Campbell, highlights upcoming filing deadlines and reporting requirements that fund managers should be aware of during the first quarter of 2023. This article also discusses some key takeaways from the SEC’s Investment Adviser/Investment Company National Seminar: Compliance Outreach Program and how hedge fund managers can respond to the SEC’s recent examination and enforcement attention surrounding “off-channel” electronic communications. For discussion of the DOJ’s focus on electronic communications on personal devices, see “Deputy AG Announces Changes to DOJ Corporate Criminal Enforcement Policies, Stressing Individual Accountability” (Nov. 10, 2022).

Former SEC Enforcement Official Looks Back at 2022 and Forward to 2023

January is when one tends to reflect on the events of the past year and look forward to what may happen in the new year. This reflection should not be limited to individuals’ personal lives – it can also be a useful exercise in a professional context. To that end, the Hedge Fund Law Report spoke to Ranah Esmaili, partner at Sidley Austin LLP and former Assistant Director of the SEC’s Asset Management Unit, about the key SEC actions in 2022 – particularly the flood of SEC rulemaking impacting private funds – and what private fund managers may expect in 2023. This article presents Esmaili’s thoughts on those topics. For additional insights from Esmaili, see “Risk Alert Cites Compliance Issues Regarding Advisers’ Handling of MNPI” (May 19, 2022); “SEC’s Novel “Shadow Trading” Enforcement Action Gains Traction After Denial of Defendant’s Motion to Dismiss” (Mar. 3, 2022); and “NYC Bar Framework for CCO Liability: CCO and Regulator Perspectives (Part Two of Two)” (Jul. 22, 2021).

New FCA Consultation: the U.K. Version of the E.U.’s SFDR?

In October 2022, the U.K.’s Financial Conduct Authority released consultation CP22/20 on Sustainability Disclosure Requirements and investment labels. The proposals in CP22/20 cover sustainable investment labels; investor disclosures and reports; naming and marketing restrictions; and distributor-specific rules. The deadline for responses to CP22/20 is January 25, 2023. This guest article by Goodwin attorneys Ajay Pathak, Andrew Henderson, Danielle Reyes and Chris Ormond explains the key proposals set out in CP22/20. It also examines how those rules compare and contrast with the SEC’s proposed rules on environmental, social and governance investment practices and fund names, as well as the E.U.’s sustainable finance legislation. The article concludes with practical action points for fund managers in scope (both now and in anticipation of the future expansion of the regime to overseas funds marketed in the U.K.) and a chart of the expected application dates of the various proposed rules and requirements. For commentary from other Goodwin attorneys, see our two-part series “Establishing and Marketing Private Funds in the E.U. Under AIFMD”: Key Provisions (Jun. 27, 2019); and Jurisdiction; AIFs and AIFMs; Private Placements; and Reverse Solicitation (Jul. 11, 2019).

Discussing 2022 Enforcement Results, SEC Enforcement Director Stresses Trust-Building Measures

The SEC Division of Enforcement (Division) recently announced its enforcement results (Report) for the fiscal year that ended September 30, 2022, along with an addendum summarizing the underlying enforcement statistics. In a keynote address to the Securities Docket’s Securities Enforcement Forum, Gurbir S. Grewal, Director of the Division since July 2021, drew from the enforcement results to illustrate the SEC’s efforts to increase public trust in the financial markets and financial institutions. This article discusses the key takeaways from Grewal’s speech, with additional data points from the Report. As is customary, he stressed that his remarks reflect his personal views, not those of the SEC, its Commissioners or its staff. See “Present and Former SEC Officials Discuss Enforcement (Part Two of Two)” (Jun. 9, 2022); and “Speeches Outline the Ethos, Direction and Priorities of the SEC’s Division of Enforcement Under Gurbir Grewal” (Jan. 13, 2022).

Takeaways From the New Push for a Federal AI Law

The race to regulate artificial intelligence (AI) is heating up, with Congress the latest entrant. The Senate’s AI Caucus is interested in shaping a federal AI law during early 2023. “A lot of thinking is happening over the next 90 days or so about where we want to go the next two years,” Sam Mulopulos, Deputy Staff Director of the Senate’s Homeland Security and Government Affairs Committee, told a packed room on October 13, 2022, at the International Association of Privacy Professionals’ annual Privacy.Security.Risk conference. Congress is looking to keep some control over AI, as New York City, Colorado and other governments around the world already have laid out prescriptive requirements for organizations’ use of AI and automated decision making. This update provides takeaways on the latest federal, state and global attempts to comprehensively regulate AI use, highlighting five striking developments in October 2022 and other pressures on Congress. It also includes recommendations from AI policy experts from Uber, the Senate, Cozen Strategies and Future of Privacy Forum on how organizations can prepare for AI governance during this current period of legal uncertainty and ferment. See our three-part series on new AI rules: “NYC First to Mandate Audit” (Jul. 28, 2022); “States Require Notice and Records, Feds Urge Monitoring and Vetting” (Aug. 4, 2022); and “Five Compliance Takeaways” (Aug. 18, 2022).