Cordium's Annual Regulatory Forum full presentation 2014

April 13, 2023 CORDIUM POWERPOINT MASTER 1

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Welcome to the Cordium Annual Regulatory Forum 2014: What Lies ahead

- A Compelling Year for Regulation?

WHAT TO EXPECT WHEN EXPECTING THE SEC

BILL MULLIGAN – CEO, CORDIUM US

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Agenda

o Regulatory landscape o OCIE National Exam Program (“NEP”)o Types of SEC Examso Presence Exams

oKey Areas of Focuso Recent SEC Enforcement/Common Deficiency

Themes

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oWhat to Expect from a SEC Examo Timeline:

o Document Productiono Timing/Durationo Onsite Visito After the Onsite

o How Best to Prepareo Identification of SEC Examination Priorities for 2014

Agenda continued

Regulatory Landscape

o As of February 2014:o There were over 4,000 private fund advisers registered

with the SEC.o Close to 40% of all RIAs manage one or more private funds.o Of these 4,000 private fund advisers:

oOver 2,000 registered with the SEC since July 21, 2010, when the President signed the Dodd-Frank Act into law.

oOf these private fund advisers, 352 (8%) are domiciled in a foreign country

oMost of these are domiciled in the United Kingdom.

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OCIE National Exam Program (“NEP”)

o Andrew J. Bowden - Director of the agency's Office of Compliance Inspections and Examinations (“OCIE”)

o Missiono Improve Industry Compliance

o Local and national outreach seminars, risk alerts, recruitment of industry experts, etc.

o Identify and Prevent Fraudo Focused, risk-based examinations of registered advisers, specialized

working groups, coordination across SEC offices and Divisions of Risk, Strategy and Financial Innovation and Enforcement

o Monitor Risko Specialized units (Office of Risk Analysis and Surveillance, Office of

Large Firm Monitoring and Quantitative Analytics Unit, etc.)o Inform Policy

o Utilize results/findings to inform future rulemaking and provide guidance to the industry

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Different Types of Exams

o Routine Exams o May be based on the passage of time since last exam

o Presence Exams

o Risk-based, focused examinations of newly registered adviserso Usually average 90 days, ½ as long as typical exam

o Industry Sweeps

o Focus on a narrow issue and seek to determine how the industry is handling that issue

o Recent examples include firm use of social media and disaster recovery preparedness

o For Cause Examso May be based on a tip or investor complainto Typically unannounced

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Examinations by the Numbers

o RIA Examso FY 2012: The SEC was able to examine only about 8% of

registered investment advisers. o As of April, 2013, over 40 percent of advisers (including

relatively recently registered advisers) have never been examined.

o As of April, 2013, an estimated 20% of all advisers that have been registered for more than three years have never been examined.

o Focus throughout 2013 was on conducting Presence Exams.

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Presence Exam Initiative

o As of January 2014o Over 250 presence exams completedo On pace to meet goal of 15-25% of new registrants by

March 2014o Participation from EVERY regional officeo Many issues in the five target areas being notedo Contributed to developments in:

o Guidance from Division of IM on Custody Ruleo Guidance/caution on broker-dealer registration requirements

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Examination Focus Areas

o 5 “High Risk” Target Areas Identified for Presence Exams Initiative

o Conflicts of Interesto How does the firm address conflicts such as: fees and

compensation, personal trading, allocation of expenses?

o Marketing/Performance Advertisingo Are disclaimers adequate/accurate? o Is appropriate back-up in place to substantiate

performance/claims made?o Are there inconsistences between documents?o Cherry-Picking?

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Examination Focus Areas continued

o Portfolio Managemento Style drift?o How are portfolio decision-making/objectives being reviewed?

o Custodyo Does the adviser recognize when it has custody?o Are proper procedures in place to safeguard client assets and

abide by the Custody Rule (e.g., surprise exams where required)?

o Valuationo Are procedures adequate/consistently followed? o What documentation is in place to evidence difficult to value

securities?o How are numbers being presented to investors?

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Recent SEC Enforcement

o During 2013 - SEC brought 686 enforcement actionso Recent Conviction:

o Former SAC Capital portfolio manager Matthew Martoma was found guilty of insider trading on February 6, 2014

o The verdict was the eighth insider trading conviction of a current or former employee at SAC Capital

o SEC intends to continue to direct its focus on insider trading cases o 44 such cases were initiated in 2013

o New Enforcement Strategies:o “Broken Windows” – pursuing “smaller” violations as a deterrent (Minor

violations can feed bigger ones..)o Aberrational Performance Risk Analytics – using advanced technologies to

identify issueso Increased Expertise

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Common Deficiency Themes

o Cases where CCOs were charged – four main themes:o Deficient/nonexistent compliance programs (or “off the

shelf” and not tailored to firm)o No annual review, no Code of Ethics adoptedo Recidivism – Firm/CCO was warned by the SEC staff or an

outside consultant and did not fix the issueo Consultiva case – 5 years of failure to address deficiencies

o Egregious behavior – alteration of documents o Omni case – CCO backdated signature

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What to Expect from a SEC Exam

o How Does it Start?o Notification – usually by phone/emailo Request Letter

o What Does Life of Presence Exam Look Like?o Document Production – often on a rolling basiso Timing/Durationo Onsite Visito After the Onsite

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o Document Productiono Usually 15 to 25 requests in the initial request (normal

exam could be from 40 to 50 requests in initial request)o Example of Information Requested:

o Org charts – including ownership % and list of affiliateso List clients, type, AUM, name of custodian, type of strategy, types of fees (in EXCEL)o List of private funds, number of investors, domicile, master/feeder, nature of lock-up, amount

of leverage, etc. (in EXCEL)o QTRs and all other personal trading records (in EXCEL if you use software to track)o Trade blotter/ ten most and least profitable tradeso List of JVs (this should include outside business activities of key employees)o Written policies and procedureso Violations of Policieso Investor complaintso Committee minutes (if any)o ADV Part 2Bs, marketing materials, Pitchbooks, etc.

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o Document Productiono Could be 5 to 10 additional requests (could be another 20

to 30 in a normal exam)o If you don’t understand something on a request list - call

and ask o Should Consider;

o Attorney Client Privilegeo Freedom of Information Acto Bates Stamping and other Logistics

o Timing/Noticeo SEC can request information that pre-dates registrationo Notice Periods could be as short as 4-7 days

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o Onsite Visito Typical Presence Exam onsite time ranges from 2-3 dayso Helpful Tips:

o Do not try to delay the visito Present your “story” to the SEC on day 1o Prepare your partners and key people – the SEC will want to talk with

certain people (CCO, CFO, IR, Head Trader, etc.)o Keep the office clean, file cabinets locked, no papers outo Set up a room for the examinerso Make yourself availableo Discuss potential issues with counsel/compliance consultants in advance!o It’s ok to say “let me get back to you on that”o Ask for it in writing if they have follow-up document requests

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o After the Onsiteo Exit Interview

o Clarify questions/correct any perceived inaccuracies during the callo Be proactive – if an issue is identified– work to remedy it ASAPo Consider responding with the manner in which you have corrected or are in

the process of correcting any issues identifiedo A proactive written response to the Exit Interview may affect the

content/substance of your firm’s Deficiency Lettero Could be additional requests for information

o Potential for Deficiency/”Findings” Lettero Generally received within 120 days of the exam (although not required)o Generally have 30 days to respondo Next examination will likely address issues raised by examiners – Need to follow-

through on corrections!

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o How Should You Prepare?o When Preparing for an Actual Audit:

o Prepare a written response to each requested itemo Gather and Organize requested documentso Prep team for possibility of interviews

o Things to Start Doing NOW:o Create a “First Day” presentation o Proactively identify conflicts, gaps and possible problemso Critically review Compliance Manual – are policies in line with practices?o Test P&P throughout the year o Beef up Annual Reviews – SEC is concerned that firms may only be doing

cursory annual reviews of policies and procedureso Consider conducting Audit Prep or Mock Audit exerciseo Conduct periodic trainings

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Headline Review of SEC Examination Priorities for 2014

o On January 9, 2014, the NEP published its 2014 examination prioritieso Contains areas that the staff perceives to have heightened risk in part based on (i)

information reported by registrants, (ii) information gathered through examinations and (iii) comments and tips

o NEP-Wide Initiativeso Fraud Detection and Prevention

o Utilize and enhance its quantitative and qualitative tools and techniques o Corporate Governance/Conflicts

o Evaluate firms’ control environment and “tone at the top”o Understand firms’ approach to conflict and risk management

o Technologyo Examine governance and supervision of information technology systems,

operational capability, market access, information security and preparedness to malfunctions/outageso Noted as a big focus area for 2014 during January 30, 2014 SEC Compliance

Outreach Program

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Headline Review of SEC Examination Priorities for 2014

o Core Risks Identified for RIAso Safety of Assets and Custody – Failing to realize the firm has custody and/or failing to

comply with Rule 206(4)-2o Noted as the #1 Core Risk by OCIE

o Conflicts of Interest – Putting interests of the firm ahead of client interests or failing to identify and mitigate conflicts (e.g., compensation arrangements, allocation of investment opportunities, etc.)

o Marketing/Performance – Accuracy and completeness of claims/performance information, hypothetical and back-tested performance, use of composite performance figures, record-keeping, compliance oversight, cherry-picking, etc.

o New and Emerging Issues and Initiatives for RIAso Never-Before Examined Advisers – Focused, risk-based exams for advisers that have

been registered for more than three years and have never been examinedo Quantitative Trading Models – Are policies tailored to address compliance issues and

risks of relying on such models?o Presence Exams – continue 2012 initiative

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Panel Session

What to expect, when expecting the SECModerator: Bill MulliganPanellists• Abrielle Rosenthal, Senior Principal and Senior Compliance

Counsel, TowerBrook Capital Partners• Jillian Timmermans, Vice President and Partner, Cordium US• John Heard, Executive Partner and General Counsel,

Abingworth Management LLP• Michael Perry, Chief Operating Officer and Chief

Compliance Officer, COMAC Capital LLP

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April 13, 2023CORDIUM POWERPOINT MASTER 24

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Welcome to the Cordium Annual Regulatory Forum 2014: What Lies ahead

- A Compelling Year for Regulation?

2014 UK REGULATORY AGENDA FOR INVESTMENT MANAGERS

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2014 UK Regulatory agenda

o What did the FCA say a year ago?o What has it been like:

o Supervisory themeso Enforcement action

o FCA forward agenda and supervisory approacho Impact on alternatives?

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What did the FCA say a year ago?

o “Make markets work” o “A fair deal”o “Meeting fair and reasonable (consumer)

expectations”o Business model - new threshold condition o The end of caveat emptoro More assertive and interventionist o Act to protect a wider range of client relationships

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What has it been like? Supervisory themes

o TR13/10 - Outsourcing in the asset management industry

o TR14/1 – Transition Management Reviewo Regulation round up:

o UCIS financial promotion rules o Enforcement trends

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FCA forward agenda and supervisory approach

o Shaping the future in asset management: (Martin Wheatley, 30 October 2013)

o Fair, transparent and competitive: the FCA’s vision for the asset management sector (Clive Adamson, 30 October 2013)

o Looking ahead to 2014 (Martin Wheatley 9 December 2013)

o CP13/17 – The Use of Dealing Commissions o Market Watch 45

o Best Execution: A reminder of the basics

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Implications for Alternative Managers?

o Corporate access and use of dealing commissiono Execution and transaction cost analysiso Charging costs to the fundso Fund raising and disclosureso Investment strategy and consistency with marketing

communicationso Quality of periodic reporting o Independence of risk managemento Valuation

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Conclusion

o A year of cultural transitiono Trusted Agentso Business model and cultureo Regulatory fundamentals

o The rules are there to protect investorso Is the best interest of your investors at the heart of what

you do?

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Panel Session

To AIFMinity and BeyondModerator: Jonathan WilsonPanellists• Neil Robson, Special Counsel, Schulte Roth & Zabel• Lucy Millar, Director Legal Services, Hermes Fund Managers• Simon Thomas, Partner, MacFarlanes LLP• Jonathan Mott, Managing Consultant, Cordium• Adam de Domenico, CEO, Cordium Malta• Kevin Tomlin, Director, Relationships,

Royal Bank of Scotland Group

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Using Software to Streamline Your Compliance Program

25th February 2014Bill Mulligan, Cordium US CEO

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Agenda

o Introductiono Benefits of compliance automationo Specific Applications of Technologyo Cordium Toolso Closing Remarkso Q&A

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Introduction

o About Cordium Software Developmento Why we know good software!

o Developing innovative software for 8+ yearso Combines the expertise of compliance staff with talented

programmerso Allows us to see things from all angles and a global perspective in

terms of what we develop and when analyzing other products in the marketplace

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Increasing international regulatory pressures

Benefits of Compliance Automation

o As managers continue to become more global in nature, firms face an unprecedented level of regulatory scrutiny.

o Using an effective compliance management system will enable you to:o meet the global demand placed on your compliance teamo evidence due process

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o Automating parts of your compliance program with the use of technology will allow you to:o Keep up with the ever changing regulatory environmento Focus more time on other parts of your businesso Better handle investor due diligence querieso Allow for easier reporting, both internal and externalo Build a more efficient compliance infrastructure

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o Specifically, technology can help with:o Managing your day-to-day compliance responsibilitieso Tracking and documenting adherence to your procedureso Dealing with employee compliance issueso Monitoring risko Understanding the compliance regimes in different

jurisdictions

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Specific Applications of Technology

o A solid compliance program is about disclosure, organization, and preparedness.

o There are lots of moving parts which can become burdensome if not organized properly:o Compliance manualo Code of ethicso Monitoring programmeo Registration documents (Form ADV, etc.)o Fund documentso DDQso Investor communications, etc.

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o The key to organization is building out solid internal processes – technology can help! o We will look at several examples of where software tools

can make your life as a compliance manager easier.

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o Managing Your Policies & Procedureso Your compliance manual and code of ethics may be the

most important compliance document that you have. But, how do you ensure that you are doing what your manual outlines for you?

o Create a compliance calendaro An electronic compliance calendar let’s you track, monitor and archive your

compliance program. o Reminders can ensure that you never forget a task. o Create an audit trail and document archive so you can easily retrieve and

evidence your various compliance tasks. o Certain tools can also provide you with background regulatory information on

compliance tasks to help you though their completion.

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o Code of Ethics Complianceo One of the biggest burden’s for compliance teams is code

of ethics compliance. o PA dealing monitoring, gifts & entertainment, anti-

bribery, etc. o The review of broker statements and PA dealing can take

hours of time, even for a small firm. o Technology solutions can help alleviate that burden

by automating the PA dealing review process and creating an electronic portal for all employee filings.

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o Electronic links to employee brokerage accountso Automated trade review and screening processeso Electronic pre-approval of tradeso Electronic gift & entertainment reportingo Electronic attestations

o Moving to an electronic system for employee compliance, frees up time for the compliance personnel to focus on other tasks.

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o Record-Keepingo Email archiving tools are affordable and easy to useo Makes email screening and record keeping much easier

o Workflow Managemento All firms have specific business processeso Compliance departments often rely on other business

units for certain tasks. o By creating business process workflows for common tasks,

you can reduce the time spent, and put the information at your fingertips.

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Cordium Tools

o Compliance ELF (Employee Level Filing) was designed to create an electronic portal for all employee compliance issueso Personal dealingo Trade pre-approvalso Affirmations / Questionnaires

o Fit and Propero Conflict Questionnaires, etc.

o Training and Competency Record Keepingo Conflicts Managemento Annual Sign Offso SEC Code of Ethics Issues

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Cordium Tools

o Customisable application gives you flexibilityo Easy to use interface for employees and admin userso Puts one-click reporting capabilities at your fingertips

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Cordium Tools

o ComplianceTrako Interactive Compliance Calendaro Built in knowledgebase for FCA and SEC compliance tasks

o Updated as regulations changeo Monitor and report on risk

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Cordium Tools

o Coming Soon: Piloto Enhanced workflow managemento Complex user permissioningo Multiple calendarso Complex search and reporting functions

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Closing Remarks

o The future of global complianceo Staying ahead of the curve

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Questions & Answers

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04/13/2023 55CORDIUM POWERPOINT MASTER

10 Top Tax Tips for 2014

LAURENCE PARRYDirector/Head of Private Client Tax

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Tip 1

o LLP changeso Ensure that you know whether your LLP members

are ‘salaried’ or noto Check tests

o Capital contributiono Profit sharingo Significant influence

o Awaiting update from HMRC

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Tip 1 – profit sharing arrangements

o Must be related to profit of LLP as a wholeo HMRC’s view = % of total profito But, why not stratify profit? Want to pay partner £100k

o A) 20% on profits up to £500,000; +o B) 5% on profit s above £500k.

o As long as HMRC would accept 5% as a share overall, then should be no issue;

o As long as the % in B) is less than the employers’ NIC rate still cheaper

o Must be reasonable – A) cant be too high, nor B) too low!

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Tip 1 – ‘significant influence’

o If a member has ‘significant influence’ then wont be a salaried membero Influence over running of LLP (not just their bit, or

portfolio);o Equates to board of directors;o If don't have a management committee – perhaps could?o If business capable of disaggregation, consider separate

LLPS – eg brancheso Watch regulation and cost

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Tip 2 – corporate partners

o Decide!o LLP – if going to take profits out;o Limited – if profits to be retainedo Influencing factors:

o new equity holders?o potential changes to dual contractso If early years, losses available through LLP

o watch restriction

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Tip 3 – corporate partners

o If Limited?o Incorporation can give benefitso Sale at Market value – may benefit from ERo Amount payable for business left outstanding and repaid

from future cash flowso Need to watch reg cap

o ‘Dry’ tax charge – 31/1 tax year following saleo Cannot sell to existing corporate member – needs to be a

Newco

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Tip 4 – liquidate existing corporate partner

o May get ERo Activities must be 80% trading

o Cash on deposit not an ‘activity’o Risk if investedo If ER in doubt, consider retaining and investing without dry

tax chargeo Cost of liquidation perhaps £5k - £10k

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Tip 5 – non-doms and remittances

o Be careful!o HMRC nudge letters

o Use of credit cards in UK paid for overseas;o Payment for service in UK – eg advice in relation to

offshore investmentso Overseas travel booked in UK

o HMRC aware of back to back loan arrangementso Private Eye article – Oct 13

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Tip 6 – non-doms and IHT

o Inheritance tax charged on UK assetso For UK doms charged on worldwide assetso Non-doms become ‘deemed domiciled’ once

resident for 17/20 yearso (doesn't apply to Indian, Pakistani or French domiciled)

o Consider moving assets from personal to trust/company ownership in year 16

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Tip 7 – overseas workday relief

o Non-dom comes to UKo For the rest of that tax year and two following:

o Income that relates to overseas work, paid AND retained overseas, not subject to UK tax

o Calculated on a days worked basiso HMRC check most day calculationso HMRC checking not ‘ordinarily resident’ in year 3

o Less of an issue going forward because of SRT, but may apply for 12/13 – get info sorted!

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Tip 8 – watch losses

o Use of losses now restrictedo Capped at higher of £50k and 25% of income

o Sideways loss relief; carry back of losses; interest relief; loss on unquoted company shares

o Doesn't apply to VCT/EIS/Gift aido If think there may be losses, need to plan

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Tip 9 – Gift aid

o Reduces tax o Can be carried back to prior yearo Keeping records difficult!o If donations significant, consider personal charitable

trusto If smaller, consider Charities Aid Foundationo Gifts into both allowable, and easy to track!o Need to watch restrictions (benefits received) and

sufficient income

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Tip 10

oTalk to uso It will save the headache later!

LAURENCE PARRYDirector/Head of Private Client Tax

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Questions

Panel Session

FCA current priorities and what firms should look out for in 2014 Moderator: Philip NaughtonPanellists• Eve Ellis, Partner, Charles Russell LLP• Bobby Johal, Managing Consultant, Technical, Cordium• Simon Morris, Partner, Financial Services,

CMS Cameron McKenna LLP• Arjun Singh-Muchelle, Senior Advisor, Regulatory Affairs

(Wholesale and Capital Markets), Investment Management Association

• Jennifer Wood, Director, Head of Asset Management Regulation, AIMA

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Panel Session

FCA current priorities and what firms should look out for in 2014 Moderator: Philip Naughton

Topics:• FCA current priorities and what firms should look out for in 2014 • Thematic reviews and attestations• EMIR• Marketing• Supervision• Enforcements

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Closing Remarks

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Economy & Finance

Cordium's Annual Regulatory Forum full presentation 2014