As we typically do in our newsletter, we want to provide you with the following information in an easy and clean format:

• key dates,
• relevant proposed and adopted rules,
• enforcement actions,
• relevant guidance, and
• information about our upcoming speaking engagements. 

Each quarter, we plan to distribute a similar newsletter in this format.

While we never want to use fear as a tactic to drive business, we believe this letter is critical to keep you informed about key compliance deadlines, relevant rule proposals, enforcement actions, and other industry guidance.

Please do not hesitate to reach out to your regular contact at RIA Lawyers or at [email protected] if you have any questions about any items contained in this newsletter. We would be happy to help you consider any of the items in this newsletter.

KEY DATES

Below are key dates for investment advisers to consider:

• No later than October 30, 2024 – Obtain transaction reports / certifications from each “access person” covering Third Quarter of 2024.
• November 11, 2024 – Preliminary Renewal Statements are available in the IARD system.
• November 14, 2024 – Form 13F (for Q3) due.
• December 9, 2024 – Deadline for receipt of payment for Preliminary Statements in the IARD system.  
• Moving Target – Annual Reviews of Policies and Procedures – Under Rule 206(4)-7, investment advisers registered with the U.S. Securities and Exchange Commission must review their policies and procedures annually for their adequacy and the effectiveness of their implementation and document that review.
• Moving Target – DOL Rule Retrospective Review. A report summarizing the Retrospective Review must be completed and signed by a Senior Executive Officer within six months of the end of the period covered by the review.
• Moving Target – Continuing Education Requirements for Investment Adviser Representatives Registered in Certain States. As of the date of this newsletter, the following states have adopted continuing education requirements: Arkansas, California, Colorado, Florida, Hawaii, Kentucky, Maryland, Michigan, Mississippi, Nevada, North Dakota, Oklahoma, Oregon, South Carolina, Tennessee, Vermont, Washington D.C., Wisconsin, and the U.S. Virgin Islands (effective in 2025). More information is available at NASAA and the respective state securities authority’s website and here.

RELEVANT PROPOSED AND ADOPTED RULES

Below are recent rule proposals that could have an impact on investment advisers if they become effective.

• Final Rule FTC Non-Compete Clause Rule  – Update: On August 20^th, 2024, the District Court for the Northern District of Texas issued a decision striking down the Federal Trade Commission’s rule banning non-compete agreements, which was set to take effect on September 4, 2024. Therefore, firms can return to their prior practices with respect to non-compete agreements, and without regard to the FTC’s rule banning them outright. However, state law is unaffected by this ruling, which will continue to affect the way in which those agreements may be effectively drafted and enforced.
• Final Rule Department of Labor Retirement Security Rule: Definition of Investment Advice Fiduciary – Update:
  • On April 23, 2024, the Department of Labor issued a series of final rules  which collectively revised the definition of “investment advice fiduciary,” and related prohibited transaction provisions (the “DOL Rule Updates”). The DOL Rule Updates were scheduled to go into effect September 23, 2024.
    • In July 2024, two U.S. federal district courts in Texas issued nationwide stay orders that halted the implementation of the DOL Rule Updates until further notice.
      • As a result of the stay orders, advisers who have or were working toward implementing procedural, disclosure, or other compliance changes as a result of the DOL Rule Updates should considering maintaining or reverting to procedures and documents developed prior to April 2024’s DOL Rule Update.   
• Final Rule Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers –
  • FinCEN, a bureau of the U.S. Department of the Treasury, issued a final rule to include certain investment advisers in the definition of “financial institution” under the Bank Secrecy Act (BSA). This rule prescribes minimum standards for anti-money laundering/countering the finance of terrorism (AML/CFT) programs to be established by investment advisers and requires certain investment advisers to report suspicious activity to FinCEN under the BSA.
    • The expanded definition of “investment adviser” includes many advisers that are registered with the SEC.
      • However, the expanded definition of “investment adviser” specifically excludes:
        • Advisers registered with the SEC solely because they are “mid-sized advisers”, “multi-state advisers”, “pension consultants” and those RIAs who do not report any assets under management.
        • State registered advisers.
        • Mandatory compliance with this rule is scheduled to begin no later than January 1, 2026.
• Final Rule Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Customer Information –
  • Regulation S-P is a set of privacy rules adopted pursuant to the GLBA and the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”). These rules govern the treatment of consumer non-public information by financial institutions, including investment advisers.
  • The rule amendments adopted by the SEC in May (effective August 2, 2024) are designed to modernize and enhance the protections provided by Regulation S-P, which was originally adopted in 2000.
  • The principal elements of the amendments are:
    • Incident Response Program: Covered institutions must develop, implement, and maintain written policies and procedures for an incident response program that is reasonable designed to detect, respond to, and recover from unauthorized access to or use of customer information.
      • Must include procedures to assess the nature and scope of any incident, and to take appropriate steps to contain and control the incident to prevent further unauthorized access or use. 
    • Notification Requirement: Covered institutions must provide a notification to individuals whose sensitive customer information was, or is reasonably likely to have been, accessed or used without authorization.
      • Notification will not be required if, after a reasonable investigation of the facts and circumstances of the incident of unauthorized access to or use of sensitive customer information, that the sensitive customer information has not been, and is not reasonably likely to be, used in a manner that would result in substantial harm or inconvenience.
        • Must be provided as soon as reasonably practicable, but not later than 30 days after the unauthorized access to or use of customer information has or is reasonably likely to have occurred.
    • Service Providers: Covered institutions will be required to establish, maintain, and enforce written policies and procedures reasonably designed to require oversight, including through due diligence and monitoring of service providers, including to ensure that affected individuals receive any required notices.
    • Recordkeeping and Annual Notice Amendments: Covered institutions must make and maintain written records documenting compliance with the requirements of the safeguards rule and the disposal rule.
      • Amending the existing requirement to provide annual privacy notices to codify a statutory exception.
  • The rule was published in the Federal Register on June 3, 2024, with an effective date of August 2, 2024.Implementation timeframes are tiered:
    • “Larger Entities” (those with $1.5 billion in management or more) have a compliance deadline of 18 months from publication in the Federal Register (December 3, 2025).
    • All other entities have a compliance deadline of 24 months from publication in the Federal Register (June 3, 2026).
• Final Rule – Corporate Transparency Act   
  • In 2021, Congress enacted the Corporate Transparency Act. This is an anti-money laundering regulation designed to help prevent bad actors from concealing ownership in corporations, LLCs, or similar entities to facilitate money laundering, financing of terrorism, tax fraud, and other illegal activities through shell companies or other ownership structures.   
  • Beginning on January 1, 2024, corporations, LLCs, or other non-exempt entities created by the filing of a document with a Secretary of State or similar office under the laws of a state will be required to file a report disclosing information about the company’s “beneficial owners” (the individual(s) who ultimately owner or control the company).   
  • There are 23 exceptions that entities may qualify for to exempt them from the beneficial ownership reporting requirements, including entities registered as investment advisers with the SEC under the Investment Advisers Act of 1940 and private funds reported by these advisers on Form ADV. There is no comparable exemption for exempt reporting advisers, unregistered advisers, or state-registered investment advisers or the private funds they manage.  
  • Non-exempt entities in existence as of January 1, 2024, must file an initial Beneficial Ownership Information (“BOI”) report by January 1, 2025.   
  • Non-exempt entities created on January 1, 2024, and after will have 90 calendar days after receiving notice of effective registration to file an initial BOI report.   
• Proposed Rule Customer Identification Programs –
  • On May 13, 2024, the SEC and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a joint proposed rule to apply customer identification program (CIP) obligations to certain investment advisers.
  • This rule would require SEC-registered investment advisers to implement a CIP that includes procedures for:
    • Verifying the identify of each customer to the extent reasonable and practicable; and
      Maintaining records of information used to verify a customer’s identity, including name, address, and other identifying information.
    • Maintaining records of information used to verify a customer’s identity, including name, address, and other identifying information.

ENFORCEMENT ACTIONS

Below are recent enforcement actions that may be relevant to your business.

• Off Channel Communications: In the matter of P. Schoenfeld Asset Management, LLP
  • The Staff alleged that P. Schoenfeld Asset Management (PSAM) personnel throughout all levels of the firm failed to adhere to the firm’s own recordkeeping policies. From at least October 2018 to December 2021, using their personal devices, firm personnel communicated both internally and externally by text message and other unapproved written communication platforms thereby violating Section 204 of the Advisers Act and Rule 204-2(a)(7) thereunder.
• SEC Charges Nine Investment Advisers in Ongoing Sweep into Marketing Rule Violations
  • On September 9^th, 2024, the SEC announced that it had settled charges against nine registered investment advisers for various violations of the marketing rule. The firms had disseminated advertisements that: included untrue or unsubstantiated statements of material fact or included testimonials, endorsements, or third-party ratings that lacked required disclosures.
• Specific failures included failing to specify the years when these third-party ratings were received or the time period upon which the rating was based, misstating the title of the awards/rankings, and lacking a reasonable basis to believe the firm would be able to substantiate material facts/claims upon demand as it related to the firms being “conflict free,” and disseminating testimonials from individuals who were not current clients.

RELEVANT GUIDANCE

Below is recent guidance issued by the Staff of the SEC that may be relevant to your business.

• 2024 Examination Priorities, Division of Examinations, (Oct. 16, 2023).

INFORMATION ABOUT OUR UPCOMING SPEAKING ENGAGEMENTS