Advisers fined for failing to complete Form PF
8 June 2018
On June 1, the SEC announced settlements with 13 registered investment advisers who failed to file annual reports on Form PF. Each adviser agreed to a US$75,000 penalty. The settlement orders show the various advisers missed filings repeatedly between 2012 and 2016, with some advisers appearing to never have filed Form PF since the reporting obligation began in 2012.
Rule 204(b)-1(a) of the Investment Advisers Act requires certain investment advisers with at least $150 million in private fund assets under management to file and periodically update a report on Form PF to provide information about the private funds they manage. The SEC uses Form PF data to monitor industry trends, inform rulemaking, identify compliance risks, and target examinations and enforcement investigations. Exempt Reporting Advisers are not required to complete Form PF.
SEC fiduciary rulemaking package
On April 18, 2018 the SEC voted to propose a package of rulemakings and interpretations related to fiduciary duties of broker-dealers and investment advisers “designed to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers while preserving access to a variety of types of advice relationships and investment products.” The three proposals come in at just under 1,000 pages total.
Regulation Best Interest would require broker-dealers and natural persons who are associated with broker-dealers to act in the best interest of the retail customer at the time a recommendation is made without placing the financial or other interest of the broker-dealer or natural person who is an associated person making the recommendation ahead of the interest of the retail customer.
The SEC also proposed new and amended rules and forms under both the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934 to require registered investment advisers and registered broker-dealers to provide a brief relationship summary to retail investors to inform them about the relationships and services the firm offers, the standard of conduct and the fees and costs associated with those services, specified conflicts of interest, and whether the firm and its financial professionals currently have reportable legal or disciplinary events. The short-form disclosure document – Form CRS- is designed to address investor confusion about the nature of the relationship between investment professionals and investors. Form CRS would only be required for retail investors and is intended to provide simple, easy-to-understand information about the investor-financial professional relationship.
Finally, the SEC proposed an interpretation to reaffirm and clarify the SEC’s views of the fiduciary duty that investment advisers owe clients. In the same proposal the SEC seeks comment from the industry on licensing and continuing education requirements for personnel of SEC-registered investment advisers; delivery of account statements to clients with investment advisory accounts; and financial responsibility requirements for SEC-registered investment advisers, including fidelity bonds.
The proposals were entered into the Federal Register on May 9, 2018 beginning the 90 day comment period. To date the SEC has received a number of comments from individuals on the proposals.
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