Each quarter the UMB Fund Services registered fund accounting, administration and tax teams consolidate the most impactful regulatory and tax developments in the registered fund industry. To guide your strategic and operational planning, our registered funds servicing team recommends you review and consider these developments from the prior quarter.
The Security Exchange Commission’s (SEC) Division of Examinations issues Risk Alert regarding Observations from Examinations of Newly Registered Advisors
On March 27, 2023, the SEC’s Division of Examinations (EXAMS) issued a Risk Alert‡ noting observations from recent examinations of newly-registered advisers. Included in the Risk Alert are the various areas where EXAMS focuses when examining newly-registered advisors, including the advisor’s business and operations, the advisor’s client accounts, compliance program, staff testing for regulatory compliance, and client communications.
Why it matters:
The Risk Alert describes the areas where EXAMS has focused during recent examinations. These observations can assist advisors in ensuring their policies and procedures meet the SEC’s expectations.
EXAMS is encouraging advisors to review their policies and procedures, marketing and disclosures to ensure they are in compliance with regulations.
SEC Adopts T+1 Settlement Rules
On February 15, 2023, the SEC voted to adopt rule changes to shorten the standard settlement cycle for broker-dealer transactions in securities from two business days after the trade date (T+2) to one business day after the trade date (T+1).
The final rules became effective on May 5, 2023 and are subject to a transition period. While the amended rules’ exclusion for security-based swaps are effective May 5, 2023, broker-dealers will not have to comply with the new rules until May 28, 2024.
Why it matters:
Same-Day Affirmation Requirement
The final rule, for transactions that require completion of a same-day affirmation process, gives broker-dealers the option to either:
- Enter into written agreements with the relevant parties to ensure completion of the same-day affirmation process as soon as technologically practicable and no later than by the end of the trade date
- Adopt specified written policies and procedures reasonably designed to ensure such completion.
Investment Adviser Recordkeeping
The Commission also amended Rule 204-2 under the Advisors Act to require registered investment advisers, for transactions subject to Rule 15c6-2(a), to make and keep records of each confirmation received, and of any allocation and each affirmation sent or received, each with a date and time stamp.
Requirement for Central Matching Service Providers (CMSPs) to Facilitate Straight-Through Processing
The rule would require CMSPs, with respect to institutional trades to:
- Establish, implement, maintain, and enforce reasonably designed written policies and procedures that facilitate straight-through processing
- Submit an annual report to the SEC that describes its current policies and procedures, progress, and the steps it intends to take to facilitate straight-through processing of institutional trades.
SEC Proposes Requirements for Electronic Filings of Certain Forms
The SEC proposed amendments to require that a number of filings be submitted to the SEC electronically on EDGAR using structured data where appropriate.
Specifically, the proposed amendments would require the electronic filing, submission, or posting of certain forms, filings, and other submissions that national securities exchanges, national securities associations, clearing agencies, broker-dealers, security-based swap dealers, and major security-based swap participants make with the SEC.
The proposed amendments would also make certain amendments regarding the Financial and Operational Combined Uniform Single (FOCUS) Report to make it consistent with other rules, make technical corrections, and provide clarifications.
The public comment period will remain open until May 22, 2023.
Why it matters:
Under the proposed amendments, broker-dealers, SBSDs, and MSBSPs would file the Form X-17A-5 Part III and Form 17-H electronically on EDGAR.
Under the proposed amendments, registrants would file or submit the following on EDGAR:
- Notices made pursuant to Rule 17a-19 under the Exchange Act and on accompanying Form X-17A-19
- Notices made pursuant to Rule 3a71-3(d)(1)(vi) under the Exchange Act
- Notices made to the Commission pursuant to Rule 15fi-3(c) under the Exchange Act
- Reports made pursuant to Rule 15fk-1(c)(2)(ii)(A) under the Exchange Act
Under the proposed amendments, registrants would make certain submissions in a structured, machine-readable data language. Finally, the proposed amendments would revise the FOCUS Report to harmonize it with other rules, make technical changes, and provide clarifications. In addition, the Commission is proposing to allow electronic signatures in Rule 17a-5, 17a-12, and 18a-7 filings, including the FOCUS Report.
Click here to review the Winter 2023 – Regulatory lookback: Registered funds regulatory and tax insights.
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