Governance, Risk & Compliance

IA brief: Account takeovers are big cybersecurity risk for advisers

A recent cybersecurity roundtable hosted by the Securities and Exchange Commission should act as a call to action for investment advisers, as the threat of cyber attacks is high for all companies and increasing daily, say event panelists.

Investment advisers, whether small or midsize, are not immune from these attacks and now is a good time to recognize the firm’s risks, review available guidance, hone formal policies and procedures, and preparing for an imminent SEC exam module concerning cybersecurity. (more…)

IA brief: SEC opens door to social media ratings and client lists

The Securities and Exchange Commission’s guidance update this week on investment adviser use of social media and the applicability of the testimonial rule will help ease uncertainty over using of certain features of social media sites like Yelp, Foursquare, Facebook and LinkedIn.

The guidance, in the form of 9 questions and answers, primarily focused on the use of third-party review sites and whether it would trigger a testimonial violation. The guidance included specific examples opening the door to using Yelp, Foursquare or a similar site that offers a business review feature, granted certain conditions are achieved. (more…)

Expect corruption crackdown to widen, intensify

Companies and financial firms that are potentially subject to the Foreign Corrupt Practices Act and other anti-corruption regimes should expect more of the enforcement crackdown they have seen in recent years, except in greater quantity and intensity, two former U.S. government officials said last week.

The ex-officials, Cheryl Scarboro, a law partner at Simpson Thacher & Bartlett, and Greg Andres, a partner at the law firm Davis Polk & Wardwell, respectively headed the Securities and Exchange Commission Enforcement Division FCPA unit and the Department of Justice Criminal Division fraud section. They spoke at an FCPA and anti-corruption seminar at the New York City Bar Association. (more…)

Healthcare Fraud and Abuse Recoveries Break Records in 2013

Healthcare-related fraud recoveries are on the rise

The U.S. Departments of Justice and Health and Human Services recovered a record-breaking $4.3 billion in Fiscal Year (FY) 2013 through their healthcare fraud and abuse prevention and enforcement efforts, according to a report released February 26. Over the last five years, these enforcement efforts have recovered $19.2 billion, more than double the recoveries from the prior five-year period.

The Department of Justice (DOJ) also reported opening 1,013 new criminal healthcare fraud investigations and 1,083 new civil healthcare fraud investigations. The DOJ also obtained convictions of 718 defendants for healthcare fraud-related crimes in FY 2013. (more…)

Principle-based Reserving Initiative Cautiously Moves Forward


In a recent article in Best Week, Associate Editor Tom Harman reported that a National Association of Insurance Commissioners (NAIC) task force charged with the coordination of the principle-based reserving (PBR) initiative for life and health policies is considering creating a pilot program to help states and regulators manage implementation of the new reserving standards. The intent of the pilot project would be to identify unanticipated issues surrounding PBR implementation.

The PBR approach to reserving, which has been considered for some time, represents a transition from the current model of formula-based reserving. PBR is thought by many to be preferable because formula-based reserving requires frequent updating to incorporate new product designs. Additionally, reserve formulas do not always accurately reflect risks or true cost liabilities or obligations, leading to excessive conservatism for some insurers and inadequate reserves for others. PBR is aimed at more accurately reflecting the risk profile of a company’s product offering. Supporters of the PBR approach posit that it will “right size” reserves, reducing redundancies while more thoroughly considering the complexity of some life insurance benefits and guarantees. (more…)

Forget HFT; “High Intelligence Trading” is the new frontier for technology, markets, regulation

While fast is good, smart is better, and with untold resources of computing power and memory banks in the clouds, the new frontier in electronic trading combines sophisticated intelligent software with rapid-fire processing, enabling traders to stay one step ahead of the regulators.

“What’s the difference between pure speed and adding intelligence to that speed?” asked Terry Keene, head of iSys, a technology integration firm, at a conference focused on high performance computing. The answer is “big data analytics” that brings decision-making and trading to a “near-time” environment, he added. (more…)

Clearinghouses’ default “waterfall” offers no panacea against their potential failure

The push of derivative contracts into central counterparties (CCP) –also known as clearinghouses– has been underway for more than five years, yet it remains unclear how these entities would fare under stressed market conditions in the U.S.

In the U.S., the CCPs mostly come in two forms – either as derivatives clearing organizations (DCO) that clear financial instruments such as options, futures, and swaps or securities clearing agencies (SCA) that clear securities for its members. The former group is regulated by the CFTC, the latter by the Securities and Exchange Commission, while other types of clearing entities (such as CHIPS or DTCC) that carry a state member trust charter fall under the jurisdiction of the Fed. (more…)

Special report: UK regulators face mounting concerns over their handling of multi-million pound fund collapse

Special report

Regulators face searching questions about whether they acted effectively in the multi-million pound collapse in 2012 of an unregulated collective investment scheme (UCIS). The then Financial Services Authority’s (FSA) decisions concerning the Connaught Income Fund, Series 1, a UK-domiciled fund based in London, will come under fresh scrutiny at a debate in Westminster Hall, between members of parliament and HM Treasury this month, subject to scheduling. The Financial Conduct Authority (FCA) has said that the FSA, its predecessor body, acquitted itself well in dealing with the situation. Detractors, including investors, MPs and independent financial advisers (IFAs), have said the regulator failed to act appropriately on warnings about the misappropriation of multiple millions of pounds from the fund.  (more…)

The JOBS Act at age two – prodigy or enfant terrible?

The JOBS Act at age two – prodigy or enfant terrible?

The financial services industry is still getting used to the two-year old JOBS Act, as funds gingerly begin to explore new general-solicitation freedoms and “crowdfunding” venues sort through the rules, speakers said at a Fordham Law School forum in New York.

As mandated by the JOBS – or Jumpstart Our Business Startups – Act enacted in April 2012, the Securities and Exchange Commission has adopted rules for general solicitations that became effective in September 2013, and is reviewing comments to a December 2013 set of proposed crowd-funding rules.

General solicitations (more…)

Book by high-profile author Lewis may spur high-frequency-trading reform push, success unclear

During a clip on Sunday night’s “60 Minutes” program, host Steve Kroft asked bestselling author Michael Lewis why he was so opposed to high frequency trading.

“If it wasn’t so complicated, it would be illegal,” said Lewis, who is the author of a new book called “Flash Boys: A Wall Street Revolt.”  (more…)