Commodity

Important Dates And Reminders For Investment Advisers, Exempt Reporting Advisers, Commodity Trading Advisors And Commodity Pool Operators (February 14, 2022) – Corporate/Commercial Law

INVESTMENT ADVISERS

Annual Compliance
Reviews

All investment advisers registered with the Securities and
Exchange Commission (“SEC”) or at the state level, are
required to review their compliance policies and procedures at
least annually (and best practice is for any investment adviser,
whether SEC or state registered, or not, to engage in such a
review). Many advisers with a December 31 fiscal year end
traditionally conduct this review in March of each year. Regardless
of when the review takes place, registered advisers should be sure
to document the review process and the outcomes of the review.


Form ADV – Annual Amendment Due by March 31, 2022; Delivery
of Updated ADVs to Clients

Form ADV for registered advisers (Parts 1A, 1B (state registered
advisers only) and 2A) and Exempt Reporting Advisers (relevant
portions of Part 1A) with a December 31 fiscal year end must be
updated by March 31, 2022 through the Investment Adviser
Registration Depository (“IARD”) website (www.iard.com).
Please be sure to select “annual amendment” when
updating Form ADV in order for the filing to qualify as the annual
amendment to Form ADV. Failure to update Form ADV could lead to
registration or status as an Exempt Reporting Adviser being
revoked. 

In addition to the requirements mentioned above, registered
investment advisers are required to deliver updated brochures (Part
2A) and brochure supplements (Part 2B) to all clients within 120
days after the end of the adviser’s fiscal year.


FINRA Updates Web CRD and IARD Security – Multi-factor
Authentication

In 2020 FINRA upgraded its IARD and Central Registration
Depository (“CRD”) to include multi-factor authentication
(“MFA”). As a result, existing users who have not already
done so will be required to provide two pieces of identifying
information to gain access to their account. The MFA security
protocols provide three options that a user may choose from to
provide secondary authentication. These are, using a mobile
application (such as the Duo Mobile app), authenticating by text
message, or authenticating by receiving a phone call. These changes
are meant to address internet passwords becoming increasingly
vulnerable to hackers. Once a user has been notified that their
accounts have been enabled with MFA, they will need to register
their cellphone, landline, or tablet to enroll their devices in
MFA.

Investment Advisers and other users of CRD and IARD should
review their credentials to determine how many of their employees
will need to enable MFA and that there are no internal policies
(such as prohibiting employees from downloading applications on
company-issued mobile devices) which interfere with the ability of
these users to successfully enable MFA.

Form ADV
Part 3 “Relationship Summary”

In accordance with SEC rules issued in 2019, registered
investment advisers with clients that are “retail
investors” are required to provide Part 3 of Form ADV (Form
CRS) to new and prospective clients and customers who are retail
investors. For these purposes, the term “retail investor”
is defined as “a natural person, or the legal representative
of such natural person, who seeks to receive or receives services
primarily for personal, family or household purposes.” Note
that an investment adviser to pooled investment vehicles containing
investors who may be “retail investors” would not be
required to deliver Form CRS to those pooled investment vehicle
clients. However, managers advising clients other than pooled
investment vehicles, such as separately managed accounts, should
consider whether a Form CRS must be filed and delivered.

Investment advisers who were registered with the SEC before June
30, 2020 were required to electronically file their initial
Relationship Summary by June 30, 2020 either as an
other-than-annual amendment, or part of their initial application
or annual updating amendment. Investment advisers filing an
application for registration with the SEC on or after June 30, 2020
must include a Relationship Summary with their application for
registration.

MA
Registered-Advisers – Table of Fees

The Massachusetts Securities Division requires all Massachusetts
registered investment advisers to provide a one-page stand-alone
Table of Fees for Services to clients and prospective clients. The
fee table must be updated and delivered consistent with the
existing requirements for Form ADV. 

Exempt Reporting
Advisers – Monitoring of “Regulatory Assets Under
Management”

Exempt Reporting Advisers are reminded to review their
“regulatory assets under management” on a regular basis,
to ensure that any increase in regulatory assets under management
does not trigger additional requirements such as: full registration
with the SEC, or for State Exempt Reporting Advisers, the need to
also become an SEC Exempt Reporting Adviser.

“Regulatory assets under management” should be
calculated in accordance with Item 5.F of Form ADV and the
accompanying instructions.

SEC registered investment advisers who manage private funds and
have at least $150 million in regulatory assets under management
attributable to “private fund assets” (as defined in the
Form PF), are required to file Form PF through the IARD website
(www.iard.com). Note, this may include assets of a separate account
running a parallel strategy to a private fund managed by the
adviser.

Large Hedge Fund Advisers (advisers with over $1.5 billion in
hedge fund assets under management) must file Form PF quarterly
within 60 calendar days after the end of each quarter, or by March
1, 2022 for the quarter ended December 31, 2021. Most other
advisers must file annually within 120 days of the end of their
fiscal year, or by May 2, 2022 (as April 30, 2022 falls on a
Saturday) for advisers with a December 31 fiscal year end. Advisers
are cautioned to carefully review the definitions and the
instructions for Form PF when determining the amount of
“private funds assets” and “hedge fund
assets.” 

Advisers who have not yet started preparing their Form PF
filings are encouraged to start this process promptly.


Registered Advisers to Funds – Delivery of Audited Financial
Statements

Registered investment advisers relying on the “audited
financials exception” to the account statement delivery and
independent verification requirements of the Custody Rule must
deliver such audited financial statements for their fund to
investors within 120 days of the end of the fund’s fiscal year.
Please note that funds which are 4.7 pools for CFTC purposes have a
90-day deadline under CFTC rules (see the section entitled
CPOs to 4.7 Pools – Delivery of annual audited financials
and quarterly account statements
” below). The financial
statements must be audited by an independent public accountant that
is registered with, and subject to regular inspection by, the
Public Company Accounting Oversight Board. Advisers to funds of
funds must deliver such statements within 180 days of the end of
the fund of funds’ fiscal year.


Exempt Reporting Advisers – Delivery of Audited Financial
Statements

Exempt reporting advisers in Massachusetts who manage private
funds which rely on the exclusion from the definition of
“Investment Company” set forth in Section 3(c)(1) of the
Investment Company Act of 1940, as amended, and which funds are not
“venture capital funds” (as defined by the Massachusetts
Securities Division), must deliver annual audited financial
statements for the fund to each beneficial owner of any such
fund.

Exempt reporting advisers qualified in other states should
consult their counsel to determine any annual requirements in such
states.

Privacy
Policy

Generally, all investment advisers must circulate a summary of
their privacy policy to advisory clients who are natural persons
each year. However, an exception to the annual privacy notice
distribution requirement is available if the following two criteria
are met by the investment adviser: 

  1. The investment adviser does not share nonpublic personal
    information with nonaffiliated third parties (other than as
    permitted under certain enumerated exceptions); and

  2. The investment adviser’s policies
    and practices regarding disclosure of nonpublic personal
    information have not changed since the last distribution of its
    policies and practices to its advisory clients.

For more information, see our January 6, 2016 Foley Adviser or please
contact us.

California Consumer Privacy Act
(“CCPA”)

The CCPA went into effect on January 1, 2020 and creates new
“consumer” rights relating to the access to, deletion of,
and sharing of personal information that is collected by
businesses. The CCPA defines “consumer” as any
“natural person who is a California resident.” Investment
advisers may be subject to the CCPA if they have gross annual
revenues in excess of $25 million and collect personal information
from California residents. Advisers should consider whether they
are subject to the CCPA where they have current investors,
prospective investors, employees, independent contractors, other
business contacts in California, or collect personal information on
their website which may come from California residents. Businesses
subject to the CCPA must provide notice to consumers at or before
the point of data collection, and make disclosures about the
information that they collect and the rights held by consumers
under the CCPA. They must also create procedures to respond to
requests from consumers which would allow the consumer to know,
delete, and opt-out within certain time frames and which would
allow the business to verify the identity of consumers who make
such requests. For more information, please see our December 16, 2019 Foley Adviser or contact
us.

Cayman Islands Data Protection Act
(“DPA”)

Investment advisers who manage funds organized in the Cayman
Islands should take note that the DPA, designed to protect
individuals’ data and give them greater control over its use,
came into effect on September 30, 2019. Advisers will need to
review any Cayman fund’s data privacy policies and procedures,
update fund documents and review contracts with service providers.
For more detailed information on the DPL, please refer to our September 3, 2019 Foley Adviser.

European General Data Protection Regulation
(“GDPR”)

Advisers who manage funds that have European investors or are
marketing in Europe, should take note that the GDPR went into
effect in May 2018 and should consult with legal counsel.
Compliance with the GDPR requires advisers to review their policies
and procedures, updates to fund documents, third-party contracts
and may also require an appointment of an EU representative. 
For more information on the GDPR, please refer to our April 11, 2018 Foley Adviser.

Section 13(f)
Filings

Investment advisers who are required to make quarterly Form 13F
filings with the SEC must make such filings within 45 days after
the end of each calendar quarter. The first of such filings for
this year must be made by February 14, 2022 using EDGAR. These
filings are necessary if in the previous calendar year the adviser
had under management at least $100 million in securities traded on
U.S. securities exchanges (including NASDAQ). Failure to file Form
13F in a timely manner could lead to an enforcement proceeding by
the SEC. 

Section 13(g)
Filings

The SEC permits “qualified institutional investors”
(such as registered advisers) and “passive investors”
(which may include non-registered advisers or funds managed by
registered or non-registered advisers) who have 5% or greater
beneficial ownership (a broadly-defined concept that goes beyond
just who owns the shares) of a class of registered equity
securities to report this ownership on Schedule 13G, instead of the
more demanding Schedule 13D. For “qualified institutional
investors,” an initial Schedule 13G must be filed using EDGAR,
within 45 days after the end of the calendar year if, as of the
close of business on December 31, its beneficial ownership exceeds
5% (i.e., by February 14, 2022 with respect to positions from
calendar year 2021). In addition, a registered adviser who files
Schedule 13G as a qualified institutional investor must notify any
person (such as a client) on whose behalf it holds 5% beneficial
ownership of any transaction that such person may be required to
report (for example, the acquisition of that five percent). For
“passive investors,” the initial Form 13G filing must be
submitted within 10 days of the event which triggers the filing
requirement.

With respect to both “qualified institutional
investors” and “passive investors” an annual
amendment is required to be filed within 45 days after the end of
each calendar year to report any change in holdings for that year
(i.e., by February 14, 2022). The annual amendment should report
holdings as of December 31. A copy of such filing should also be
sent to the issuer. 

Please note that both qualified institutional investors and
passive investors must make additional filings upon certain changes
in ownership or changes in investment purpose.

Form 13H Filings

Form 13H filings are required to be made by “large
traders,” which are defined under Rule 13h-1(a)(1) as a person
or entity who directly or indirectly exercises investment
discretion over one or more accounts and affects transactions in an
aggregate amount equal to or greater than the “identifying
activity level.” The “identifying activity level” is
defined as aggregate transactions in “NMS securities”
that equal or exceed two million shares, or $20 million during any
calendar day, or 20 million shares or $200 million during any
calendar month. The term “NMS securities” refers
generally to exchange-listed securities, including both equities
and options. 

Large traders must submit an initial Form 13H within 10 days of
reaching the identifying activity level. An amended filing must be
submitted promptly following the end of the calendar quarter in
which any of the information contained in a previously filed Form
13H becomes inaccurate for any reason. Otherwise, large traders
must make annual filings no later than 45 days after the calendar
year end (i.e., by February 14, 2022). 

On December 16, 2020 the SEC issued a Risk Alert containing
observations from the Office of Compliance Inspections and
Examinations (“OCIE”) in their examination of registered
investment advisers for compliance with Rule 13h-1 relating to
“large traders.” Among the observations were that, as
part of the OCIE’s examinations, they identified numerous
instances of investment advisers that were either not aware of the
Rule or were not familiar with certain requirements of the Rule. As
a result of these observations, OCIE encouraged investment advisers
to review their compliance policies and determine whether they
qualify as a “large trader”. 

“New Issues Rules” –
Annual Eligibility Verification

The New Issues Rules require FINRA members or their associated
persons (“Members”) to obtain an affirmative written
statement that the account is eligible to purchase new issues in
compliance with the New Issues Rules, within 12 months prior to a
sale of a new issue to an account holder, either from the account
holder or its authorized representative. Members are required to
verify this status on an annual basis. The initial verification of
an account holder’s status under the New Issues Rules must be a
positive affirmation of the account holder’s non-restricted
status. However, the New Issues Rules also allow Members to follow
a “negative consent” process for annual verification of
an account holder’s status by sending a notice asking the
account holder if there has been any change in its status. Unless
an account holder affirmatively reports a change in status, the
Member is permitted to rely on its existing information regarding a
particular account holder. In many cases, Members rely on
representations from investment advisers who must, in turn,
determine the eligibility status of separate account clients and
investors in hedge funds. Investment advisers investing in new
issues should remember to undertake the annual verification as to
new issues eligibility with their clients and investors. It is
important to note that on November 5, 2019, the SEC approved
changes to the New Issue Rules effective January 1, 2020 that may
allow for additional private fund investor and advisory client
participation in new issues. Given these changes, investment
advisers investing in new issues should revise their fund offering
documents and annual eligibility questionnaires to adequately
identify investors that are able to participate in new
issues. 


COMMODITY TRADING ADVISORS AND COMMODITY POOL
OPERATORS

Form
PQR

Registered Commodity Pool Operators (“CPOs”) must file
NFA Form PQR through the EasyFile system on the National Futures
Association (“NFA”) website (www.nfa.futures.org) within 60 days after the
end of the quarters ending March, June and September. Reports for
the quarter ending December 31 are due within 90 days of the
calendar year end for Small (AUM ($150 million) or Mid-Sized CPOs
(AUM )$150 million ($1.5 billion) and within 60 days of the
calendar year end for Large CPOs (AUM) $1.5 billion). Each Form PQR
filed after its due date will be subject to a late filing fee of
$200 for each business day that it is late.


CPOs to 4.7 Pools – Delivery of Annual Audited Financials and
Quarterly Account Statements

CPOs managing 4.7 pools must deliver to pool participants and
file with the NFA, certified (per the certification guidelines in
Rule 4.7) annual reports that include audited financial statements
within 90 days of the end of the fiscal year, or by March 31, 2022
for advisers with a December 31 fiscal year end. CPOs of fund of
funds can request an extension of up to 180 days after the end of
the fiscal year to deliver and file these reports. CPOs managing
4.7 pools must also deliver certified (per the certification
guidelines in Rule 4.7) quarterly account statements to the
pool’s participants. .

Annual
Certification – 4.13(a)(3) and 4.14(a)(8)

Fund managers relying on the exemption from registration as a
commodity pool operator with the CFTC set forth in Rule 4.13(a)(3):
the so-called “de minimis exemption,” and fund managers
relying on the exemption from registration as a commodity trading
adviser with the CFTC set forth in Rule 4.14(a)(8), must reaffirm
their claim of exemption or exclusion from registration each year.
The annual affirmation may be made through the NFA’s Exemption
System (http://www.nfa.futures.org/NFA-electronic-filings/exemptions.HTML)
and must be made within 60 days of the end of the calendar year, or
by March 1, 2022 for calendar year 2021. Failure to submit an
affirmation by this deadline will result in a withdrawal of the
exemption or exclusion from registration. 

Form
PR

All registered Commodity Trading Advisers (“CTAs”)
must file NFA Form PR through the EasyFile system on the NFA
website within 45 days after the end of each of the quarters ending
March, June and September. They must also file a year-end report
within 45 days of the calendar year end. Each Form PR filed after
its due date will be subject to a late filing fee of $200 for each
business day that it is late. 

NFA Bylaw 1101
Compliance

All registered CPOs and CTAs must have procedures in place to
comply with NFA Bylaw 1101. NFA Bylaw 1101 prohibits NFA members
from conducting customer business with a non-NFA Member that is
required to be registered with the CFTC. To be in compliance, the
procedures should include: (1) the steps firm personnel will take
to determine if an entity is required to be registered with the
CFTC and to be an NFA Member and (2) a requirement that firm
personnel review BASIC to verify that the entity is registered
with the CFTC and an NFA Member (if registration and membership are
required), or has an exemption from registration on file with the
NFA. The procedures should also require firm personnel to document
the review and maintain the documentation.  

Additionally, the NFA requires Members to take reasonable steps
to confirm each year that previously exempt CPOs/CTAs with which a
Member transacts customer business, continue to be exempt by
confirming that such parties have affirmed their exemptions on the
NFA website within 60 days of the end of the calendar year. If the
Member learns that a person does not intend to file a notice
affirming an exemption, or the person does not file a notice
affirming the exemption within 60 days of the end of the calendar
year, then the Member must promptly obtain a written representation
as to why the person is not required to register or file a notice
exemption, and evaluate whether the representation appears adequate
based upon the information that the Member knows about the person.
If the Member ultimately determines that the person’s written
representation is inadequate and the person is required to be
registered, then the Member must put a plan in place to cease
transacting customer business with the person, or risk violating
NFA Bylaw 1101. 

Swaps Proficiency
Requirements

On January 31, 2020 the NFA’s Swaps Proficiency Requirements
(“SPRs”) went into effect. As a result, each individual
who was approved as a swap associated person (“Swap AP”)
of a CPO or a CTA as of January 31, 2020 was required to satisfy
the SPRs by January 31, 2021 to remain approved as a Swap AP. Any
individual who was not a Swap AP as of January 31, 2020 will be
required to satisfy the SPRs prior to being approved as a Swap AP
of a CPO or CTA. For Swap APs who are not conducting swaps
activities and will not do so in the future, NFA Member FCMs, IBs,
CPOs and CTAs were required to withdraw their swap designation
prior to the compliance date of January 31, 2021. 

Swap APs of CPOs and CTAs will be required to satisfy the Short
Track Proficiency Requirements, which consist of four modules and a
total of 60 test questions which are administered online. Swap APs
may take the SPRs at:  https://nfa-swaps-proficiency-requirements.moonami.com.
CPOs and CTAs that engage in swaps trading are required to
designate a Swaps Proficiency Requirements Administrator (“SPR
Admin”) to be responsible for coordinating the enrollment of
individual Swap APs in the SPRs. The SPR Admin must be designated
by completing the SPR Admin Form on the NFA’s website at: https://www.nfa.futures.org/electronic-filing-systems/SPR-admin.html

Additional NFA/CFTC
Requirements

On at least an annual basis, registered CPOs and CTAs must
also:

  • Complete an NFA Annual Questionnaire on the NFA website

  • Complete the electronic Annual Registration Update

  • Pay NFA dues on the anniversary date of the firm’s
    registration

  • Complete NFA’s annual Self-Examination Questionnaire and
    affirmation

  • Send the firm’s Privacy Policy to every participant in a
    pool

  • Test the firm’s Disaster Recovery Plan and make any
    necessary adjustments

  • Provide Ethics Training to firm employees

  • Review the firm’s written information security program
    (“ISSP”) using either in-house staff with appropriate
    knowledge or by engaging an independent third-party information
    security specialist

  • Supervise the operations of and conduct an annual onsite
    inspection of every Branch Office

  • Update the firm’s Questionnaire as the firm’s
    information changes, including for any pools that have
    liquidated

OTHER
REMINDERS

Rule 506 -
“Covered Person” (or “Bad Actor”)
Questionnaires

Investment advisers relying on Rule 506 of Regulation D in
connection with any ongoing offering of private fund interests are
reminded to collect updated “covered person” (or
“bad actor”) questionnaires from each of their covered
persons on a regular basis. While no specific regulations have been
issued indicating how frequently this information should be
refreshed, industry guidance suggests that advisers should consider
doing this as frequently as quarterly. “Covered persons”
include, among others, the private fund, all directors, executive
officers, general partners and managing members of the private
fund, the investment manager of the private fund, placement agents,
and any beneficial owner of 20% or more of the private fund’s
outstanding voting equity securities calculated on the basis of
voting power, even if not a control person of the private
fund. For additional information regarding who qualifies as a
“covered person” and the “bad actor”
requirements, please refer to our July 23, 2013 Securities Alert.

Annual Amendment to Form
D

Investment advisers conducting ongoing offerings of securities
in reliance on Rule 506 of Regulation D are reminded that an
amendment to Form D is required to be filed with the SEC at least
annually. In addition, various states require that a filing
(sometimes together with a filing fee) be submitted annually or
upon closure of any open offering.


Cayman Islands Private Funds Law and Mutual Funds
Law

On February 7, 2020 the Cayman Islands Government enacted the
Private Funds Act (As Revised) (“Private Funds Act”) and
the Mutual Funds Act (As Revised) (“Mutual Funds Act”).
Under the Private Funds Act, new and existing closed-ended Cayman
fund vehicles such as partnerships, companies, unit trusts and
limited liability companies are required to register with the
Cayman Islands Monetary Authority (“CIMA”) and are
subject to requirements in relation to valuation, custody, cash
management and identification of securities. Further, under the
Private Funds Act, all closed-ended funds subject to the act must
have their accounts audited annually by a CIMA approved auditor,
together with an obligation to file audited accounts with CIMA. The
Mutual Funds Act now also requires registration with CIMA for
mutual funds with 15 or fewer investors and the filing of annual
financial returns with CIMA.  

Economic Substance
Law

The Cayman Islands Economic Substance Act which became effective
January 1, 2019 introduced certain reporting and economic substance
requirements for “relevant entities” conducting
“relevant activities.” All Cayman Islands companies,
limited liability companies, limited liability partnerships and
registered foreign companies must file an annual notification
filing (“ES Notification”) in Cayman regardless of
whether or not they are “relevant entities,” or claim an
exemption from being a “relevant entity” because they are
an investment fund tax resident in another jurisdiction. Trusts and
partnerships do not have to file ES Notifications. The ES
Notification filing is a prerequisite to filing an annual return on
or before January 31, 2022. An entity which claims an exemption by
virtue of being an investment fund, tax resident in another
jurisdiction or a domestic company, will not be required to file an
annual ES report (“ES Report”). Investment advisers
should work with their Cayman service providers on an annual basis
to determine whether an entity falls within the classification of a
“relevant entity,” whether the nature of its activities
falls within the scope of the economic substance regime and finally
to ensure any ES Notification and, if required, ES Report filing is
made. 

FATCA
and CRS

In order to comply with FATCA, fund managers should ensure that
the funds they manage have identified and documented their
respective investors (e.g., collected and verified an IRS Form W-8
or W-9, as applicable, and any other required information, from
each investor) and that they have policies and procedures in place
to collect the appropriate information and documentation from new
investors (if new investors can be admitted). U.S. funds that made
withholdable payments (e.g., U.S.-source interest and dividends) to
non-U.S. persons during 2021 will be required to furnish certain
information to such non-U.S. persons (on IRS Form 1042-S) and file
information returns with the IRS (on IRS Form 1042) by March 15,
2022, even if withholding was not required, and such funds may also
have withholding obligations with respect to withholdable payments
made to certain non-U.S. investors during 2022. Non-U.S. funds may
have registration and information reporting obligations (with
respect to 2021) in their respective jurisdictions between April
and July 2022, and may have registration (e.g., “GIIN”)
obligations in the United States. 

The OECD Common Reporting Standard (“CRS”) is
substantially similar to FATCA, but it applies on a global scale,
and must be made in addition to FATCA for funds in CRS
jurisdictions (e.g. Cayman Islands and BVI, but not the United
States). The due diligence and information reporting requirements
under CRS are intended to expand upon the corresponding
requirements under FATCA. For managers of funds in CRS
jurisdictions, such funds are required to identify and document
their respective investors (e.g., collect and verify CRS
Self-Certification Forms) and adopt policies and procedures
relating to CRS compliance. Non-U.S. funds subject to CRS may have
registration and reporting obligations (with respect to 2021) in
their respective jurisdictions between April and September
2022. 

Managers of funds with FATCA and/or CRS compliance obligations
should consult with counsel and/or accountants immediately to
determine what actions are required.

Foreign Bank
Account Report (“FBAR”)

Every U.S. person (including both individuals and entities) that
had a financial interest in, or signature authority over, one or
more non-U.S. financial accounts (e.g., bank accounts and mutual
fund interests, but not equity interests in a hedge fund, private
equity fund or other private investment fund) during 2021 must file
an FBAR with the U.S. Treasury, if the aggregate value of such
accounts exceeded $10,000 at any time during 2021. For this
purpose, a U.S. person will be deemed to hold a financial interest
in the non-U.S. financial accounts held by an entity or trust if
such U.S. person owns, directly or indirectly, more than 50% of the
voting power or value of such entity or trust. If an FBAR for 2021
is required, it must be filed electronically with the U.S. Treasury
on or before April 15, 2022. The U.S. Treasury, however, will grant
filers failing to meet the FBAR due date an automatic extension to
October 17, 2022; specific requests for this extension are not
required and further extensions beyond October 17, 2022 may not be
requested (and, in any event, will not be granted). Failure to
comply may expose a U.S. person to a civil penalty of up to
$10,000. Willful FBAR violations may expose a U.S. person to an
increased civil penalty of up to the greater of $100,000 or 50% of
the aggregate high value of the accounts for the year in question,
as well as criminal penalties.

Country-by-Country Reporting
(“CbCR”)

In addition to FATCA, CRS, and FBAR, fund managers may have
additional reporting obligations under CbCR rules that have been
implemented by numerous jurisdictions around the world. In general,
“multinational enterprise groups” (e.g., chains of
related entities that include two or more entities that are formed
or that operate in different countries) may be required to register
with local authorities and self-report certain information about
the group’s structure and ownership if: (1) group entities are
required to consolidate for financial reporting purposes, and (2)
the revenue of the consolidated entities for the prior reporting
period exceeds U.S. $850 million. To the extent CbCR reporting is
required for activities in 2021, the corresponding reports may be
due as early as February 28, 2022, depending upon the jurisdiction.
The revenue threshold may cause most multinational groups,
including multinational investment fund structures, to not have a
reporting obligation under CbCR, but fund managers should be aware
of CbCR and should review their respective fund structures to
determine if CbCR may apply.

DAC6 Reporting

Fund managers may have additional reporting obligations under
the sixth version of the EU Council Directive on Administrative
Cooperation, known as “DAC6.”  DAC6 applies to
certain cross-border transactions between intermediaries or
taxpayers in (1) two EU member states or (2) an EU member state and
a non-EU country. As with FATCA, CRS, FBAR and CbCR, the stated
purpose of DAC6 is to increase transparency in global transactions.
Cross-border transactions involving parties in applicable European
jurisdictions can trigger DAC6 reporting where certain
“hallmarks” of potential tax avoidance are met. If DAC6
reporting is required with respect to any EU-related cross-border
arrangement that meets one or more applicable
“hallmarks,” such reporting generally is due within 30
days of a relevant triggering event under the DAC6 implementing law
of the relevant EU member state. Fund managers operating or
managing funds in the EU (and fund managers managing funds with
portfolio assets and/or transactions within the EU) may need to
consider whether DAC6 reporting is required, in which case such
managers should consult with counsel to determine what actions may
be necessary.

Employee
Confidentiality Provisions

Advisers are reminded that SEC Rule 21F-17(a) under the Exchange
Act broadly prohibits any person from taking any action to
“impede” any other person from reporting to the SEC any
possible violation of federal securities law or regulation. In
other words, the rule bars companies from doing anything that might
“chill” whistleblowing. This has been interpreted to
include, among other things, using blanket confidentiality language
in: employment agreements, employee handbooks and codes of conduct
that states company information is confidential and must not be
used or disclosed without permission from the company. In April
2015, the SEC brought its first enforcement action, In the Matter
of KBR, Inc., for a violation of Rule 21F-17(a). Since then, the
SEC has made clear that further enforcement actions will follow and
that companies must promptly review – and if necessary,
revise – all of their relevant materials. Revisions to
employee documents and manuals may be warranted and we recommend
reviewing these materials and implementing any changes which are
necessary or advisable promptly. 

Cybersecurity

Cybersecurity is arguably the current greatest focal point of
the SEC and state regulators. The SEC has again included it as an
area of examination focus for 2022. Advisers that have not yet
conducted a cybersecurity review or adopted a cybersecurity policy
should do so. Advisers should review the August 2017 Risk Alert from the SEC and
consider implementing the policies and procedures that are noted as
being robust.   

Pay-to-Play

Advisers who manage assets of one or more government entities
(whether as separate clients or investors in an investment fund
managed by the adviser), or who engage placement agents to market
to government entities, are required to comply with the provisions
of SEC Rule 206(4)-3, also known as the “Pay-to-Play
Rule.” The Pay-to-Play Rule, which applies whether the adviser
is registered with the SEC or an exempt reporting adviser for SEC
purposes, places certain restrictions on the type and amount of
political contributions and/or services to political candidates,
campaigns, or PACs that may be made by an adviser or its affiliates
(in certain circumstances including contributions made prior to
becoming affiliated with the adviser). In addition, the Pay-to-Play
Rule places requirements on who an adviser may engage to solicit
government entities on the adviser’s behalf. In addition,
advisers subject to the Pay-to-Play Rule are required to maintain
books and records to document their compliance with the rule. Any
adviser currently managing assets of any government entity, or that
is or intends to market its services to any government entity,
should consult with counsel to ensure adequate policies and
procedures are in place for purposes of compliance with the
Pay-to-Play Rule. 

International Swaps and Derivatives Association Standard
Documentation (“ISDAs”)

Advisers who use swaps are reminded of the various Dodd-Frank
and European Market Infrastructure Regulation (“EMIR”)
requirements. Every party to a swap must have a CICI/LEI number and
should enter into the August DF Protocol, the March DF Protocol
and, if an EU counterparty is involved, potentially several EMIR
related protocols. Advisers with EU counterparties are also
reminded to monitor the status of each fund they manage for NFC- or
NFC+ status and to update their EMIR NFC filing as needed. Advisers
should be mindful of whether particular swaps they are trading fall
within the clearing requirements. Finally, with respect to
uncleared swaps, the new variation margin rules went into effect
March 1, 2017. Advisers who have not taken the necessary steps to
update their credit support documentation should contact
counterparties immediately to begin that process.  

EU Short Reporting

Advisers that deal in securities of issuers located in the
European Union, or securities listed on EU exchanges, should be
mindful of the EU short reporting rules (which generally require
reporting of short positions of 2% or greater of an EU issuer). We
have seen increased enforcement activity from EU regulators in this
area in recent years. Advisers should note that swaps, ADRs and
other derivative instruments may also be deemed “EU short
positions” that must be reported.

EU Alternative Investment Fund Managers Directive
(“AIFMD”)

As a reminder, the AIFMD went into full effect in July 2014.
Managers who currently market or are looking to market a fund in
the EU should consult EU counsel to determine what actions are
required. Such consultation should occur well in advance of any
anticipated marketing of a fund in the EU as registration under the
AIFMD requires a few months to complete.

Form
SLT

Treasury International Capital (“TIC”) Form SLT is
required to be filed by certain custodians, investment advisers and
investors. Reporting entities include an investment adviser that
has $1 billion or more of “reportable securities,” as of
the last business day of the reporting month. Form SLT must be
submitted by the reporting entity with at least $1 billion in
reportable securities to the Federal Reserve Bank, no later than
the 23rd calendar day of the month following the month of
reporting. The Form may be submitted electronically, by mail or
fax. Determining whether an adviser must submit this form is
complex, and advisers with $1 billion or more in AUM are urged to
consult with counsel if they are uncertain whether they should be
making this filing. 

Bureau of Economic Analysis (“BEA”)
Reporting

All investment advisers, whether or not registered, should
review their obligations for reporting to the Department of
Commerce’s Bureau of Economic Analysis. For more detailed
information on these BEA requirements please refer to our May 12, 2015 Foley Adviser.

General Updates to
Fund Documents

All investment advisers, whether or not registered, are reminded
that reviews of all fund documents should be undertaken on a
periodic basis. In particular, the constituent documents for funds
that are either limited liability companies or limited partnerships
should be reviewed for compliance with the Revised Partnership Tax
Audit Rules, which went into effect for tax years beginning on and
after January 1, 2018. Registered investment advisers may undertake
this review as part of their annual compliance review. To the
extent that such a review has not been undertaken during the last
two years, it is recommended that such a review be undertaken at
this time.

Annual Delaware Tax

Limited partnerships and limited liability companies formed in
Delaware are required to pay an annual tax in the amount of $300 by
June 1 of each year.

Annual State
Filings

Limited partnerships and limited liability companies may be
required to file an annual report in their state of formation
and/or in states in which they are qualified to do business. If you
have any questions about applicability of such requirements, please
consult with legal counsel. 

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.


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