Stradley Ronon Client Alert: IRS Revises CFC Practice Unit Guidelines
April 07, 2021

IRS Revises Receipt of Dividends or Interest from a Related CFC Practice Unit

The IRS has revised its Practice Unit “Receipt of Dividends or Interest from a Related CFC.” The Practice Unit was revised to include the extension of the Section 954(c)(6) look-through rule for controlled foreign corporations (CFCs) with tax years beginning before Jan. 1, 2026. This extension was part of the Consolidated Appropriations Act of 2021. This Practice Unit supersedes Jan. 5, 2016, and Jan 28, 2020, Practice Units with the same title. (Section references are to the Internal Revenue Code of 1986, as amended.) The look-through rule under Section 954(c)(6) allows U.S. shareholders of CFCs to “reinvest” active foreign earnings of one CFC in a related CFC without current taxation, as long as the underlying income of the payor CFC would not otherwise have been subject to current U.S. taxation (i.e., as subpart F income or income effectively connected with a U.S. trade or business).

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Stradley Ronon Client Alert: Are You Sure You Can Use the QPAM Exemption?
April 07, 2021

For many investment managers, the ability to act as “QPAM” is essential to managing retirement account assets. Indeed, status as a QPAM likely provides a sort of credentialing boost in the eyes of prospective plan clients and, more importantly, signals the investment manager’s ability to rely upon the “QPAM Exemption,” a highly versatile exemption used to cure various prohibited transactions under ERISA and Section 4975 of the Internal Revenue Code when it exercises discretion over plan assets. To be a QPAM, however, is not tantamount to satisfying the QPAM Exemption. Moreover, the QPAM Exemption itself is subject to myriad conditions, the failure to meet only one of which can wreak havoc on a compliance strategy. Here, we provide an overview and highlight potential trap doors in a Q&A format.

To read more, click here.

Stradley Ronon Client Alert: DOL Issues Guidance on 2020 Investment Advice Exemption
April 14, 2021

The U.S. Department of Labor (DOL) released a set of Frequently Asked Questions (FAQs) designed to clarify certain aspects of Prohibited Transaction Exemption 2020-02, Improving Investment Advice for Workers & Retirees (PTE 2020-02). The exemption enables investment advice fiduciaries to ERISA plans and IRAs to receive a wide range of compensation (e.g., commissions, 12b-1 fees, revenue sharing, etc.) as a result of the advice without running afoul of the applicable prohibited transaction rules. As described by the DOL, “[t]he exemption offers a compliance option to investment advisers, broker-dealers, banks, and insurance companies (financial institutions) and their employees, agents, and representatives (investment professionals) that is broader and more flexible than pre-existing prohibited transaction exemptions.” We summarize some of the key takeaways from the FAQs here.

To read more, click here.

SEC FAQ: Marketing Compliance Frequently Asked Questions
Updated March 18, 2021

The staff of the Division of Investment Management of the Securities and Exchange Commission (“SEC”) has prepared it first response to questions related to the adoption of amendments to rule 206(4)-1 under the Investment Advisers Act of 1940 relating to the New Marketing Rule. The staff expects to update this document from time to time to include responses to additional questions.

To read the FAQ, click here.

NFA Interpretive Notice: NFA Compliance Rules 2-9 and 2-36: Members’ Use of Third-Party Service Providers
March 24, 2021

A new National Futures Association (“NFA”) Interpretive Notice requires each Member outsourcing certain of its regulatory functions to adopt and implement a comprehensive supervisory framework over its outsourcing function to mitigate outsourcing-related risks. The Interpretive Notice will become effective on September 30, 2021. 

To read the notice, click here.

NFA Proposed NFA Compliance Rule 2-50 and Related Interpretive Notice: CPO Notice Filing Requirements
March 5, 2020

Pursuant to Section 17(j) of the Commodity Exchange Act (“CEA”), as amended, NFA has submitted to the Commodity Futures Trading Commission (“CFTC”) the proposed adoption of NFA Compliance Rule 2-50 and the related Interpretive Notice entitled NFA Compliance Rule 2-50: CPO Notice Filing Requirements.

NFA invoked the “ten-day” provision of Section 17(j) of the CEA and planned to make NFA Compliance Rule 2-50 and the proposed Interpretive Notice effective as early as ten days after receipt by the CFTC, unless the CFTC notifies NFA that the CFTC has determined to review the proposal for approval.  As of the date of this alert, the effective date is yet to-be-determined.

To read more about the proposal, click here.

SEC ESG Disclosures – Keeping Pace with Developments Affecting Investors, Public Companies and the Capital Markets
John Coates, Acting Director, Division of Corporation Finance
March 11, 2021

Not long ago, the title of this statement would have needed to unpack “ESG” into Environmental, Social and Governance. That ESG no longer needs to be explained illustrates how important these issues have become to today’s investors, public companies and capital markets. It also illustrates the pace of ESG developments. There remains substantial debate over the precise contents and details of what ESG disclosures might or should encompass. Part of the difficulty is in the fact that ESG is at the same time very broad, touching every company in some manner, but also quite specific in that the ESG issues companies face can vary significantly based on their industry, geographic location and other factors. As such, there is no one set of metrics that properly covers all ESG issues for all companies. Moreover, the landscape is changing rapidly so issues that yesterday were only peripheral today are taking on greater importance.

To read more, click here.

Stradley Ronon Client Alert: American Rescue Plan Package Includes Several Tax Provisions
March 11, 2021

The American Rescue Plan Act of 2021 (the Act) grants relief to taxpayers and extends and/or modifies certain relief initially enacted in prior bills such as the Families First Coronavirus Response Act (FFCRA), the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and the most recently enacted Consolidated Appropriations Act, 2021 (CAA 2021). (See our ongoing coverage of COVID-19 related legislation here.) The below-listed link provides a brief summary of the Act.

To read more, click here.

SEC Staff Statement on Investment Company Cross Trading/Division of Investment Management Staff
March 11, 2021

In this statement, the SEC Staff addresses certain aspects of investment company cross trading. The Staff is interested in feedback on ways to enhance the regulatory regime governing investment company cross trading. This Staff Statement is not a rule, regulation, or statement of the Securities and Exchange Commission.

To read more, click here.

NFA Moving Forward with Supervisory Framework for Outsourcing Arrangements

National Futures Association (“NFA”) is moving forward with the adoption of an additional interpretive notice to Compliance Rules 2-9 (“Supervision”) and 2-36 (“Requirements for Forex Transactions”) that requires CFTC-registered firms that outsource regulatory obligations to implement a written supervisory framework governing the outsourcing arrangements.

The interpretive notice will go into effect 10 days after submission to the CFTC, assuming there is no CFTC objection.

For more information, click here.

NFA Proposes New Reporting Requirements for Commodity Pool Operators

Pursuant to Section 17(j) of the Commodity Exchange Act (“CEA”), as amended, NFA has submitted to the Commodity Futures Trading Commission (“CFTC”) the proposed adoption of NFA Compliance Rule 2-50 and the related Interpretive Notice entitled NFA Compliance Rule 2-50: CPO Notice Filing Requirements.

The rule would require each CPO Member to provide prompt notification, in the form and manner prescribed by NFA no later than 5 p.m. (CT) of the next business day upon the occurrence of one of the following events, in accordance with the related Interpretive Notice entitled CPO Notice Filing Requirements:

  • CPO Member operates a commodity pool that is unable to meet a margin call(s);
  • CPO Member operates a commodity pool that is unable to satisfy redemption requests in accordance with its subscription agreements;
  • CPO Member operates a commodity pool that has halted redemptions and the halt on redemptions is not associated with pre-existing gates or lockups, or a preplanned cessation of operations; or
  • CPO Member receives notice from a swap counterparty that a pool the CPO Member operates is in default.

NFA is invoking the “ten-day” provision of Section 17(j) of the CEA and plans to make NFA Compliance Rule 2-50 and the proposed Interpretive Notice effective as early as 10 days after receipt of this submission by the CFTC, unless the CFTC notifies NFA that the CFTC has determined to review the proposal for approval.

To read the full proposal, click here.

FINRA Provides Guidance on Common Sales Charge Discounts and Waivers for Investment Company Products

Financial Industry Regulatory Authority (“FINRA”) has issued a Regulatory Notice on common sales charge discounts and waivers for investment company products.  The notice is intended to:

  • remind firms of their obligation to understand and, as appropriate, apply sales charge discounts and waivers for eligible customers;
  • provide an overview of common sales charge discounts and waivers;
  • share frequently observed findings in examinations and enforcement matters; and
  • note considerations firms should review to improve their compliance programs.

The notice states that it does not create new legal or regulatory requirements or new interpretations of existing requirements.

To read the notice, click here.

SEC Final Rule: Investment Adviser Marketing
Scheduled to be Published on March 5, 2021

The Securities and Exchange Commission’s (“SEC”) amendments under the Investment Advisers Act of 1940 (“Act”) to update rules that govern investment adviser marketing are scheduled to be published in the Federal Register tomorrow. The amendments will create a merged rule that will replace both the current advertising and cash solicitation rules. These amendments reflect market developments and regulatory changes since the advertising rule’s adoption in 1961 and the cash solicitation rule’s adoption in 1979. The SEC is also adopting amendments to Form ADV to provide the SEC with additional information about advisers’ marketing practices. Finally, the SEC is adopting amendments to the books and records rule under the Act.

To read more, click here.

SEC Investor Bulletin: Environmental, Social and Governance (ESG) Funds
February 26, 2021

Funds, such as mutual funds and ETFs that focus on environmental, social, and governance principles (ESG Funds), have gained popularity with investors over time. Investors may hear about these funds from financial professionals, from investment-focused online sites, or even from popular media. The SEC’s Office of Investor Education and Advocacy is issuing this bulletin to educate investors about ESG Funds, including important questions to ask if considering whether investing in them is right for you.

To read more, click here.

SEC Division of Examinations Announces 2021 Examination Priorities
March 3, 2021

The SEC’s Division of Examinations announced its 2021 examination priorities, including a greater focus on climate-related risks. The Division will also focus on conflicts of interest for brokers (Regulation Best Interest) and investment advisers (fiduciary duty), and attendant risks relating to FinTech in its initiatives and examinations. The Division publishes its examination priorities annually to provide insights into its risk-based approach, including the areas it believes present potential risks to investors and the integrity of the U.S. capital markets.

For more information, click here.

The SEC’s Division of Examinations’ Continued Focus on Digital Asset Securities
February 26, 2021

The SEC’s Division of Examinations issued a Risk Alert to provide observations made by Division staff during examinations of investment advisers, broker-dealers and transfer agents regarding digital asset securities that may assist firms in developing and enhancing their compliance practices. It is the Division’s experience that a number of activities related to the offer, sale and trading of digital assets that are securities present unique risks to investors. In sharing the focus areas for the digital asset initiatives, the Division encourages market participants to reflect upon their own practices, policies and procedures, as applicable, and to promote improvements in their supervisory, oversight and compliance programs.

To view the Risk Alert, click here.

Stradley Ronon Client Alert: COVID-19 Relief for Employees Who Participate in Flexible Spending Accounts
February 26, 2021

The IRS has issued guidance that expands employees’ access to flexible spending account funds in light of the COVID-19 pandemic. The guidance, Notice 2021-15, clarifies in detail the provisions of §214 of the Taxpayer Certainty and Disaster Relief Act of 2020 (Dec. 27, 2020) (TCDRA) which expands employees’ access to health and dependent care FSAs, by tweaking the “use it or lose it rule” and the interplay of the “carryover” and “grace period” rules.

The centerpiece of TCDRA and Notice 2021-15 is to combine the grace period and carryover rules. Conceptually there is no distinction between the grace period and carryover for PYs 2020 and 2021 PYs. In order to avoid confusion, the IRS refers to the period as the “temporary extension period.”

To read more, click here.

REMINDER & UPDATE: Global Digital Asset & Cryptocurrency Association Membership Enrollment is Now Open!

Learn more about the Global Digital Asset & Cryptocurrency Association’s (“Global DCA”)  promotion of standards, education and advocacy in the cryptocurrency sphere, and how our model of self-regulation may benefit your company and your aspirations for the broader digital asset industry.

In recognition of the urgent challenges facing the digital asset and cryptocurrency industry, the Global DCA gathers a breadth of industry participants and stakeholders, in the form of a self-regulatory association to:

  • Reduce uncertainty and regulatory ambiguity through advocacy and engagement;
  • Instill trust in the industry through the development and promotion of global standards, guidance and best practices; and
  • Foster understanding and awareness through education and training for our industry, consumers and the general public.

For our members, we offer a one-stop-source for advocacy, practical guidance and education, as well as a community of peers and professionals ready and willing to support each other and our industry. Ready to join us? Set yourself apart as a leader in the digital asset and cryptocurrency industry through Global DCA membership – contact us today at

Join our new publicly announced members:

  • Cryptocurrency Mining Group (CMG)
  • DDH
  • Prime Trading
  • Sudrania Fund Services Corp
  • Dunamis Trading
  • LedgerMatic
  • Fintank
  • Ciphertrace
  • Brane Capital

For more information on the association, click here.

FREE: The Activist Insight Podcast: ESG Developments
February 22, 2021

George Michael Gerstein and Sara P. Crovitz, members of Stradley’s environmental, social & governance group, joined host Kieran Poole of The Activist Insight Podcast to discuss recent developments out of the DOL and SEC regarding ESG. The Activist Insight Podcast, which is produced by Activist Insight, can be found on all major podcast platforms, including Apple Podcasts, Spotify and YouTube.

For more information, click here.

SEC Division of Investment Management Primer

The primer discusses the use of repurchase agreements (repos) by money market funds (MMFs) and provides a quantitative view of key repo metrics using data from the U.S. Securities and Exchange Commission (SEC) and the Federal Reserve. The metrics cover historical trends in repo assets and liabilities, repo holdings by MMFs, counterparty types, settlement arrangements, collateral securities, and margining practices.

To read the full primer, click here.

ISS Whitepaper: Volatile Transitions Navigating ESG in 2021

As the world seeks to reconcile the impacts of the first, second and subsequent waves of COVID-19, investors and market participants usher in 2021 with equal measures of optimism and consternation. While working with uncertainty has been a modus operandi of the industry since its inception, 2020 tested the resolve of even the most seasoned Environmental, Social and Governance (ESG) investor: the oft-prophesied Black Swan event collided with already intensifying ecological, economic and socio-political pressures, paralyzing companies, cities and democracies across the world. In this climate, the role of the responsible investor emerges with renewed purpose.

To read more about ESG considerations outlined by ICI, click here.

Stradley Ronon Client Alert: Complying with the CFTC’s New Statutory Disqualification Bar for Exempt CPOs — Answers to Frequently Asked Questions
February 18, 2021

 At an open meeting held on June 4, 2020, the Commodity Futures Trading Commission (Commission) unanimously adopted amendments to Rule 4.13, the Commission’s rule providing a number of commodity pool operator (CPO) registration exemptions for persons engaged in certain limited CPO activities, that impose an important new condition. The amendments require a person claiming a CPO exemption under Rules 4.13(a)(1), (2), (3), or (5) (Covered Exemptions) to represent that “neither the person nor any of its principals has in its background a statutory disqualification that would require disclosure under section 8a(2) of the [Commodity Exchange] Act if such person sought registration,” with a limited exception for matters previously disclosed in an application for registration that was granted. This requirement is imposed under a new paragraph (b)(1)(iii) of Rule 4.13, which effectively acts to bar persons that have a Section 8a(2) statutory disqualification in their background, or whose principals do, from relying on a Covered Exemption, unless the limited exception is available or the person obtains an individual exemption. The amendments finalize a proposal published in October of 2018 (Proposal), with significant changes made in response to concerns raised by commenters on the Proposal. 

To read more, click here.

Client Alert Stradley Ronon: New IRS Guidance on Deduction Limit for Corporate Cash Contributions
February 11, 2021

IRS Releases Guidance on Corporate Charitable Deduction for Cash Contributions

The IRS, in news release 2021-27, explained how corporations may qualify for the new 100% limit for disaster relief contributions and offered a temporary waiver of the recordkeeping requirement for corporations otherwise qualifying for the increased limit. Generally, under Section 170, a corporation’s charitable deduction can’t exceed 10% of its taxable income, computed with certain modifications. (Section references are to the Internal Revenue Code of 1986, as amended (the Code).) The Taxpayer Certainty and Disaster Tax Relief Act of 2020, part of the Consolidated Appropriations Act, 2021 (CAA 2021), temporarily increased the limit, to up to 100% of a corporation’s taxable income, for contributions paid in cash for relief efforts in qualified disaster areas. Qualified contributions must be paid by the corporation during the period beginning on Jan. 1, 2020, and ending on Feb. 25, 2021. Contributions made to a supporting organization or to establish or maintain a donor advised fund do not qualify.

To read more, click here.

Client Alert Stradley Ronon: DOL’s Optical Illusion – Fiduciary Investment Advice Status
February 15, 2021

The U.S. Department of Labor (DOL) has reinstated the five-part test for when one becomes a fiduciary under to retirement investors (e.g., ERISA plan sponsors, participants, IRA owners, etc.) by reason of giving non-discretionary investment advice. While at first blush, the reinstatement seems to offer great relief to various financial institutions that were possibly ensnared under the DOL’s tricky 2016 conflicts of interest rule, private fund sponsors, broker-dealers and investment advisers should proceed with caution. Interpretations by the DOL over the second half of 2020 suggests it will liberally interpret (and enforce) the five-part test for when one becomes an investment advice fiduciary. Tellingly, that the Trump administration opted to expansively interpret the five-part test to the point that it has more than a passing resemblance of the 2016 conflicts of interest rule under the Obama administration suggests that, regardless of which party controls the Executive Branch, the risks of becoming a fiduciary have increased and the opportunities to avoid such status have inexorably winnowed.

To read more, click here.

Stradley Ronon White Paper: Comprehensive Analysis and Application of the SEC’s New Marketing Rule
February 9, 2021

On December 22, 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted significant amendments to the advertising and solicitation rules applicable to registered investment advisers under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), as well as amendments to related rules governing recordkeeping and Form ADV (collectively, the “Amendments”). Specifically, the SEC simultaneously amended Rule 206(4)-1 (the current “Advertising Rule”) and rescinded Rule 206(4)-3 (the current “Cash Solicitation Rule” and, together with the Advertising Rule, the “Existing Rules”) to create a new combined marketing Rule 206(4)-1 (the “Marketing Rule”), which will comprehensively govern both advertising activities of advisers, as well as how they enter into solicitation/referral arrangements. The SEC also amended Rule 204-2 (the “Books and Records Rule”) under the Advisers Act to account for new recordkeeping obligations relating to the Rule and amended Form ADV to request additional information from advisers regarding their marketing activities.

To read more, click here.

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