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A Preview of 2015 Advisers Act Developments

According to Jesse Kanach, asset management can be boiled down to three principal aspects: outreach, operation, and market interaction. In Investment Advisers Act Compliance Developments in 2015, Kanach highlights the SEC’s focus on the operations aspect, noting that “asset managers should expect a regulatory push to get back to basics.” Kanach suggests that the regulatory focus will require COOs to be more involved with compliance. He argues that this focus will play out in the Commission’s interest in cybersecurity, data reporting both from and to the SEC, and risks and threats to a firm’s “operational integrity.”  According to Kanach, “[n]ot since the introduction of Sarbanes-Oxley has to much scrutiny been visited upon firms’ internal controls and processes.”

The article notes a focus on technology related issues from FINRA, the SEC, Congress, and the European Union. Additionally, Kanach highlights the rise of “Fintech,” or “the application of innovative technologies to facilitate public participation in new financial and investment platforms or products.” Though Fintech can open new avenues, the article discusses the challenges of fitting new innovations into the existing regulatory regime.   

Turning to more traditional aspects of asset management operations, Kanach sees the Commission “vigorous in enforcing the Advisers Act custody rule” and a likelihood that the Commission will increase its focus on the effect of the concentrated proxy advisory market. He also expects the Commission will require further reporting on separately managed accounts, securities lending, use of derivatives, liquidity, valuation, and other basic fund information (based on a speech given by Chair Mary Jo White), and foresees an update to the Form N-SAR from its current “combination of outdated technology and a non-user-friendly format.” Further, he believes that the Divisions of Investment Management and Enforcement will begin to use the data it has been collecting for risk awareness and management.

Kanach also discusses the FSOC’s activities, including how the FSOC’s interest in liquidity, leverage, and asset management insolvency may influence the SEC’s activities. Lastly, he predicts that the SEC will finally bring long-expected actions challenging how funds have handled their sub-TA arrangements as a result of the Commission’s “distribution in guise” sweep. He predicts that these cases may result in changes to transfer agency, recordkeeping and other operational systems.


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