SEC Launches Sweep of RIAs' T+1 Compliance
RIAs have received letters asking for details on procedures for trade affirmation and recordkeeping, K&L Gates attorneys say.
The Securities and Exchange Commission has begun a sweep of advisors’ compliance with T+1, the shortening of the securities transaction settlement cycle from two business days after the trade date to one.
“Over the last week, several registered investment advisers have received examination letters” from the SEC’s headquarters in Washington as well as from at least one regional office related to T+1, according to attorneys at K&L Gates.
In a just-released client alert, the attorneys state that SEC staff “are requesting that RIAs produce details on procedures related to their trade affirmation process and the associated recordkeeping requirements.”
The new T+1 rules, which took effect on May 28, prohibited broker-dealers “from engaging in any securities transaction that would not settle before T+1 (subject to certain exceptions) and required broker-dealers to adopt policies and procedures designed to facilitate completion of the allocation, confirmation, and affirmation process (the ACA Process),” trade date, the K&L Gates attorneys state.
The SEC also amended the recordkeeping rules applicable to RIAs to require the retention of certain communications relating to the ACA process.
Specifically, the K&L Gates attorneys say the sweep asks RIAs to share the following documents relating to the T+1 settlement process:
- Written compliance and operational policies and procedures addressing processes or operational protocols affected by the ACA Process or securities transaction settlement cycle (generally) or the T+1 settlement and any material amendments thereto (including any procedures specifically relating to the ACA Process and associated recordkeeping requirements)
- Assessments or tests regarding the ACA Process conducted by the RIA, including a listing of risks and conflicts associated with the RIA’s trading
- RIA compliance testing of the ACA Process
- A listing of automated compliance tools associated with the RIA’s trading, including the ACA Process;
- Compliance training relating to the ACA Process;
- Compliance exceptions relating to the ACA Process; and
- Communications the RIA sent to or received from its clients relating to the ACA Process.
The request also asks for “certain other items that are not directly related to the conversion to T+1 or the ACA Process, such as a listing of potential litigation, a listing of private investments, and a listing of client custodians,” the alert states.
The scope of the SEC requests “go beyond the regulatory requirements for RIAs arising from the T+1 transition,” the alert states.
For instance, advisors are not specifically required to perform a compliance assessment of their ACA process.
Further, certain requests “may be overbroad and implicate communications that could be subject to privilege (e.g., the compliance training).”
And the “exam period” for some requests “are measured from the May 2024 compliance date, yet other requests — contracts, clients, policies, compliance training, communications — reach back to 15 February 2023, the T+1 Rule’s adoption date,” the attorneys state.