Registered Funds

In 2021, the U.S. enacted the Corporate Transparency Act (the “CTA”) as part of a multi‑national effort to rein in the use of entities to mask illegal activity.  The CTA directs the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) to propose rules requiring certain types of entities to file a report identifying the entities’ beneficial owners and the persons who formed the entity.  FinCEN issued the final rule on Beneficial Ownership Information Reporting Requirements (the “Reporting Rule”) on September 29, 2022. FinCEN recently published a Small Entity Compliance Guide intended to assist entities in determining whether they are required to file a report and what information will need to be reported.  The Reporting Rule will become effective on January 1, 2024.

On April 20, 2023, the staff of the Securities and Exchange Commission (the “SEC”) published an FAQ‑style bulletin[1] that provides guidance on the care obligations of broker‑dealers and investment advisers in providing investment advice and recommendations to retail investors. The bulletin emphasizes the importance of complying with the Care Obligation of Regulation Best Interest (“Reg BI”) for broker‑dealers and the duty of care enforced under the Investment Advisers Act of 1940, as amended (the “IA fiduciary standard”) for investment advisers (together, the “care obligations”). The care obligations are drawn from key fiduciary principles, including an obligation to act in the retail investor’s best interest and not to place the fiduciary’s interests ahead of the investor’s interest.

On January 1, 2021, Congress enacted the Corporate Transparency Act (the “CTA”) as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal Year 2021.  Congress passed the CTA to “better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity.” The CTA requires a range of entities, primarily smaller, otherwise unregulated companies, to file a report with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) identifying the entities’ beneficial owners—the persons who ultimately own or control the company—and provide similar identifying information about the persons who formed the entity. The CTA also authorizes FinCEN to disclose this information to authorized government authorities and to financial institutions in certain circumstances.

Summary of the Corporate Transparency Act under the National Defense Authorization Act for Fiscal Year 2021

On January 1, 2021, the Corporate Transparency Act (the “CTA”), which is part of the National Defense Authorization Act for Fiscal Year 2021, became effective after both houses of Congress overrode a presidential veto. The CTA amends the Bank Secrecy Act (the “BSA”) and, once the Treasury Department’s reporting procedures and standards are established, it will require many companies, which have historically been unregulated, to file a report with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) identifying the companies’ beneficial owners. In an attempt to ban anonymous shell companies and “better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity,” government authorities will, for the first time, have access to a database of such beneficial ownership information.

The Securities and Exchange Commission (the “SEC”) recently adopted final rules[1] (the “Final Rules”) amending Regulation S-X and related rules and forms in a manner that directly impacts registered investment companies and business development companies (“BDCs”, and together with registered investment companies, “investment companies”) by substantially rewriting the rules that require reporting companies to…