Adviser Exams, G-20 Tax Agreement: Compliance

Investment advisers registered with the U.S. Securities and Exchange Commission are to be examined, the agency said.

The new initiative will focus on investment advisers who have been registered with the SEC for three years or more and haven’t yet been examined, SEC’s Office of Compliance Inspections and Examinations said in letter to advisers posted on its website.

Examinations will concentrate on advisers’ compliance programs, filings and disclosure, marketing, portfolio management and safekeeping of client assets.

Compliance Policy

SEC Ponders Break for Private Equity to Skip Broker Rules

The U.S. Securities and Exchange Commission is considering granting private-equity firms a reprieve after they collected billions of dollars in deal fees without being registered to do so, according to a person with knowledge of the matter.

The SEC staff is weighing a special exemption for private-equity firms to continue collecting deal fees in the future, said the person, who asked not to be named because the deliberations aren’t public. An exemption would mean the agency is unlikely to pursue enforcement action over past deals, the person said. A final decision hasn’t been made and the agency could still require the firms to register or seek sanctions for past deals.

The exemption would counter the stance of an SEC official, who signaled in a speech last year that transaction fees the private-equity industry had been taking for decades may have been improper because the firms weren’t registered as broker-dealers, a requirement under securities laws.

Deal fees give managers an immediate cash windfall when a deal closes, regardless of how the investment performs over time. According to the industry’s main lobbying group, those fees still don’t turn private equity managers into broker-dealers.

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Lew Says Australia to Sign Tax Evasion Agreement as G-20 Meets

The U.S. and Australia are set to sign an agreement on automatic sharing of bank information to battle tax evasion, amid plans for a global compact to prevent companies shifting income to low-tax countries.

The two countries have reached an agreement in substance on the Foreign Account Tax Compliance Act and plan to sign it soon, U.S. Treasury Secretary Jacob J. Lew said in a briefing Feb. 21 at the meeting of Group-of-20 major economies in Sydney.

The act, passed in 2010, requires foreign financial institutions to report to the Internal Revenue Service information about financial accounts held by U.S. taxpayers. The Organization for Economic Cooperation and Development is working on plans for global information exchanges to crack down on tax-avoidance strategies used by U.S. companies.

The G-20 meetings last weekend were expected to focus on ways to improve transparency and tax collection, Australian Treasurer Joe Hockey said in the briefing with Lew Feb. 21.

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Compliance Action

Danish FSA Says Market Makers Inflated Prices Amid Unclear Role

Market makers in Denmark “on many occasions” pushed share prices artificially higher in trades that breached rules against price manipulation, the Danish Financial Services Authority said Feb. 21.

The Copenhagen agency said market participants have different interpretations of their role and will provide additional clarification on responsibilities and limitations.


White, Aguilar Speak at SEC Speaks Conference in Washington

U.S. Securities Exchange Commission Chairman Mary Jo White said she has asked staff for an “action plan” to enhance the agency’s asset-manager risk-management oversight program.

Initiatives under near-term consideration include expanded stress testing, “more robust” data reporting and increased oversight of the largest asset management firms, White said in remarks prepared for the “SEC Speaks” conference Feb. 21 and Feb. 22 held by the Practising Law Institute in Washington.

On the JOBS Act, White said rules related to the law will provide companies several alternatives to raise capital in private markets and cautioned that if private markets develop sufficient liquidity, “there may not be any reason” for a company to go public, which “would not be the best result for all investors,” she said.

Renewed focus on transfer agents is important because their “gatekeeper function will become even more critical” under new JOBS Act rules, SEC Commissioner Luis Aguilar said in remarks prepared for the “SEC Speaks” conference. New rules probably will boost the number of companies whose shares are traded in the secondary market “without the benefits of registration.”

The agency, through its new Microcap Fraud Task Force, will be bringing forward more cases against transfer agents who violate federal securities law in connection with “pump-and-dump schemes,” according to Aguilar.

Aguilar also said since joining in 2008, the agency has had four different chairmen and “significant turnover” in other leadership posts, leading to a “loss of institutional memory, which I have particularly noticed in our rulemaking efforts.”

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