Americas regulatory news Q1 2021

Regulatory news from the US, Colombia and Brazil for asset managers and asset owners.


FINRA Urges Firms to Review Their Policies and Procedures Relating to Red Flags of Potential Securities Fraud Involving Low-Priced Securities

In March, FINRA issued a regulatory notice provides information that may help FINRA member firms that engage in low-priced securities business assess and, as appropriate, strengthen their controls to identify and mitigate their risk, and the risk to their customers, including specified adults and seniors, of becoming involved in activities related to fraud involving low-priced securities.

This Notice provides information to help firms strengthen their controls in four important areas related to potential fraud involving low-priced securities and thereby protect investors from financial harm and the firms themselves from financial, regulatory and reputational damage:

  • Detection: the Notice describes possible red flags of potentially fraudulent low-priced securities activity;
  • Monitoring: the Notice describes selected effective supervisory and other control practices FINRA has observed firms implement;
  • Suspicious Activity Report (SAR) filing: the Notice describes firms’ SARs filing obligations; and
  • Fraud Reporting: the Notice describes additional avenues for firms to report potential fraud involving low-priced securities.

DTCC Proposes Approach to Shortening U.S. Settlement Cycle to T+1 Within 2Years.

DTCC’s released a white paper, Advancing Together: Leading the Industry to Accelerated Settlement outlining a two-year industry roadmap for shortening the settlement cycle for U.S. equities to one business day after the trade is executed (T+1).

In order to move to T+1, industry participants must align and agree to shorten the settlement cycle by implementing the necessary operational and business changes, and regulators must be engaged. DTCC does not have the regulatory or legal authority to unilaterally change the settlement cycle. Despite this, DTCC continues to take a leadership position to shorten the settlement cycle to T+1, similar to the role it played in 2017 to move to T+2.

FinCEN’s information sharing program under Section 314(b) of the USA PATRIOT Act issued a new 314(b) Fact Sheet and rescinded previously issued guidance from 2009 and 2012.

Previously, firms had to have specific information related to transactions involving possible money laundering and terrorist financing. New guidance allows for the sharing of information based on much more vague criteria, such as not being able to identify proceeds of a specific unlawful activity.

Previously, firms were not allowed to share information related to the filing of SARs. New guidance allows financial institutions to team up and file joint SARs.

Link to Fact Sheet:

SEC adopts amendments to Advertising Rule and Solicitation Rule

On December 22, 2020, the SEC adopted amendments to Rule 206(4)-1 under the Advisers Act. The rulemaking creates a single rule (Marketing Rule) governing investment adviser marketing by replacing the existing investment adviser advertising and cash solicitation rules. The term “advertisement” is defined to include two broad categories of communications, the first concerning communications by an investment adviser offering advisory services and the second concerning endorsements and testimonials for which the adviser provides compensation. It contains general principles-based prohibitions against certain advertising practices designed to prevent fraudulent, deceptive or manipulative acts. In a departure from current ban on testimonials, it permits testimonials, endorsements and third-party ratings subject to specific disclosures and conditions. It allows flexibility in reporting performance, including related, extracted, and hypothetical performance and the use of interactive analysis tools and predecessor performance, subject to conditions and amends the Advisers Act recordkeeping requirements and includes a question in Form ADV about advertising activities.

Effective May 4, 2021 with an 18 month compliance period.

FINRA delays implementation of amendments to FINRA Rule 4210 to October 26, 2021

The Financial Industry Regulatory Authority, Inc. (FINRA) filed a proposed rule change with the Securities and Exchange Commission (SEC) on December 22, 2020, to once more delay the implementation of amendments to FINRA Rule 4210 (Amended FINRA Rule 4210) until October 26, 2021. Amended FINRA Rule 4210 will require the margining of: (1) specified pool transactions; (2) transactions in collateralized mortgage obligations, issued in conformity with a program of an agency or a government-sponsored enterprise, with forward settlement dates (collectively, Covered Agency Transactions); and (3) to-be-announced transactions, including adjustable-rate mortgage transactions

SEC Modernizes Framework for Fund Valuation Practices

SEC announced that it adopted a new rule (Rule 2a-5 under the Investment Company Act) that establishes an updated regulatory framework for fund valuation practices.  The rule is designed to clarify how fund boards of directors can satisfy their valuation obligations in light of market developments, including an increase in the variety of asset classes held by funds and an increase in both the volume and type of data used in valuation determinations. The rule establishes requirements for satisfying a fund board’s obligation to determine fair value in good faith for purposes of the Investment Company Act.  The rule requires a board or its valuation designee to assess and manage material risks associated with fair value determinations; select, apply and test fair value methodologies; and oversee and evaluate any pricing services used. The rule recognizes that most fund boards do not play a day-to-day role in the pricing of fund investments, and so permits boards to designate the determination of fair value to certain parties.  This designation will be subject to detailed conditions and oversight requirements, including specific reporting by the valuation designee both periodically and promptly; and clear specification of responsibilities and reasonable segregation of duties among the valuation designee’s personnel.  The rule makes clear that a board’s effective oversight of this process must be active. In addition, certain policies and procedures must be adopted and implemented in connection with the rule.  Finally, the Commission adopted a related recordkeeping rule requiring funds or their advisers to maintain certain documents related to fair value determinations. In March 2021, SEC issued a staff statement on investment company cross trading. 

SEC Proposed Order Granting an Exemption From the Information Review Requirement and the Recordkeeping Requirement for Publications or Submissions of Broker-Dealer Quotations on an Expert Market

SEC is proposing to grant exemptive relief, subject to certain conditions, to permit broker-dealers to publish or submit proprietary quotations for securities, on a continuous basis, in a market where the distribution of such quotations is restricted to sophisticated or professional investors, without complying with the information review and recordkeeping requirements of Amended Rule 15c2–11(a)(1)(i) and (d)(1)(i)(A), respectively. The proposed exemption would relieve broker-dealers from compliance with the information review and recordkeeping requirements of amended Rules 15c2-11(a)(1)(i) and (d)(1)(i)(A), respectively. The SEC stated that the proposed conditional exemptive relief would allow the Expert Market to serve as a centralized location for published quotations in securities that otherwise would migrate to the grey market. The SEC acknowledged the benefit of an expert market that would enhance liquidity for sophisticated or professional investors and promote growth opportunities for certain small companies.

FedNow launch date

FedNow Service is a new 24x7x365 interbank settlement service with clearing functionality to support instant payments in the United States.  The Fed will take a phased approach to service implementation. It is predicted that the first release of the FedNow Service will provide baseline functionality that will support market needs and help banks manage the transition to the new service, including a request-for-payment message type, a set of fraud prevention tools, and a liquidity management tool. The Fed also continuing to explore expanded hours for the Fedwire Funds Service and the National Settlement Service (NSS). In February the Federal Reserve announced the launch date is scheduled for 2023.


Circular Letter CVM / SMI / SIN 04/2020 – CVM

This Circular Letter aims to bring the main improvements in processes of AML/CFT associated with the entry into force of CVM Instruction No. 617/19 (“ICVM 617 / 19 ”) on 10/1/2020, (with the exception of articles 27 and 28 already in force since 12/05/2019, date of publication of the Instruction), as well as presenting the expectations of the Superintendence of Market and Intermediary Relations (“ SMI ”) and the Institutional Investor Relations Superintendence (“ SIN ”) about the steps expected by the obliged persons.

The rules for transparency of information to investors define the responsibilities of market agents and establish deadlines for portability.


Decree for mandatory custody for assets belonging to Voluntary Pension Funds

On 8 Feb 2021, the Superintendence of Finance issued specific instructions for the implementation of the Decree 1207 from September 1 2020 that introduces the mandatory custody for assets belonging to Voluntary Pension Funds that are managed by trust companies, pension fund administrators and insurance companies. The Superintendence of Finance made it available to comments from all relevant parties involved.