Displaying items by tag: SEC

Asset managers and retirement plan advisers should be aware of how they are managing and presenting ESG funds. According to analysts at Fitch Ratings, recent regulatory actions are likely to continue into 2023. For instance, last week, Goldman Sachs paid the Securities and Exchange Commission $4 million to settle charges of failing to correctly incorporate ESG research into investment procedures and branding. In another example, on May 23, a BNY Mellon Investment Adviser paid a $1.5 million penalty for misstatements and omissions about ESG representation in mutual funds. In a press release on Tuesday, Fitch said “These types of charges are likely to continue as the SEC looks to crack down on greenwashing.” Fitch also noted that these types of charges can “lead to reputational damage that can weaken franchises, particularly if they occur repeatedly.” Earlier in the year, the SEC proposed updates to fund naming rules and a new mandatory disclosure related to ESG investment practices. Fitch said the agency’s actions have resulted in asset managers being more conservative regarding their ESG messaging.

Finsum:With regulatory actions on ESG greenwashing expected to continue, asset managers need to be more conservative with their ESG credentials.

According to Richard Best, Head of the Division of Exams at the Securities and Exchange Commission, Regulation Best Interest and the Advisers Act fiduciary duty remains a top priority for 2023 exams. While speaking at the SEC’s National Compliance Seminar, Best said that standards of conduct such as Reg BI and the fiduciary duty “remain top of mind for us.” Best told compliance officers that the Division of Exams is “focused on how broker-dealers and advisors satisfy their obligations under Reg BI and the Advisers Act fiduciary standard to act in the best interest of retail investors and not to place their own interests ahead of retail investors interest.” The exam division publishes an annual priorities letter each year, with the 2023 priorities expected to be issued early next year. The three areas of focus will be ESG-focused investing, private funds, and standards of conduct. For ESG, the SEC will look into whether advisors are accurately disclosing their ESG investing approaches and have implemented policies to prevent violations of federal securities laws.

Finsum:With exam priorities expected to be issued early next year, the SEC has made Regulation Best Interest and the Advisers Act fiduciary duty a top priority for 2023 exams.

As the demand for standardized and transparent ESG disclosure rules continues to grow, a group of alternative asset managers launched a template for ESG disclosure. The ESG Integrated Disclosure Project template was created by the Alternative Credit Council, the private credit affiliate of the Alternative Investment Management Association, the Loan Syndications and Trading Association (LSTA), and the United Nations-supported Principles for Responsible Investment. The Alternative Credit Council includes 250 asset management firms that manage over $600 billion of private credit assets. LSTA is a not-for-profit trade association that includes commercial banks, investment banks, broker-dealers, hedge funds, and other institutional lenders. The template intends to provide a standard format for ESG-related disclosures and offer companies a baseline from which they can develop their ESG reporting capacity. It was designed to be completed by borrower companies and shared with their lenders. Jiří Król, global head of the Alternative Credit Council, said the following in a statement, “By simplifying and harmonizing existing market practices, this new industry-led initiative will reduce the burden on borrowers while improving the materiality and comparability of ESG disclosure for investors.”

Finsum:A group of alternative assets managers created an ESG disclosure tool that offers companies a baseline to develop their own ESG reporting capacity. 

If firms haven’t addressed and mitigated any potential conflicts of interest yet, they better start soon. Both FINRA and the SEC have not only brought their first Regulation Best Interest enforcements this year, but both agencies are promising that they will be ramping up enforcement. Robert Cook, President and CEO of FINRA, warned at the recent ALI-CLE Life Insurance Products Conference in Washington, D.C. that “Anything that would be a violation of the old suitability standard is now going to be a violation under the Reg BI standard.” He also warned firms that there are more Reg BI enforcement cases in the pipeline and said FINRA exams will “continue to evolve in terms of expectations and the depth of what we’re looking for.” Reg BI, which requires that registered reps demonstrate they have put customers’ best interests before their own is an upgrade from the old suitability standard, which only required reps to make sure products and services are appropriate for clients. The SEC has also promised more Reg BI enforcements and is bringing similar cases against investment advisor reps under the fiduciary standard. SEC Chairman Gary Gensler recently stated, “The ‘interplay’ between Reg BI and the fiduciary standard is important and that the agency will publish a staff bulletin on the topic.”

Finsum:After bringing their first Regulation Best Interest enforcements this year, both FINRA and the SEC are ramping up Reg BI enforcement. 

A form reviewer at the Securities and Exchange Commission recently said he wants to make sure life insurers give investors a clear picture of how their registered index-linked annuity (RILA) contracts work. RILAs are annuity contracts that can expose the holder to the risk of investment-related loss of principal, but that tie crediting rates at least partly to the performance of investment indexes, rather than to the performance of funds that resemble mutual funds. At the Life Insurance Products Conference, held recently in Washington, D.C., Michael Kosoff, an attorney on the staff of the SEC’s Division of Investment Management, stated that he wants one strategy to be available throughout the life of the contract. He also wants to require issuers to disclose maximum losses. Essentially, the SEC wants life insurance company clients to say which crediting strategy the clients' guarantee will be available for the life of a RILA contract. A crediting strategy includes a reference to a particular index such as the S&P 500. Kosoff’s concern is that many issuers have a provision stating, “After the first year, we can terminate any and all options currently available. So, in essence, after year one, investors have no idea what they’re getting.”

Finsum:Due toconcerns over changing crediting changes in registered index-linked annuities, an SEC form reviewer stated that he wants one strategy to be available throughout the life of the contract.