Journal of Investment Compliance

Parrino, Richard J.

2021 Journal of Investment Compliance

doi: 10.1108/joic-07-2020-0011

This article examines the comprehensive amendments recently adopted by the US Securities and Exchange Commission (SEC) to its accounting and other rules that govern financial statement filing requirements for significant business acquisitions and dispositions.Design/methodology/approachThe article provides an in-depth analysis of the rule changes in the context of the SEC’s attempt to balance the right of investors to obtain adequate information about the impact of an acquired or disposed business on an SEC registrant against the filing burdens that can result from over-identification of acquisitions or dispositions as material to the registrant based on the SEC’s “significance” tests.FindingsThe rule amendments bring enhanced coherence to a reporting framework that has been characterized in part by inconsistencies, gaps, unreliable valuation principles, and ambiguities. The amendments contribute to the SEC’s ongoing disclosure effectiveness initiative by updating, clarifying, and codifying many requirements that had developed piecemeal in market practice or through guidance issued by the SEC’s staff.Originality/valueThis article provides expert guidance on a major SEC disclosure requirement from an experienced securities lawyer.

Moerel, Lokke; Storm, Marijn

2021 Journal of Investment Compliance

doi: 10.1108/joic-10-2020-0037

To explain the authors’ position that the use of blockchain technology is not incompatible with European Union privacy laws and in particular the EU General Data Protection Regulation (GDPR).Design/methodology/approachExplains the basics of blockchain technology and the GDPR, several reasons why some scholars consider BC not to be compatible with the GDPR, and why the authors believe that the GDPR will be able to regulate the use of blockchain technology.FindingsThe current perception is that blockchain is not compatible with EU privacy laws. The authors disagree that this is the case and explain why none of the issues identified by legal scholars and stakeholders are likely to pose issues for blockchain technology. Their conclusion is that EU privacy laws are well able to regulate also this new technology. This does however not mean that blockchain will thus be suitable for all use and deployment cases.Originality/valuePractical guidance and explanation of complex issues by lawyers with extensive experience and expertise in dealing with data protection, cybersecurity, privacy, intellectual property and related issues.

Shen, Wenhao

2021 Journal of Investment Compliance

doi: 10.1108/joic-11-2020-0045

To describe recent regulatory developments in China on digital renminbi (RMB), initial coin offerings (ICOs), cryptocurrency holdings, cryptocurrency exchanges and blockchain technology.Design/methodology/approachDescribes a digital RMB pilot program, seven government agencies’ bans on ICOs and cryptocurrency exchanges, the legality of holding and trading cryptocurrencies in China and the government’s endorsement of blockchain technology.FindingsNo PRC law or regulation prohibits Chinese investors from holding or trading cryptocurrencies but Bitcoin is defined as a virtual commodity, not a currency. Despite a ban on ICOs and cryptocurrency exchanges, the People’s Bank of China (PBOC) and other government agencies endorse blockchain technology as long as its goal is to service the real economy.Originality/valueExpert guidance from lawyer with experience in foreign investment, cross-border mergers and acquisitions, capital markets, fund formation and venture capital and private equity investments in China.

Thottoli, Mohammed Muneerali

2021 Journal of Investment Compliance

doi: 10.1108/joic-12-2020-0047

This paper examines the relevance of compliance audit on companies’ compliance with disclosure guidelines of financial statements with special reference to the case of companies registered in the Muscat Securities Market (MSM), Oman.Design/methodology/approachThis paper adopts a direct measure of compliance prescribed and published in the annual report of Capital Market Authority (CMA) and its executive regulation from period 2011 to 2019.FindingsThe finding shows that there is a positive association with audit on companies’ compliance with disclosure guidelines of financial statements that enrich companies to ensures adherence to regulatory guidelines of Oman.Practical implicationsThe key limitation of the study is that it depends on a transparency indicator from a secondary source. Further, this might encourage companies to appoint qualified compliance officer which will be a value addition for best practice of corporate governance (CG) of the organizations.Originality/valueThe evidence recommends that audit on companies’ compliance with disclosure guidelines of financial statements is a significant factor that helps the company to enhance its financial performance and provides assurance to the government that the company follows applicable rules and regulations. It also recommends that the appointment of designated compliance officer assures adherence to companies’ regulatory guidelines of Oman. Besides, conducting research in audit on companies’ compliance with disclosure guidelines of financial statements brings novelty in the literature in emerging countries. As per best knowledge of the researchers, there has been no empirical study (within the literature) observed, which inspires much encouragement to do this study.

Ghorbel, Achraf; Jeribi, Ahmed

2021 Journal of Investment Compliance

doi: 10.1108/joic-01-2021-0001

In this paper, we investigate empirically the time-frequency co-movement between the recent COVID-19 pandemic, G7stock markets, gold, crude oil price (WTI) and cryptocurrency markets (bitcoin) using both the multivariate MSGARCH models.Design/methodology/approachThis paper examines the relationship between the volatilities of oil, Chinese stock index and financial assets (cryptocurrency, gold, and G7 stock indexes), for the period January 17th 2020 to December 10th 2020. It tests the presence of regime changes in the GARCH volatility dynamics of bitcoin, gold, Chinese, and G7 stock indexes as well as oil prices by using Markov–Switching GARCH model. Also, the paper estimates the dynamic correlation and volatility spillover between oil, Chinese and financial assets by using the MSBEKK-GARCH and MSDCC-GARCH models.FindingsOverall, we find that all variables display a strong volatility concentrated in the first four months of Covid-19 outbreak. The paper conducts different backtesting procedures of the 1% and 5% Value-at-Risk forecasts of risk. The results find that gold has the lowest VaR. However, the Canadian and American indices have the highest VaR, for respectively 1% and 5% confidence level. The estimation results of MSBEKK-GARCH prove the volatility spillover between Chinese index, oil and financial assets. Although, the past news about shocks in the Chinese index significantly affects the current conditional volatility of financial assets. Moreover, for the high regime, the correlation increased between Chinese and G7 stock indexes which proving the contagion effect of the COVID-19 pandemic. On the contrary, the correlation decreased between Chinese-gold and Chinese-bitcoin, which confirming that gold and bitcoin can be considered as an alternative hedge for some investors during a crisis. During the COVID-19 pandemic, the correlations for the couples oil-gold and oil-bitcoin peaked. Contrary to gold, bitcoin cannot be considered as a safe haven during the global pandemic when investing in crude oil.Originality/valueIn contrast, comparative analysis in terms of responses to US COVID-19 pandemic, the US Covid-19 confirmed cases have relative higher impact on the co-movement in WTI and bitcoin. This paper confirms that gold is a safe haven during the COVID19 pandemic period.

Pavlidis, George

2021 Journal of Investment Compliance

doi: 10.1108/joic-01-2021-0002

To critically examine recent developments and proposals for the regulation and supervision of ‘golden passport’ and ‘golden visa’ investment schemes in Europe. We argue that FATF standards constitute an appropriate response to money-laundering risks associated with such investment schemes, but the EU needs to introduce further common rules, safeguards and control mechanisms in the aftermath of the recent scandal in Cyprus.Design/methodology/approachThis paper draws on reports, legislation, legal scholarship and other open-source data to examine golden passport and golden visa investment schemes in the EU.FindingsThe EU has to forge a common approach to mitigate money-laundering risks associated with golden passport and golden visa investment schemes, taking into consideration the FATF standards.Originality/valueThis is the first study examining golden passport and golden visa investment schemes in the EU in the aftermath of the Cypriot scandal and proposing the overhaul of the EU legal framework in this regard.

Ryan, Russ; Baughman, Matthew H.; Lawrence, Carmen J.; Lipson, Aaron W.; Walker, Richard H.; Rapoport, Jessica; Barry, Katie; Hiers, Scott

2021 Journal of Investment Compliance

doi: 10.1108/joic-02-2021-0008

To analyze the impact of recent legislation that amended the Securities Exchange Act of 1934 to expressly empower the U.S. Securities and Exchange Commission (SEC) to seek disgorgement in federal district court proceedings and to codify applicable statutes of limitations.Design/methodology/approachThis article provides an overview of the authors’ prior work analyzing courts’ treatment of SEC disgorgement and summarizes how the scope of the remedy has evolved since Kokesh v. SEC (2017). Then, the article analyzes the changes to the Securities Exchange Act of 1934 contained in Section 6501 the 2021 National Defense Authorization Act (NDAA), which statutorily empowered the SEC to seek and obtain disgorgement in federal court actions. Finally, the authors discuss the impact of the legislation on the Supreme Court’s decisions in Kokesh and Liu v. SEC (2020).FindingsThe availability and appropriateness of SEC disgorgement have been the subject of vigorous debate. Just as courts began to iron out the contours of SEC disgorgement in the wake of Kokesh and Liu, Congress intervened by granting to the SEC explicit statutory authority to seek a remedy traditionally obtained at equity. In passing this legislation, Congress answered some questions that remained after Liu but also raised many new ones. These new questions will likely take years to resolve through subsequent litigation and potentially additional legislation.Originality/valueOriginal, practical analysis and guidance from experienced lawyers in financial services regulatory and enforcement practices, many of whom have previously worked in the SEC’s Division of Enforcement.

Smith, Holly

2021 Journal of Investment Compliance

doi: 10.1108/joic-04-2021-0013

To explain how the U.S. Securities and Exchange Commission (SEC), in its Digital Asset Securities Release, issued on December 23, 2020, laid out its vision for how broker-dealers can comply with the custody requirements of Rule 15c3-3 under the Exchange Act (the Customer Protection Rule) for investments in digital asset securities.Design/Methodology/ApproachExplains the current regulatory uncertainty for broker-dealers doing a business in digital asset securities and developing systems and procedures that result in compliance with the custody requirements of the Customer Protection Rule; seven minimum steps that broker-dealers can take and nine terms and conditions with which they can comply to protect against SEC enforcement action; and the SEC’s request for comment in response to its position statement.FindingsA broker-dealer operating pursuant to the terms and conditions of the position statement articulated in the Release will not be subject to SEC enforcement action on the basis that the broker-dealer deems itself to have obtained and maintained physical possession or control of customer fully paid and excess margin digital asset securities for the purposes of paragraph (b)(1) of the Customer Protection Rule.Originality/ValuePractical guidance from experienced financial services, broker-dealer and securities lawyer.

Louie, Betty L.; Wang, Martha

2021 Journal of Investment Compliance

doi: 10.1108/joic-04-2021-0017

To answer key questions about China’s forthcoming digital currency, the Digital Currency Electronic Payment (DCEP) or “digital yuan.”Design/methodology/approachDiscusses prospective legal standards and guidelines; expected features compared with traditional payment methods and other digital currencies; how DCEP works; status of pilot programs; use of DCEP for cross-border payments; transparency, data protection and cybersecurity issues; and key implications for foreign businesses and financial institutions in China.FindingsWhen DCEP is officially launched in China, there is little doubt that the population can easily adapt to its use. The launch of DCEP can have significant ramifications on a global scale, as it could reduce China’s reliance on the SWIFT system for international banking and offers the first glimpse of the internationalization of the renminbi (RMB).Practical implicationsForeign companies operating in China, hi-tech businesses, retailers, financial institutions, and mobile app developers need to track the development and acceptance of DCEP, monitor arising risks, assess how their financial products fit, and adjust business operations, reporting requirements and financial reserves related to the requirements and use of DCEP, expected growth in fintech surrounding digital currencies.Originality/valuePractical advice from experienced mergers and acquisitions, private equity, strategic investment and capital markets lawyers.

Palmer, Christopher; Delligatti, Paul; Zutz, Andrew; Lane, William

2021 Journal of Investment Compliance

doi: 10.1108/joic-04-2021-0019

To explain the new U.S. Securities and Exchange Commission (“SEC”) Rule 2a-5 (the “Fair Value Rule”) under the Investment Company Act of 1940 (the “1940 Act”), which addresses the valuation practices of registered investment companies and business development companies.Design/methodology/approachProvides an overview of the Fair Value Rule, followed by a more detailed summary of the key provisions, including relevant guidance provided by the SEC in the release adopting the Fair Value Rule.FindingsThe Fair Value Rule establishes a specific framework, a standard of baseline practices across funds, and a set of required functions that must be performed in order to determine in good faith the fair value of a fund’s investments for purposes of applying Section 2(a)(41) of the 1940 Act.Originality/valuePractical guidance from experienced investment management lawyers.