IAA Voices Strong Support for Legislation to Collect Data on Diversity, Equity and Inclusion

Recognizing that the investment adviser profession “has a long way to go in matters of diversity, equity, and inclusion,” the IAA has voiced its strong support for the Diversity and Inclusion Data Accountability and Transparency Act, which was favorably reported out of the. House Financial Services Committee on April 20.

In a letter to Committee Chair Maxine Waters (D-Calif) and Ranking Member Patrick McHenry (R-NC), IAA President and CEO Karen Barr said the investment adviser community “must address the issues that have resulted in lack of diversity and must make meaningful progress towards change. To that end, the IAA is committed to working collectively with its members and with policymakers to seek to promote diversity, equity, and inclusion as a value for our industry and to providing education, information, and resources to help foster significant progress.
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DOL Issues FAQs for Firms, Guidance for Investors on Fiduciary Exemption

DOL Anticipates Amending Fiduciary Exemption, Other Exemptions, and ERISA Investment Advice Fiduciary Regulation

Less than two months after allowing the Department of Labor’s new Fiduciary Exemption to take effect, the DOL’s Employee Benefits Security Administration (EBSA) has issued a set of frequently asked questions (FAQs) on the exemption (see this IAA Today article discussing the exemption. This exemption covers only non-discretionary advice, so its primary application to advisers providing discretionary management likely will be with respect to rollovers.

Ali Khawar, Acting Assistant Secretary of Labor for Employee Benefits, said in a press release that the FAQs “provide assistance to financial institutions and investment professionals as they ramp up compliance with the exemption.”
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DOL Issues First Ever Cybersecurity Guidance

The DOL’s Employee Benefits Security Administration (EBSA) has issued its first ever cybersecurity guidance to help plan sponsors, fiduciaries, and record keepers protect plan participants and assets from both internal and external cyber risks. The guidance is contained in three separate documents, which we review in this article – Cybersecurity Program Best Practices,  Tips for Hiring a Service Provider with Strong Cybersecurity Practices, and Online Security Tips for plan participants and beneficiaries.
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SEC Risk Alert Outlines ESG Exam Focus Areas, Related Deficiencies, Effective Compliance Practices

The SEC’s Division of Examinations has issued a Risk Alert describing areas of focus in examinations of advisers and funds engaging in ESG investing, compliance deficiencies and weaknesses from recent examinations in this area, and examples of effective compliance practices. The Risk Alert highlights the increased investor demand for and growth in ESG investment products and services, and the different ways that firms approach ESG investing. It also stresses that, with the lack of standardization in ESG definitions, portfolio management practices must be consistent with “disclosed ESG investing processes or investment goals.”
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As Policy Debates Intensify, IAA Launches New ESG Committee

Webinar with Head of SEC Enforcement Climate and ESG Task Force Set for May 4

Heidi Hardin and Carlotta King

To ensure that the interests of investment advisers are protected and advanced in ongoing ESG and Climate policy debates, the IAA has established an ESG Committee to help guide our advocacy efforts and to provide a forum for member consideration of ESG-related policy, regulatory, and compliance issues more generally. ESG has become a high priority for the SEC, which has taken a flurry of related actions in recent weeks, and for other regulators. The IAA plans to be actively engaged in related policymaking efforts with the help of members on the committee.

The new ESG Committee will be chaired by Heidi Hardin, Executive Vice President and General Counsel of MFS Investment Management. Carlotta King, General Counsel and Corporate Secretary of Diamond Hill Capital Management, will serve as Vice Chair.
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The IAA’s New Strategic Plan – Turning up the Volume

By IAA President & CEO Karen Barr and Board of Governors Chair Chris Carsman

Chris Carsman and Karen Barr

As our industry continues to grow and evolve, the IAA – as your voice, your resource, and your investment adviser community – must continue to grow and evolve with it. It is our mission to advance the interests of our industry, advocate for an effective and efficient policy environment, and provide the insight, intelligence, and connection that members need to serve their clients and grow their businesses.  Now is the time for us to be bigger and bolder in that mission – “turning up the volume” on your voice and in all that we do.

To meet the challenge of today’s environment and ensure that the IAA continues to provide value to our members and achieves strong growth going forward, our Board of Governors last month unanimously approved a strategic plan that establishes our association’s priorities and goals for the next five years. It identifies four key strategic goals: (1) strengthen the IAA’s value proposition across key constituencies and member segments; (2) serve as the leading voice of and advocate for investment advisers; (3) increase and expand sources of revenue; and (4) raise our visibility.
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High Tech in High Finance | SEC’s FinHub, Compliance Automation
Jennifer McHugh

As in other industries, technological change is driving innovation in asset management. At the 2021 IAA Investment Adviser Compliance Conference, a breakout session titled Adapting Technology to Achieve Compliance Efficiency and Results addressed the SEC’s support for technology initiatives and the use of tech tools in compliance monitoring. The SEC’s Jennifer McHugh talked about how the Commission’s Strategic Hub for Innovation and Financial Technology – better known as FinHub – is a “one stop shop” for “people outside the SEC who are interested in offering a new technology-based product, or understanding the regulatory implications of serving as a robo-adviser, or incorporating a new form of artificial intelligence into their investment selection process or marketing process.
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LIBOR Transition: Important Recent Developments

By Thomas D’Ambrosio, Partner, Morgan, Lewis & Bockius LLP*

Thomas D’Ambrosio
Morgan, Lewis & Bockius

2021 has been a busy year so far for the transition away from LIBOR. On March 5, 2021 the United Kingdom’s Financial Conduct Authority (FCA) confirmed that all LIBOR settings will either cease to be provided by an administrator or no longer be representative (i) immediately after December 31, 2021 in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the one-week and two-month U.S. dollar settings, and (ii) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings. That confirmation by the FCA had the effect of crystalizing the relevant dates for the cessation of the applicable LIBORs and propelling the financial industry toward preparing for such events. The FCA’s confirmation also had the effect of constituting an index cessation event under the International Swaps and Derivatives Association, Inc. (ISDA) IBOR Fallbacks Supplement and protocol, triggering a fixing of the fallback spread adjustment on the date of the FCA’s announcement. Also, on April 6, the governor of New York State signed into law a bill designed to address U.S. dollar LIBOR transition for legacy contracts that mature after June 30, 2023 and do not have effective reference rate fallbacks. This Compliance Corner will discuss these recent developments and what advisers should consider in the coming months.
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SEC Withdraws Certain COVID Relief for Funds, Issues Report on Prime Money Market Fund Activity at Onset of Pandemic

The SEC’s Division of Investment Management is terminating an exemptive order and withdrawing two no-action letters that were issued in March 2020 as part of the SEC’s response to the COVID-19 pandemic, effective April 30, 2021. The Division has also issued an analysis of prime money market funds at the onset of the pandemic during a period of significant market volatility in March 2020.
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SEC Reopens Comment Period on Universal Proxy Proposal, Considers Application to Closed-End Funds and BDCs

The SEC has reopened the comment period for a proposal to require universal proxy cards in connection with certain contested director elections. A universal proxy card includes the names of all duly nominated director candidates, including candidates from company management and candidates from shareholders.
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SEC Staff Issues FAQ on Mutual Fund Calculation Methodologies for Securities Lending Reporting

The staff of the SEC’s Division of Investment Management recently updated its FAQs on Form N-CEN. New FAQ 7 identifies examples of methodologies a fund could use to calculate the “monthly average of the value of portfolio securities on loan” and the “monthly average net assets during the reporting period” in response to Items C.6.f and C.19.a, respectively, on Form N-CEN.
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IAA Responds to SEC Staff Request for Comment on Investment Company Cross Trading Rule 17a-7 

The IAA has submitted comments to the SEC recommending amendments to modernize the Cross Trading Rule  in response to the Division of Investment Management’s staff statement on March 22, which seeks input on a range of questions related to how to amend Rule 17a-7. The IAA is urging the SEC to amend the rule to recognize that an adviser’s fiduciary duty and controls to address conflicts of interest create appropriate principles-based safeguards to protect fund shareholders, among other recommendations.
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New York Adopts LIBOR Law, Effective Immediately

New York’s long anticipated legislation to discontinue use of the London Inter-Bank Offered Rate (LIBOR) was signed into law on April 6 and is effective immediately. The new law applies to contracts governed by New York law. It remains to be seen whether this development will encourage other states to follow suit. The SEC in its 2021 examination priorities highlighted the Division of Examinations’ intention to focus on firms’ preparations for the end of LIBOR and the transition to an alternate reference rate.
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SEC IAC Focuses on Minority and Underserved Inclusion

The SEC’s Investor Advisory Committee’s (IAC’s) March meeting issued draft recommendations on minority and underserved inclusion in investment and financial services, calling on the SEC to “play an active role in the effort to close the wealth gap in our country.” The meeting also featured panels on self-directed IRAs and Special Purpose Acquisition Companies (SPACs).
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SEC COMMISSIONER PEIRCE KEYNOTE AT 2021 IAA COMPLIANCE CONFERENCE–In her keynote conversation with IAA President & CEO Karen Barr, SEC. Commissioner Hester Peirce discussed her concerns about recent agency initiatives involving climate change and ESG initiatives and other challenges facing the SEC.

MORE IAA VIDEOS – including sessions with SEC officials at our 2021 Compliance Conference and videos on Diversity, Equity & Inclusion – are on our VIDEOS page.