SEC And European Securities Regulators Enter Into Cooperation Agreements To Share Information Regarding Fund Managers

by Pepper Hamilton LLP

On July 18, 2013, the Securities and Exchange Commission (SEC) entered into a memorandum of understanding (MOU) with various member states of the European Union (EU) and European Economic Area (EEA) formalizing an agreement that facilitates the sharing of information and other assistance between the regulators in relation to private fund managers with operations that are subject to oversight in the United States and in one of the European jurisdictions. The SEC and the European Securities and Markets Authority (ESMA), on behalf of the relevant EU and EEA member states, negotiated the agreement as part of a long-term strategy to improve the oversight of participants in the asset management industry with cross-border operations. The MOUs also will enable U.S.-based private fund managers to market to certain professional investors in the EU and still comply with the EU’s Alternative Investment Fund Managers Directive (AIFMD), which took effect on July 22, 2013.

Pepper Point

Although the MOUs in part facilitate compliance by U.S.-based private fund managers with AIFMD, they will also enable the SEC and EU regulators to exchange information not otherwise available to them relating to regulatory oversight of such managers, including information about the managers’ operations, activities and compliance obligations.

The EU countries whose securities regulators have entered into the MOU with the SEC are: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Spain, Sweden and the United Kingdom. The EEA countries whose securities regulators have entered into the MOU with the SEC are: Iceland, Liechtenstein and Norway.

The MOU covers any information relating to: (1) collective or pooled investment funds (other than UCITS funds), the units of participation or shares of which are managed, marketed or offered in an EU member state and/or the United States (collectively, “Covered Funds”); (2) managers whose regular business is managing one or more Covered Funds in accordance with AIFMD, or any entity that directly or indirectly provides investment advice to a Covered Fund and is either registered with the SEC as an investment adviser or an exempt reporting adviser; (3) custodians of Covered Funds; and (4) delegates (i.e., sub-advisers) to which one of the aforesaid managers has delegated the tasks of carrying out portfolio management or risk management of one or more Covered Funds, where the delegate is authorized or registered for the purpose of asset management and subject to either supervision or prior approval by the competent authorities of the home EU member state of the manager. The MOU relates only to those entities listed in (1) through (4) above that operate on a cross-border basis and where both the EU authority and the SEC have a regulatory or supervisory interest in such entity.

The MOUs establish mechanisms for continuous and ongoing consultation, cooperation and the exchange of supervisory information between the SEC and the relevant European regulator related to the oversight of the entities covered by the MOUs.

These supervisory cooperation agreements stand in contrast and are supplementary to the enforcement cooperation agreements previously entered into between the SEC and approximately 80 foreign jurisdictions (which include all of those jurisdictions entering into the new MOUs). Those enforcement agreements had established mechanisms whereby the SEC and its counterparts collect and share investigatory information where there are suspicions of a violation of either jurisdiction’s securities laws, and after a potential problem has arisen.

Now, within the framework of the MOUs, the SEC and the relevant EU regulator will provide one another with the fullest cooperation permissible under the law in relation to the supervision and oversight of the covered parties. The MOUs state that the regulators intend to consult at the staff level where appropriate regarding general oversight, supervisory and regulatory issues, operations and other areas of mutual supervisory interest. The MOUs further provide that the regulators will, where reasonable, seek to inform the other regulator as soon as practicable of (1) any known event that could adversely impact an entity covered by the MOU, and (2) enforcement or regulatory actions or sanctions, including but not limited to the revocation, suspension or modification of relevant licenses or registration (or exemption therefrom). The MOUs also establish a mechanism for formal written requests for assistance in obtaining information not otherwise available to the requesting regulator, such as information relevant to compliance matters, implications for stability and orderly functioning of markets, financial and operational conditions, regulatory filings, and examination reports, findings, or information drawn from such reports by a regulator. The MOUs specifically provide that requests for assistance for enforcement matters must be made under the previous enforcement cooperation agreements between the relevant parties.

In addition, the MOUs provide that the regulators will coordinate and facilitate access to entities covered by the MOU operating in their respective territories for the purpose of any routine, sweep or for-cause regulatory visit or inspection, including the provision of advance notice, the presence of officials of one or more of the relevant regulators, potential combination and leverage of available resources and collaboration in collecting, reviewing and analyzing information obtained from the subject of the examination.

Pepper Point

Supervisory cooperation involves the ongoing sharing of information regarding day-to-day oversight of regulated entities. The information to be exchanged under the MOUs is not limited to circumstances where wrongdoing has been uncovered or is suspected or alleged. The information covered by the MOUs may include routine information related to supervisory matters, risk concentration, emerging systemic risks, compliance culture and other matters such as day-to-day operations and activities. Such information can be provided either in response to a formal request or on the initiative of the regulator possessing such information. The MOUs will also facilitate the ability of the SEC and its counterparts to coordinate and conduct on-site examination of regulated entities located abroad.

All information shared under the MOUs, and requests made under the MOUs are generally afforded confidentiality. Each regulator agrees to notify the other in the event it receives a legally enforceable demand from a third party for non-public information that has been furnished under the MOUs and to assert all appropriate legal exemptions or privileges prior to compliance with any such demand. However, the MOUs acknowledge that information received under the MOUs may be shared with other regulators in the same jurisdiction as the receiving regulator, in which case the sharing regulator will be notified and the receiving regulator will ensure equivalent protection of the information by its sibling regulator to whom the information is provided.


The MOUs will enhance the SEC staff’s ability to share information about asset managers, their funds and certain delegated service providers with the relevant European jurisdictions, and to receive information from such jurisdictions. Asset management firms operating in both the United States and one or more of the relevant European jurisdictions should anticipate greater collaboration between regulators, in terms of both exchanging information and coordinating routine, sweep and for-cause regulatory exams.

If you have any questions about the content of this Pepper Hamilton Client Alert or any other questions regarding the laws affecting the investment management industry, please contact either of the authors, Gregory J. Nowak (215.981.4893) or Paul C. Dunn (215.981.4864), or any other member of Pepper’s Investment Funds Industry Group.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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