Compliance Bricks and Mortar for June 7

These are some of the compliance-related stories that recently caught my attention.

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Tuesday: Tax transparency, the myth of the unlevered IRRs
Private Funds Management

LPs want to know what effect this has on IRR. ILPA recommends that net IRR should be presented both with or without use of the credit facility, as referenced in this video from one of our sponsors Withum. This sensible-seeming suggestion may not be as simple as it seems. “Speed to close and ability to close all cash are becoming more important in this competitive environment. Without a line we would need to call capital in advance and leave cash on the balance sheet,” said Blue Wolf Capital CFO Josh Cherry-Seto. “We would at least a few times call large amounts of capital for investments that do not consummate. It is not such a simple exercise and I don’t think, if calculated honestly, the results would be favorable.” Cherry-Seto was speaking at Private Funds CFO’s fund finance roundtable, which will be published in July.

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Preemption of state securities laws
by Eversheds

With the recent announcement by the Securities and Exchange Commission (SEC) that it will hold an open meeting on June 5, 2019, to consider adopting Regulation Best Interest, one of the major issues that the SEC may clarify is its view of whether Regulation Best Interest preempts state securities regulations that impose a fiduciary duty on broker-dealers.

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Boeing and More Compliance Lessons Learned: Silos, Risk and Training
by Tom Fox
FCPA Compliance Report

I was stuck by an extraordinary above the fold article in the Sunday New York Times (NYT), entitled The Late Change, and Fatal Flaws in Boeing’s Plane by a plethora of reporters including Jack Nicas, Natalie Kitroeff, David Gelles and James Glanz. (The physical location of the article in the print edition was also significant as it reminded me of when the NYT broke the story of Wal-Mart’s corruption allegations in Mexico, in the same place, right hand column above the fold in an edition of the Sunday Times back in 2012). Matt Kelly wrote a great blog post on the article and his interpretation of it in Radical Compliance, entitled Another Lesson from Boeing: Silos. Kelly was spot on regarding his analysis of the siloed nature of Boeing’s design and construction process that caused or contributed to the catastrophic failure of the 737 Max due to the failure of the Maneuvering Characteristics Augmentation System (MCAS).

http://fcpacompliancereport.com/2019/06/boeing-compliance-lessons-learned-silos-risks-training/

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Carnival Dinged $20M on Compliance
By Matt Kelly
Radical Compliance

Compliance professionals will be fascinated — and encouraged, really — because this case is all about Carnival failing to establish a strong, effective compliance function. That was the failure. Carnival was supposed to hire a CCO years ago to help strengthen a culture of compliance, it hasn’t done that yet, and that lack of leadership allowed a culture of non-compliance to continue.

http://www.radicalcompliance.com/2019/06/05/carnival-dinged-20m-compliance/

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NASAA adopts investment adviser information security model rule package
Jay Fishman, J.D. 
Jim Hamilton’s World of Securities Regulation

The North American Securities Administrators Association, Inc. (NASAA) has adopted an information security model rule package to enhance state-registered investment advisers’ cybersecurity and privacy practices.  The package consists of: 
1.A model rule requiring investment advisers to adopt policies and procedures regarding information security (both physical security and cybersecurity) and to deliver its privacy policy annually to clients;
1. An amendment to the existing investment adviser NASAA model recordkeeping requirements rule mandating that investment advisers maintain records of their cybersecurity and privacy policies and procedures; and 
3. Amendments to the existing investment adviser NASAA Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers and NASAA Prohibited Conduct of Investment Advisers, Investment Adviser Representatives and Federal Covered Investment Advisers Model Rule USA 2002 502(b) model rules, to include failing to create, maintain, and enforce the cybersecurity and privacy policies and procedures.   

https://jimhamiltonblog.blogspot.com/2019/05/nasaa-adopts-investment-adviser.html

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