SEC News: Regulator Approves In-House Enforcement Reforms, Adopts Guidance For Security-Based Swap Transaction Reporting, and Will Audit Financial Advisers Over Mutual Fund Shares

Securities and Exchange Commission to Audit RIAs Over Mutual Fund Share Classes
The SEC has announced that it will audit registered investment advisers so that it can examine the kinds of mutual fund share classes that they sell to clients. Share class recommendations and compliance are of particular interest to the regulator.

Because RIAs are fiduciaries, they have a duty to uphold their clients’ best interests. This includes selecting the lowest-cost share classes and 529 plan investments on a client’s behalf, depending on the latter’s investment goals. The Commission wants to see whether conflicts of interest exist, such as when an adviser is also the brokerage firm or is affiliated with a firm that garners fees from selling certain mutual fund share classes.

The SEC also wants to look at whether RIAs are disclosing if there is anyone getting paid compensation for the sale of either mutual fund share classes or other investment products. The fee might be a charge for the actual sale or a fee incurred according to the assets sold.

SEC Adopts Amendments to Regulation SBSR
The U.S. Securities and Exchange Commission has adopted guidance and amendments for Regulation SBSR, which includes rules for the public dissemination and regulatory reporting of security-based swap transactions. The rules and guidance were created to enhance transparency in the market for security-based swaps. They were mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The latest changes include:

· Additional requirements for issuing information and making it available to the public.

· Requiring clearing agencies, swap-execution facilities, and exchanges to report swaps.

· Prohibiting information repositories from limiting data access or charging fees.

SEC To Make Modifications to Its In-House Administrative Proceedings
The U.S. Securities and Exchange Commission has approved reforms to its in-house enforcement system’s administrative proceedings. The modifications were approved by all three members of the regulatory agency. They are an effort by the Commission to address critics who contend that defendants in cases filed by the regulator are at a disadvantage because an SEC judge presides over the lawsuits.

At present, in-house hearings against a defendant have to start within four months of the service order. The changes that have been approved would let defendants depose witnesses and permit their lawyers to postpone the start of the trial if they need more time to examine the evidence.

The Final Amendments that have been adopted to the rules of practice for administrative proceedings, include:

· Lengthening the prehearing period from four months to up to 10 months if needed.

· Giving the parties involved the right to three depositions per side when there is a single respondent and five depositions per side when there are multiple respondents if a case has been granted the longest timelines. Parties may be able to ask for two more positions.

· Clarifying both the kinds of dispositive motions that can be filed during different phases of the proceedings and the legal standards and procedures that apply for the motions.

Regardless of whether a broker-dealer, investment advisory firm, broker, or another financial representative is charged by the SEC or in court, it is important that investors who have been bilked be one of these parties are represented by an experienced securities lawyer who can advocate on their behalf and protecting their right to recovery.

Contact The SSEK Partners Group and ask for your free case consultation.

The SEC’s Final Rule on Security-Based Swaps (PDF)

The SEC’s Final Rule on Administrative Proceedings (PDF)

SEC to audit RIAs over the types of mutual fund share classes they sell to clients, InvestmentNews, July 13, 2016