Investment Management
SEC and DOL Agree to Cooperate in Examinations
What This Means
The U.S. Department of Labor’s (DOL) Employee Benefits Security Administration and the U.S. Securities and Exchange Commission (SEC) have entered into a Memorandum of Understanding (MOU) on July 28, setting forth a framework for consultation and exchange of information. The MOU was heralded as a formal recognition of the agencies’ effective and informal working relationships and their expectation of continued cooperation. >>> continued
SEC Exam Staff Issues Second ComplianceAlert
On July 22, the Securities and Exchange Commission’s (SEC’s) Office of Compliance, Inspections, and Examinations (OCIE) issued a ComplianceAlert, the second in a planned series of periodic updates that will summarize select areas of operational deficiency that SEC examiners have found during examinations of broker-dealers, investment advisers, investment companies, transfer agents, and other types of registered firms. Legal and compliance departments at such firms can use the ComplianceAlert to help identify those deficiencies that the SEC staff has noted in the past and that may need to be addressed. In addition, the ComplianceAlert suggests a number of practices that the OCIE found exemplary, which may merit implementation at other firms. Finally, from an enforcement perspective, the ComplianceAlert may be an indication of emerging compliance issues that the OCIE has chosen to address informally at this stage that may serve as the basis for enforcement referrals in the future.
A summary of some of the more notable aspects of the letter follows. >>> continued
SEC Staff Confirms that Hedge Fund Solicitors Are Not Subject to the Cash Solicitation Rule
What This Means
As had long been expected, Securities and Exchange Commission (SEC) staff confirmed a few days ago that the SEC’s cash solicitation rule, Rule 206(4)-3 (the Rule) under the Investment Advisers Act of 1940 (the Advisers Act), does not apply to a registered adviser’s cash payment to a person solely to compensate that person for soliciting investors or prospective investors for, or referring investors or prospective investors to, hedge funds and other pooled investment vehicles.1 The Rule prohibits a registered investment adviser from directly or indirectly paying a cash fee to a person who solicits on the adviser’s behalf, unless the solicitor is not subject to a court order or administrative sanction, and the fee is paid pursuant to a written agreement to which the adviser is a party. >>> continued
SEC Proposes Rule That Would Require Equity Index Annuities to Be Registered Securities
What This Means
The Securities and Exchange Commission (SEC) has proposed a rule which, if adopted, is expected to require all insurance companies issuing equity index annuities (EIAs) to register them as securities under the Securities Act of 1933 and sell them pursuant to a prospectus. An EIA is an annuity that provides annual interest equal to some or all of the return of a specified securities index, such as the S&P 500, or a minimum percentage rate specified in the annuity contract, whichever is greater. Insurance agents who currently can sell EIAs with a state insurance license would have to pass FINRA tests and become registered representatives associated with a broker-dealer. EIA sales practices would become subject to the antifraud provisions of the securities laws, including Rule 10b-5. Given the current uncertainty as to how the law applies to EIAs, the proposed rule would not apply retroactively, but only to EIA sales after a rule is adopted. The proposed rule does not address the status of general account life insurance products whose return is index-based. >>> continued
Interactive Data for Mutual Fund Risk/Return Summary
What This Means
The U.S. Securities and Exchange Commission (SEC) recently proposed to require mutual funds to provide their risk/return summary information in interactive data format as an exhibit to their post-effective amendment filings on Form N-1A. The proposed interactive data requirements would not affect the format of or the information required to be disclosed in a mutual fund’s risk/return summary in its prospectus. The proposed amendments also would require mutual funds to post the interactive data to their respective websites. >>> continued