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May 2014 Archives

In the Spotlight: Private Equity Firms & the Presence Exam Initiative

The question "how are private equity firms doing?" was asked back in 2012 by the Securities and Exchange Commission's ("SEC's") Office of Compliance Inspections and Examinations ("OCIE"),  in response to the growth of this industry. In October 2012, OCIE launched its Presence Exam Initiative (the "Initiative") for newly registered private equity firms. Now that a year and a half has passed, OCIE Director Andrew Bowden has addressed some of the results and concerns that have arisen thus far in the examination of private equity firms. In this blog post, we will highlight key results and findings provided by Mr. Bowden in his May 6, 2014 speech.

California's Revised Custody Rule Seeks Uniformity

Recently, the California Department of Business Oversight (“DBO”) officially adopted revisions to the California investment adviser custody rule, Section 260.237 of Title 10 of the California Code of Regulations (the “Rule”).  According to the DBO, these changes were in response to, and incorporate provisions from, the recently adopted amendments to the Securities and Exchange Commission’s (“SEC’s”) Custody Rule[1] and the North American Securities Administrators Association’s (“NASAA’s”) Model Custody Rule.[2] Notably, changes to the federal custody rule in 2009 prompted changes to the Model Rule by NASAA, which in turn triggered the DBO to enact its recent revisions.  According to the DBO, the goal of the Rule’s enactment is to increase uniformity so that regardless of whether an investment adviser registers with the State of California or with the SEC, the adviser will have the same responsibilities with investors afforded the same protections.Please click below to read more:JLG Legal Risk Management Tip - California's Revised Custody Rule Seeks Uniformity - 05.2014

Foreign Risk: How to Avoid Anti-Money Laundering Problems with the New Russian Financial Sanctions

The past two months have seen much in the way of political and civil strife in the Ukraine, as Russian forces moved into the Crimea and Eastern regions. After a series of economic sanctions against Russia were instituted by the US in March and early April 2014, by  April 28th, the Treasury Department announced additional sanctions on seven (7) Russian officials and seventeen (17) entities that are owned, controlled by, or have supported senior Russian government officials. This action by the US has specifically aimed to stop Americans with doing any business with the listed officials and entities. More restrictions are yet to come, including penalties assessed to the Russian defense, high technology, and engineering and energy sectors.The effect of these ongoing sanctions on the US financial industry – from mutual and hedge fund managers, to broker-dealers, investment advisers and individual investors – cannot be overstated. Avoiding sanction violations and fines, as well as monitoring regulatory breaches and security threats, are among the concerns facing firms and their compliance professionals. Of particular concern, however, are the ramifications of these sanctions on mitigating risks associated with anti-money laundering (“AML”) with foreign entities.Firms of all kinds should reassess their current anti-money laundering procedures within their company policies and procedures (“P&P”) manual, particularly focusing on the process in which new or prospective clients are checked against two important lists:
  1. The Treasury’s Office of Foreign Assets Control (“OFAC”) list of Specifically Designated Designated Nationals and Blocked Persons (“SDN”), using the Financial Industry Regulatory Authority’s (“FINRA’s”) OFAC Tool, located here: http://apps.finra.org/rulesregulation/OFAC/1/default.aspx.
  2. The Financial Action Task Force (“FATF”) lists, used for identifying businesses located in or transacting with a country of potential risk: http://www.fatf-gafi.org/.
If a client or potential client appears on the OFAC SDN list, the firm’s Chief Compliance Officer (“CCO”) should take additional steps, including further investigation and, if applicable filing a SAR report. Be sure to run Client lists against the OFAC SDN list and the FAFT list on a periodic basis to ensure ongoing compliance.For further information on this and other related subjects, please contact us at [email protected]  or (619) 298-2880.

SEC OCIE's Cybersecurity Initiative: What Your Firm Needs to Know

There has been a recent flurry of news reports, analysis and webinars in the securities law world around the Securities and Exchange Commission's ("SEC's") Office of Compliance Inspections and Examinations ("OCIE") proposed 2014 Cybersecurity Initiative. Launched as a major news item this month after the SEC's OCIE published its April 15, 2014 Risk Alert devoted to the topic, the Cybersecurity Initiative redirects the financial industry's compliance focus back to SEC examinations, as OCIE purports to conduct exams on "more than 50 registered broker-dealers and registered investment advisers", focusing specifically on a firm's "cybersecurity preparedness." So what do you need to know the most from this latest Risk Alert? The areas that OCIE will be most concentrating on include:

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