FINRA Peeks Behind the Algorithm’s Curtain

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On the heels of the Financial Industry Regulatory Authority issuing a Report on Digital Investment Advice last month, on April 7 the Securities and Exchange Commission approved a FINRA rule amendment that requires registration of persons that are “primarily responsible for the design, development or significant modification of algorithmic trading strategies, or who are responsible for the day-to-day supervision or direction of such activities.” The fundamental proposition is that all algorithms are conceived and built by humans, and said humans should be both qualified and readily identifiable so they may be held accountable for any harm their creations cause. The […]

Live By the Code

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After Henry Hill took his first pinch in Goodfellas, Jimmy Conway praised young Henry in the courtroom for learning and personifying the Mafia code: “Never rat on your friends and always keep your mouth shut.” While certainly one of the great bro-quotes in movie history, I don’t think I’m venturing too far out on a limb to suggest that the SEC would take issue with that code. In fact, the SEC imposes its own code on its registrants, and that code can be found in SEC Rule 204A-1. The code I’m speaking of is the code of ethics, and each […]

Gifts and Entertainment: SEC Reminds Advisors of the Rules

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The SEC has had a healthy obsession with conflicts of interest as of late, and this week’s Guidance Update from the Division of Investment Management is no exception. The update, entitled “Acceptance of Gifts or Entertainment by Fund Advisory Personnel – Section 17(e)(1) of the Investment Company Act,” may at first blush appear to be a bit of a puzzler. Restrictions are relevant only to broker-dealer reps subject to the FINRA $100 annual gift limit, right? In a word – no. Funds and their advisers are subject to a gift and entertainment regulatory regime all their own. Following the SEC’s […]

Pay-to-Play Compliance Reminders for Advisors at Election Time

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This is the time of year when I tend to throw things at my television, yell at my car radio and redirect most of the mail I receive directly to the trash (sorry – the recycling bin for you greenies). The reason is simple: it’s election season, and the amount of political bilge spewing through assorted media pipelines reaches toxic levels. Yet rather than assume the role of election Grinch, I found it a better use of time to undertake a refresher of advisor pay to play rules. The landmines surrounding Rule 206(4)-5 of the Investment Advisers Act (aka, the […]

Anti-Money Laundering and Advisors

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It’s important to get one thing out of the way right off the bat: technically there is no requirement imposed upon investment advisors to maintain an anti-money laundering program pursuant to the Bank Secrecy Act of 1970, the Money Laundering Control Act of 1986 or the USA PATRIOT Act, as advisers are not considered to be “financial institutions” as currently defined therein. If you’d like to recite this answer to SEC examiners when they ask about your AML program, be my guest…but don’t cite me or this article as your rationale. Such an approach fails to take into account other […]

Six Steps to Complying With SEC Email Regulations

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Congratulations! You’ve contracted with a vendor to capture and archive all emails sent to and from employees within your advisory firm. Emails are set to be stored for not less than five years pursuant to the SEC’s recordkeeping requirements and are ready to be turned over when requested during an exam. So now you can relax, right? Wrong: now the fun really begins: actually reviewing these emails and testing the integrity of your archiving system. Emails (and attachments) sent or received by a registered investment advisor are subject to the SEC’s recordkeeping requirements if they concern any of the records required to […]

Are You an ‘Internet Adviser?’ A 10-Year-Old SEC Rule Predated Robo-Advisors

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The rulemaking phraseology of the SEC can be, at times, somewhat antiquated when it comes to the brave new world of the Internet and technology. To this day, there are references in the Advisers Act and the rules thereunder to, for example, “chat rooms,” “bulletin boards,” and “microfiche.” At the same time, it is unrealistic to expect the SEC to codify every new technological fad; in the race between blistering tech disruption and the sausage factory of government bureaucracy, tech always wins. That said, the SEC should be given significant credit for paving the regulatory pathway for what it refers […]