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The New Year Rings in New Requirements for NFA Member Asset Managers

In the final weeks of 2018, the National Futures Association (“NFA”) issued new requirements applicable to asset managers who are members of the NFA that will take effect in 2019. First, the NFA amended its Interpretive Notice 9070, “NFA Compliance Rules 2-9, 2-36 and 2-49: Information Systems Security Programs” (the “Cybersecurity Notice”). The amended Cybersecurity Notice adds an NFA notification obligation, employee training requirements, and specific approval procedures to the written information systems security program (“ISSP”) required of each NFA member firm (a “firm”) under the original Cybersecurity Notice issued in 2016. In addition, Interpretive Notice “NFA Compliance Rule 2-9: CPO Internal Controls System” (the “Internal Controls Notice”) requires commodity pool operator (“CPO”) members to establish a system of internal controls and provides guidance on designing and implementing such controls. The Cybersecurity Notice will become effective on April 1, 2019 and we expect the Internal Controls Notice to be effective on April 1 or soon thereafter.

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Ropes & Gray Files Comments on SEC’s Proposed Interpretation of Advisers Act Fiduciary Duty

Practices: Hedge Funds, Investment Management, Private Investment Funds

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On August 7, 2018, Ropes & Gray filed a comment letter with the U.S. Securities and Exchange Commission (“SEC” or “Commission”) regarding the Commission’s April 18, 2018 “Proposed Commission Interpretation Regarding Standard of Conduct for Investment Advisers” (“Interpretation”). Our prior Alert on the topic describes the proposed Interpretation. The proposed Interpretation was approved by the Commission by a 4-1 vote on April 18, 2018, along with proposed Regulation Best Interest and Form CRS (our prior Alert on those rulemakings describes the two proposed rules).

In view of the fact that the proposed Interpretation would apply to all investment advisory firms, our firm believes it was important to weigh in with the Commission on aspects of the proposal with which we have concerns. Our comment letter includes the following four points:

  1. The proposed Interpretation, with certain modifications, could be a useful tool for investors and investment advisers.
  2. Full and fair disclosure, as established by the U.S. Supreme Court, is a core element of the Advisers Act fiduciary duty.
  3. Parts of the proposed Interpretation appear to expand beyond current law regarding full and fair disclosure of potential conflicts, potentially suggesting a “best interests” standard that cannot be circumscribed by appropriate disclosure.
  4. The Interpretation’s statement that “an adviser disclosing that it ‘may’ have a conflict is not adequate disclosure when the conflict actually exists” creates practical burdens, is not consistent with reasonable construction of language in disclosures, and runs the risk of unnecessarily expanding on precedent for what constitutes adequate disclosure.

The full text of the comment letter is available here.

Please contact any of the principal authors of the letter, Jason E. Brown, George Raine, and Joel Wattenbarger, or your usual Ropes & Gray contact lawyer, with any questions or comments. 

 

 

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