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December 20, 2016

FERC staff recently released two white papers, Anti-Market Manipulation Enforcement Efforts Ten Years after EPAct and Effective Energy Trading Compliance Practices. Both provided compliance guidelines in two areas: market manipulation and trading compliance.

The first of the white papers gave an overview of recent case law concerning FERC’s anti-manipulation regime, identifying what factors result in cases against organizations.

The second provided guidance on trading compliance, suggesting ways in which to develop an effective trading compliance program. While the paper was meant for energy traders, it has important implications for other trading situations as well. FERC recommends incentivizing compliance performance by incorporating it into traders’ compensation structures. They also identify “ine...

April 20, 2016

In February of this year, the Senate Finance Committee and House Ways and Means subcommittee sent letters to 56 private colleges with endowments greater than $1 billion seeking information on how they manage and spend those funds. The inquiry was aimed at understanding how endowments fulfill their charitable and educational purposes, particularly in the face of rising tuitions. Since answers were due on April 1, a number of schools have made their letters public. RFG has read these letters, with a focus on information shed on the internal and external costs of managing the endowments.


Many of the schools stated that endowments were essential to the long-term financial stability of the institutions (“Intergenerational Stewardship” in the words of NYU), while also pointing out that viewing endowments as “...

April 8, 2016

Due to the growth of regulatory exposures and risks in today’s investment environment, gaps in compliance coverage have the potential to hit investment returns hard. 


Our most recent white paper, “Investment Office Behaviors in the Age of Enforcement,” highlights four under-examined regulatory concerns that carry major price tags for violations: the Foreign Corrupt Practices Act, Sanctions Requirements, Required Reports, and Antitrust Laws. We also interpret the results of RFG’s Third Annual Compliance Survey (completed in February 2016 with responses from 39 organizations), which show that today’s “best in class” investment teams are building well-thought-out programs to address these and similar requirements that apply to their investment activities.


The final section of the white paper describes how...

March 7, 2016

Regulatory efforts change the structure of financial markets, and market changes trigger further regulatory efforts.  Recent developments highlight this cycle. 


First there was the regulatory effort.


Concerned that banks were "too big to fail," regulators launched capital and other requirements in order to change bank business models and to stimulate the economy. Now, further untested territory is being contemplated: worldwide regulators are at least discussing the possibility of negative interest rates, if not going there directly, as Japan’s central bank did at the end of January and the European Central Bank did in 2014. In the U.S., the Federal Reserve itself will assess the resilience of big banks using a negative interest rate.

The upshot of these regulatory efforts will be to...

December 29, 2015

In many respects, 2016 looks to be a continuation of forces set in motion during 2015, which means it will be a challenging year. One of the main challenges will be dealing with continued uncertainty – with political change in the U.S. (regardless of who wins the election), geopolitical instability, shifts in the global economy, and a continued focus on revising the rules of the road. Uncertainty is always difficult in and of itself and, unfortunately, this time it looks as if it might lead to more intrusive regulations.  With this in mind, we offer eight predictions for 2016.


1. Global financial regulators, concerned that they are becoming less relevant as a result of their own rules, which have focused on pushing financial transactions out of regulated entities and into non-banks, will rethink the rul...

November 16, 2015

The role of compliance in a regulated shop, and the allocation of responsibility between the compliance function and senior management, continues to be an active topic at the SEC. Recently, guidance on the CCO function, and particularly its outsourcing, was provided in an SEC Risk Alert. First, the alert underscores general expectations of the compliance function, including that the CCO must be “empowered” and “competent and knowledgeable.”  It also highlights the need for “meaningful risk assessments.” In this regard, the SEC is explicitly adopting a page from bank regulatory requirements. All financial regulators now clearly state that compliance starts with the correct identification of business and regulatory risks -- a requirement that has been the cornerstone of compliance programs for many y...

November 2, 2015

Recently, the SEC has been having an internal debate regarding holding CCOs personally responsible for a firm’s misconduct. In June, former Commissioner Gallagher stated that the adviser, not the CCO, is ultimately responsible for implementation of the compliance program; whereas in July, former Commissioner Aguilar issued a statement in support of the SEC’s charges against CCOs.  However, even when supporting charges against CCOs, he stated that “CCOs who take their jobs seriously and do their jobs competently, diligently, and in good faith to protect investors” have nothing to fear. The discussion now picks up again with some reassuring remarks by Andrew J. Donahue, the SEC’s recently appointed Chief of Staff.


Donahue said the Commission “is not targeting” compliance personnel, but will consider enfor...

July 6, 2015


The SEC and media are driving scrutiny on the topic of advisory contracts: looking ahead, this could be the next big issue, with implications for investors, funds and fund managers. Two recent developments are worth noting:

The New York Times just reported that Calpers has failed to track carried interest and certain other fees paid to private equity firms. (Carried interest is a reduction in what would otherwise be a distribution to investors from an investing vehicle and, therefore, may not be viewed as an expense by investors as they prepare financial statements.) The Times quotes one board member as saying he is “appalled.”  A “pension fraud investigator” states, “They are intentionally not asking because if the fees were publicly disclosed, the public would scream.” The investigator also pla...

June 1, 2015



The press and plaintiff’s bar delight in reporting that pervasive ethical problems plague financial services companies. The most recent example to hit the press is a Deutsche Bank settlement for altering its valuation methodology as market conditions deteriorated in 2008 so that a portfolio of leveraged derivatives was overvalued. Sadly, in the face of recurring settlements by major banks, the public has little reason to question that a problem exists. A recent survey by whistleblower law firm Labaton Sucharow appears to add credence to the concerns.  

This growing public distrust will have implications for all business leaders, who will be required, for the foreseeable future, to reconsider whether firm activities meet ethical standards.  In doing so, they must recognize that market assumptions about...

April 20, 2015

On April 8 the International Monetary Fund issued a report, “Navigating Monetary Policy Challenges and Managing Risks”, with a chapter focused on the money management industry. The report expresses concern about potential financial stability risks posed by the asset management industry due to structural changes in financial systems, and that sector’s growth. It recommends that securities regulators focus more intensively on the systemic risks of supervised entities and on the adequacy of risk management tools.


The IMF is not the only one concerned with systemic risk. RFG has been collecting comments from various industry players. Here are some other perspectives given in response to a recent Financial Stability Oversight Council request for comment:


Money Management Institute, which represents a broad s...

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