News
FINRA and SEC to Focus on Advisor Fees
Both FINRA and the Securities and Exchange Commission have indicated a renewed interest in the fees charged by investment advisors. In a May 2016 notice, FINRA announced a mutual fund fee waiver sweep intended to gather information regarding whether advisors had mechanisms in place to ensure that mutual fund investors are receiving promised fee waivers and reimbursements. The SEC’s investor advocate Rick A. Fleming announced in his annual report to Congress published on June 30 that improved disclosure of fees and expenses charged by financial advisers is a top priority for his office in the new fiscal year.
Software Bug Leads to SEC Censure
On January 14, 2016, the SEC announced that a large U.S. broker dealer had agreed to settle charges that its securities lending practices violated federal securities regulations. According to the SEC’s order, the dealer violated Regulation SHO by providing “locates” to customers without an adequate review as to whether the securities could be borrowed reasonably at settlement.[1] As a result, some customer short sales may have been executed improperly.
Pushback on SEC Liquidity Proposals
The Securities and Exchange Commission’s September 2015 rule proposals addressing mutual fund liquidity issues have not been received with great enthusiasm by the fund industry. Some major players have made it quite clear in their comment letters that they feel the SEC has missed the mark with this proposal.
OCC Report Highlights Lingering Risks and Supervisory Priorities
Strategic, underwriting, cybersecurity, compliance, and interest rate risks lead the Office of the Comptroller of the Currency’s (OCC) supervisory concerns in its Semiannual Risk Perspective for Fall 2015. Released December 17, 2015, the report “addresses key issues facing banks, focusing on those that pose threats to the safety and soundness of banks and their compliance with applicable laws and regulations.” The report notes among its conclusions that the risks associated with underwriting and cybersecurity are increasing, and while strategic, compliance, and interest rate risks remain stable, they too remain supervisory priorities for 2016.
Lawmakers Fail to Stop the DOL’s New Fiduciary Standard from Moving Forward
Foes of the DOL’s proposed fiduciary rule suffered a setback last week when the House of Representatives passed an omnibus spending bill omitting any measures that would have stalled, hindered, or killed the proposal. On the table during budget negotiations were riders and amendments to the bill that would have defunded the proposal, required a new comment period, or proposed an alternative standard altogether. The new standard’s proponents, including the DOL, SEC, and the Obama administration say that the rule proposal which would require brokers to put their clients’ interests ahead of their own in 401(k) and individual retirement accounts is vital to protecting workers saving for retirement from high-fee products that erode their savings.
CSMFE Submits Comments on FSB Data Collection Proposals
On February 12, 2015, the Center for the Study of Financial Market Evolution (“CSFME” or the “Center”) filed its response to the Financial Stability Board’s (FSB) consultation, Standards and Processes for Global Securities Financing Data Collection and Aggregation (“Consultation Paper”). The Consultation Paper proposes a system of data collection intended to help market supervisors infer changes in systemic risk that are said to be created by securities lenders, repo traders and margin lenders. Previously, as part of their larger workstream on shadow banking, the FSB recommended that national/regional authorities collect appropriate data on securities financing markets to help the FSB better assess ongoing financial stability. The Consultation Paper is a proposal regarding what kinds of data on repo, securities lending, and margin lending should be collected, how they should be collected, and in what format.
Latest FSB Global SIFI Consultation Draws Swift Criticism
Though the Financial Stability Board’s (FSB) March 4, 2015 consultation paper on Global SIFI designation is only a week old, it has already generated a chorus of criticism and condemnation from some of the asset management industry’s most powerful players. This second public consultation proposes revised methodologies for identifying non-bank non-insurer global systemically important financial institutions (NBNI G-SIFIs) based on comments received on the first consultative paper published in January 2014.
Reform Skeptic Rep. Hensarling to Hold Hearings on Dodd-Frank and the Power of the Fed
Long time financial reform skeptic and Dodd-Frank foe Jeb Hensarling (R-TX), chair of the Financial Services Committee, will hold hearings on what he believes to be the Federal Reserve’s lack of transparency and accountability. On Tuesday, July 14, 2015 at 10:00am...
The Origins of Trusts and Fiduciary Duties
A trust is a fiduciary arrangement that allows a one party to transfer assets to a third party, or trustee, to hold assets on behalf of a single beneficiary or a number of beneficiaries. Trusts have myriad uses and are employed across a wide variety of property transfers, transactions, testamentary bequests, and business arrangements. They are so useful because they are so very flexible and can be custom tailored to restrict exactly how the assets are to be managed during the life of the trust, as well as how, when, and in what form the assets pass to the beneficiaries. Because trusts have such utility and so widely used, a large body of law has grown up around them. And since a key aspect of trusts is the placement of things of value in the care of a third party, the trustee, a corollary concept, fiduciary duty, has also grown to address the rights and responsibilities of trustees with respect to the property in their care, and with respect to the trust’s beneficiaries.
SEC Proposes Derivatives Regime for Mutual Funds, ETFs, and BDCs
On Friday, December 11, as previously announced, the SEC voted to propose a new rule regarding the use of derivatives by mutual funds, closed-end funds, ETFs, and business development companies. Since as far back as the 1990s under Chairman Aurthur Levitt, the SEC has been concerned about the multitude of risks derivatives can raise for funds, including risks related to leverage and liquidity. But, with the dramatic growth in the volume and complexity of the derivatives markets over the past two decades and the increased use of derivatives by certain funds, the risks to funds and the associated investor protection concerns are now significantly greater.