Private Market Talks: Navigating Turbulence with Adams Street Partners’ Bill Sacher [Podcast]
With over $62 billion of AUM, Adams Street is a global investor in private equity and private credit. It invests in over 450 global general partners in private equity and directly invests in private credit. As such, Adams Street has a unique window into these private markets. Bill Sacher sits on the firm’s Investment Committee and is Global Head of Private Credit. During our conversation, Bill discusses how Adams Street is navigating today’s rapidly changing market dynamics.
CFPB Memo Details Less Oversight on Fintechs, Shift to State-Led Enforcement
Go-To Guide:
On April 16, 2025, the Consumer Financial Protection Bureau (CFPB)’s chief legal officer issued a memorandum to CFPB staff that set out the agency’s 2025 supervision and enforcement priorities.
Per the memorandum, the CFPB is likely to only exercise authority it has expressly been granted via statute and then only for “actual” and “tangible” consumer harms to “identifiable victims with material and measurable consumer damages.”
Where permissible, the agency appears poised to defer to states and other federal agencies’ supervisory and enforcement activities.
The CFPB will shift focus away from fintechs and in favor of the largest banks and depository institutions.
On April 16, 2025, the CFPB’s Chief Legal Officer, Mark R. Paoletta, issued a memorandum to CFPB staff that sets out the agency’s 2025 supervision and enforcement priorities.
The memorandum, which the CFPB has not publicly released, provides that the CFPB “will focus its enforcement and supervision resources on pressing threats to consumers” and that, in order to focus on “tangible harms to consumers,” the CFPB will “shift resources away from enforcement and supervision that can be done by the States.”
The memorandum also rescinds all prior enforcement and supervision priority documents and explains the CFPB’s focus in 2025 will be on the following:
The CFPB will engage in fewer supervisory exams and focus on “collaborative efforts.” The memorandum states the number of supervisory exams is “ever-increasing” and directs the CFPB’s supervision staff to decrease the overall number of “events” by 50%. Going forward, supervision staff are also directed to focus on “conciliation, correction, and remediation of harms” identified in consumer complaints and “collaborative efforts” with supervised entities to resolve problems that will lead to measurable benefits to consumers.
The CFPB will focus more on the largest depository institutions, less on fintechs. The memorandum notes that, in 2012, the CFPB focused 70% of its supervision on banks and depository institutions and only 30% on nonbanks. It further notes that the proportion has “completely flipped,” such that 60% of the agency’s focus is directed at nonbanks. Going forward, the memorandum provides that the CFPB must “seek to return to the 2012 proportion” and “focus on the largest banks and depository institutions.”
The CFPB will focus less on key topics from the Biden administration. In a move away from some of the hot topics under the Biden administration and former Director Chopra’s leadership, the CFPB will “deprioritize” the following:
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loans or other initiatives for “justice involved” individuals, which the memorandum clarifies to mean “criminals”
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medical debt
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peer-to-peer platforms and lending
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student loans
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remittances
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consumer data
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digital payments
The CFPB will focus on “actual fraud” and “tangible harms” to consumers. Rather than focus on the CFPB’s “perception that consumers made ‘wrong’ choices,’” the CFPB will instead focus on “actual fraud” involving “identifiable victims with material and measurable consumer damages.” Moreover, instead of “imposing penalties on companies in order to simply fill the Bureau’s penalty fund,” the CFPB will focus on returning money directly back to consumers by redressing “tangible harms.” In doing so, the CFPB’s areas of priority will be:
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mortgages, as the highest priority
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the Fair Credit Reporting Act and Regulation V data furnishing violations
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the Fair Debt Collection Act and Regulation F violations relating to consumer contracts and debts
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fraudulent overcharges, fees, etc.
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inadequate controls to protect consumer information resulting in “actual loss” to consumers
The CFPB will focus on service members and veterans. Going forward, the CFPB will prioritize providing redress to service members and their families and veterans.
The CFPB will “respect Federalism” and defer to the states. The CFPB will, where permissible, defer to the states to exercise regulatory and supervisory authority. It will do so by (a) deprioritizing participation in multi-state exams unless participation is required by statute, (b) deprioritizing supervision where states “have and exercise ample authority” unless such supervision is required by statute, and (c) minimizing enforcement where State regulators or law enforcement are engaged or have investigated.
The CFPB will “respect other federal agencies’ regulatory ambit.” The CFPB will, where permissible, defer to other federal regulators. It will do so by (a) eliminating “duplicative supervision” and “supervision outside of the Bureau’s authority” (e.g., supervision of mergers and acquisitions), (b) coordinating exam timing with “other/primary” federal regulators, and (c) “minimize duplicative enforcement” where another federal agency is engaged or has investigated.
The CFPB will not rely on “novel” legal theories. The memorandum provides that the CFPB will focus “on areas that are clearly within its statutory authority” and will not look to “novel” legal theories, including about its authority, to pursue supervision.
The CFPB will not engage in or facilitate “unconstitutional racial classification or discrimination.” With respect to its enforcement of fair lending law, the CFPB will pursue only matters with “proven actual intentional racial discrimination and actual identified victims,” for which “maximum penalties” will be sought. Accordingly, the CFPB will not engage in redlining or bias assessment supervisions or enforcement “based solely on statistical evidence and/or stray remarks that may be susceptible to adverse inferences.”
The CFPB will not attempt to “create price controls.” The memorandum provides that the CFPB’s “primary enforcement tools are its disclosure statutes” and that it will not engage in attempts “to create price controls.”
Key Takeaways
The memorandum represents what is likely to be a drastic reduction in CFPB supervision and enforcement activity and encouragement for some state agencies to increase their oversight.
Instead of an agency that utilizes an expansive view of its authority to redress what it perceives as consumer harms, the memorandum suggests that the CFPB under the Trump administration will instead only look to exercise powers that it is explicitly granted via statute and, even then, only to address “actual” and “tangible” consumer harms. And, where permissible, the CFPB appears poised to defer to other federal agencies and the state regulators.
The reduced focus on fintechs, P2P platforms, consumer data, and digital payments will likely be well received by nonbanks, but all in the industry should be vigilant for state regulators to step into the space vacated by the CFPB.
How To Read a Balance Sheet – And Why You Care
Think of a balance sheet like a financial selfie — it won’t tell you everything, but it captures a lot in one frame. For business owners and investors, it’s a starting point: a snapshot of what a company owns, what it owes, and what’s left over. It won’t reveal the full value of a business (that’s a more complex portrait), but it’s a critical tool for spotting red flags, gauging stability, and making smarter decisions.
Understanding the Basics
A balance sheet is one of the key financial statements used by businesses, investors, and professionals to assess financial health. Unlike the income statement, which tracks revenue and expenses over time, a balance sheet provides a snapshot of a company’s financial condition at a specific moment. A balance sheet outlines what a company owns, what it owes, and the net worth left over.
What’s in a Balance Sheet?
Balance sheets are typically comprised of three main sections:
Assets: What the company owns, including cash, accounts receivable, inventory, and long-term assets like equipment and property.
Liabilities: What the company owes, such as accounts payable, loans, and long-term debt.
Equity: The difference between assets and liabilities, representing the owner’s or shareholders’ stake in the company.
Who Needs To Read a Balance Sheet?
Understanding a balance sheet is vital for various stakeholders, including:
Business Owners: Use balance sheets to track financial stability, make informed operational decisions, and plan for future growth.
Investors: Assess risk and return potential before investing in a company by analyzing its financial health and performance.
Lenders: Determine creditworthiness before approving loans, ensuring the company can meet its debt obligations.
Attorneys and Accountants: Analyze financial disputes, ensure compliance with regulations, and provide accurate financial reporting.
Legal and Financial Terms Explained
Understanding specific legal and financial terms is crucial when analyzing a balance sheet. Key terms include:
Contingent Liabilities: These are potential obligations that may arise depending on the outcome of a future event. For instance, if a company is facing a lawsuit, the potential financial loss is considered a contingent liability. Recognizing these liabilities is essential for assessing the company’s financial health accurately.
Deferred Tax Liabilities: These arise when there’s a difference between the company’s accounting earnings and taxable income, leading to taxes owed in the future. It’s important to account for these to understand the company’s future tax obligations.
Goodwill: An intangible asset that arises when a company acquires another business for more than the fair value of its net identifiable assets. Goodwill reflects factors like brand reputation and customer relationships. Regular assessment for impairment is necessary to ensure the balance sheet reflects the true value of this asset.
Intangible Assets: Non-physical assets such as patents, trademarks, and copyrights that provide economic benefits. Proper valuation and amortization of these assets are crucial for accurate financial reporting.
Minority Interest (Non-Controlling Interest): Represents the portion of a subsidiary not owned by the parent company. It’s shown in the equity section of the balance sheet, indicating the claim of minority shareholders on the subsidiary’s net assets.
Treasury Stock: Refers to shares that were issued and later reacquired by the issuing company. These shares are deducted from shareholders’ equity, as they are no longer outstanding and do not confer voting rights or dividends.
Why It Matters
Liquidity and Solvency
Steven Stralser, author of MBA in a Day, highlights that balance sheets reveal a company’s ability to meet its short-term and long-term obligations. He points out that if a company struggles to cover its debts with available assets, it signals financial instability. Investors, lenders, and vendors frequently rely on balance sheets to assess risk.
Key Financial Ratios
Professionals often use balance sheets to calculate essential financial ratios, including:
Current Ratio (Current Assets / Current Liabilities): This evaluates a company’s ability to cover short-term liabilities.
Debt-to-Equity Ratio (Total Liabilities / Shareholders’ Equity): This measures the extent to which a company relies on debt to finance its operations.
Working Capital (Current Assets – Current Liabilities): This reflects available operating liquidity.
Terry Orr, a forensic accountant, explains that these ratios are used by investors, analysts, lenders, and legal professionals to make predictions and decisions about how a company can continue to operate.
Common Balance Sheet Mistakes
Misclassifying Assets or Liabilities
John Levitske, a valuation expert, notes that incorrectly classifying assets or liabilities can distort financial statements. He explains that while accounts receivable is considered an asset, adjustments should be made if those receivables are unlikely to be collected to ensure accurate financial reporting.
Overlooking Off-Balance Sheet Items
Candice Kline, a bankruptcy attorney and professor, notes that some liabilities, such as lease obligations or contingent liabilities, may not appear on the balance sheet. Kline advises looking beyond the numbers and reviewing financial footnotes for a clearer picture.
Final Thoughts
Reading a balance sheet isn’t just about numbers — it’s about understanding a company’s financial story. Whether advising clients, making investment decisions, or running a business, a strong grasp of balance sheets leads to more informed financial choices.
To learn more about this topic view MBA Bootcamp / How to Read a Balance Sheet – And Why You Care! The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about accounting and finance principles for business owners and investors.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
Incoming Defense Contract Audit Agency Reorganization
On April 7, 2025, the Defense Contract Audit Agency (DCAA) announced a comprehensive reorganization plan aimed at consolidating its Region and Corporate Audit Directorates (CAD) into three primary Directorates in response to increased pressures to reduce costs and improve efficiency. For context, the DCAA provides audit and financial services to the Department of Defense (DoD) and certain other federal government agencies. The DCAA plans to complete the reorganization by September 30, 2025, if not sooner.
As an overview, the proposed reorganization plan aims to reduce the number of DCAA field offices, streamline administrative structures and refocus operations to better align with DoD needs. DCAA plans to close and consolidate 40 offices, immediately impacting approximately 160 employees. Further, there will be a new organizational structure including a central headquarters and three primary Directorates – Land, Sea and Air. The audit offices of the CADs will be merged into one of the aforementioned primary Directorates.
Although the DCAA’s reorganization is meant to result in greater efficiencies, the impact is unclear at this time but may influence audit processes and potentially the frequency of audits. Contractors should stay informed and remain proactive to ensure compliance with future DCAA changes.
Deference Denied to the South Carolina Department of Revenue
The South Carolina Court of Appeals determined that Duke Energy Corporation (“Duke”) was entitled to claim nearly $25 million in investment tax credits on its 1996 to 2014 South Carolina income tax returns, as the investment tax credit’s five-million-dollar statutory limitation was an annual—not a lifetime—limitation. Duke Energy Corp. v. S.C. Dep’t of Rev., No. 2020-001542 (S.C. Ct. App. Mar. 26, 2025).
The Facts: Duke provides electrical power to millions of customers in the United States, including to residents of South Carolina. To encourage business formation, retention, and expansion, South Carolina provides a tax credit to businesses that invest in certain property in South Carolina, provided specific requirements are met (the “Investment Tax Credit” or the “Credit”).
On its 1996 through 2014 South Carolina corporate income tax returns, Duke claimed a total aggregate Investment Tax Credit of $24,850,727. The South Carolina Department of Revenue (“Department”) audited Duke’s tax returns and disallowed $19,850,727 (approximately 80 percent) of the Credit that Duke claimed. The Department determined that Duke was entitled to claim only five million dollars of Investment Tax Credit—not because Duke did not meet the statutory requirements of the Credit but because the Department believed the statute imposed a five-million-dollar lifetime limitation on the Credit.
Duke protested the Department’s determination, arguing that the five-million-dollar limitation applied on an annual basis. The South Carolina Administrative Law Court (“ALC”) found the statute to be ambiguous and interpreted the Investment Tax Credit’s five-million-dollar limitation to be a lifetime limit. Duke appealed the ALC’s order to the South Carolina Court of Appeals.
The Law: South Carolina’s Investment Tax Credit is available “for any taxable year” in which corporate taxpayers meet the statutory requirements. The statute states, “[t]here is allowed an investment tax credit against the tax imposed pursuant to [the South Carolina Income Tax Act] for any taxable year in which the taxpayer places in service qualified manufacturing and productive equipment property.”
At issue here was the statute’s subsection imposing a five-million-dollar limit amount on the Credit for utility and electric cooperative companies—“[t]he credit allowed by this section for investments made after June 30, 1998, is limited to no more than five million dollars for an entity subject to the [South Carolina] license tax [on utilities and electric cooperatives].”
The Decision: The South Carolina Court of Appeals found that the statute was not ambiguous, reversed the ALC’s order, and held that Duke was entitled to the $19,850,727 of Investment Tax Credits disallowed by the Department.
In making its determination, the Court analyzed the statute as a whole, indicating that while the five- million-dollar limitation subsection does not contain any time-specific language, it refers to the Investment Tax Credit provision that explicitly defines the Credit as being available in “any taxable year.” The Court also looked to the statute’s purpose provision, which indicates that the Credit was designed to “revitalize capital investment in [South Carolina], primarily by encouraging the formation of new businesses and the retention and expansion of existing businesses . . . .” Reading these provisions together, the Court concluded that because taxpayers can claim the Credit each year the statutory requirements are met, and because the Credit’s purpose is not limited to initial business formation, the Legislature intended to encourage continued investment in South Carolina and a lifetime limit of five million dollars does not comply with that intent.
The Court indicated that while it is deferential to the Department’s interpretation of its laws, it could not give deference to an interpretation that conflicts with the Court’s own reading of a statute’s plain language. This is a nice reminder that even in states where courts are deferential to an agency’s statutory interpretation, deference will not always be provided.
Europe: Central Bank of Ireland updates its UCITS Q&A on Portfolio Transparency for ETFs
In a move that will be welcomed by asset managers conducting ETF business in Ireland, or those who are hoping to move into the Irish ETF space, the Central Bank of Ireland has moved to allow for the establishment of semi-transparent ETFs by amending its requirements for portfolio transparency.
Previously, the Central Bank’s UCITS Q&A 1012 provided that the Central Bank would not authorise an ETF unless arrangements were put in place to ensure that information is provided on a daily basis regarding the identities and quantities of portfolio holdings.
The revised Q&A however, while retaining the ability for ETFs to publish holdings on a daily basis, now provides flexibility in that “periodic disclosures” are now permissible, once the following conditions are adhered to:
appropriate information is disclosed on a daily basis to facilitate an effective arbitrage mechanism;
the prospectus discloses the type of information that is provided in point (1);
this information is made available on a non-discriminatory basis to authorised participants (APs) and market makers (MMs);
there are documented procedures to address circumstances where the arbitrage mechanism of the ETF is impaired;
there is a documented procedure for investors to request portfolio information; and
the portfolio holdings as at the end of each calendar quarter are disclosed publicly within 30 business days of the end of the quarter.
These new semi-transparent ETFs will be most attractive for active asset managers who have previously been dissuaded from establishing an ETF in Ireland due to their reluctance to share their proprietary information.
The CFPB Shuts Down Controversial “Regulation Through Guidance” Practices
The acting head of the Consumer Financial Protection Bureau (CFPB) continues to winnow out regulatory tools used by agency staff under the prior administration. Just a month after revoking certain interpretative rules and announcing the deprioritized enforcement of others, the CFPB has now reportedly discontinued the Bureau’s longstanding practice of “regulation through guidance.”
An internal agency memorandum circulated last week by Acting Director Russell Vought apparently did not mince words in criticizing the Bureau’s prior use of “guidance” to effectuate backdoor rulemaking: “For too long this agency has engaged in weaponized practices that treat legal restrictions on its authorities [to engage in rulemaking] as barriers to be overcome rather than laws that we are oath-bound to respect. This weaponization occurs with particular force in the context of the Bureau’s use of sub-regulatory ‘guidance.’” Vought’s concern: “[G]uidance materials [have been used] improper[ly] where they impose rights or obligations on private parties outside of the notice-and-comment process prescribed by the Administrative Procedure Act [APA].” That is, to create new regulatory rules, the APA—5 U.S.C. § 553—requires federal agencies like the CFPB to first publish a Notice of Proposed Rulemaking in the Federal Register and to allow the public an opportunity to comment “through submission of written data, views, or arguments.” The prior CFPB regime’s practice of publishing informal “guidance” to impose de facto rules and obligations on covered parties, without prior notice, did not comply with these statutory requirements. Much of the CFPB’s prior guidance left ambiguous their non-binding nature and whether non-compliance would trigger enforcement action by the CFPB. Vought seeks to remedy that concern.
Importantly, the CFPB directive last week seeks more than just a prohibition of future guidance that “purport[s] to create rights or obligations binding on persons or entities outside the Bureau.” The CFPB is also reportedly committed to “rescind[ing] all ‘guidance’ that has unlawfully regulated private parties in the past.” As the agency’s comprehensive internal review concludes in the coming weeks, the CFPB is expected to ultimately renounce significant existing guidance—from advisory opinions to blog posts—that contravene the APA and the Bureau’s constitutional authority for regulatory rulemaking.
Vought’s internal messaging at the CFPB notably occurred on the same day last week that the White House published its own “Memorandum for the Heads of Executive Departments and Agencies.” See Directing the Repeal of Unlawful Regulations, Presidential Memoranda (Apr. 9, 2025). In that Memorandum, the administration instructed agency heads to review and repeal all “facially unlawful regulations” within the next 60 days that do not conform with the recent Loper Bright decision and nine other Supreme Court opinions. With the assistance of its agency heads, including at the CFPB, the executive branch thus continues its path forward to deregulate.
ERISA Fiduciary Duties: Compliance Remains Essential
The Employee Retirement Income Security Act of 1974 (ERISA) establishes a comprehensive framework of fiduciary duties for many involved with employee benefit plans. Failure to comply with these strict fiduciary standards can expose fiduciaries to personal and professional liability and penalties. With ERISA litigation on the rise, a new administration, and recent news that the Department of Labor (DOL) is sharing data with ERISA-plaintiff firms, a refresher on fiduciary duty compliance is necessary.
What Plans Are Covered?
ERISA’s fiduciary requirements apply to all ERISA-covered employee benefit plans. This generally includes all employer-sponsored group benefit plans unless an exemption applies, such as governmental and church plans, as well as plans solely maintained to comply with workers’ compensation, unemployment compensation, or disability insurance laws.
Who Is A Fiduciary?
A fiduciary is any individual or entity that does any of the following:
Exercises authority over the management of a plan or the disposition of assets.
Provides investment advice regarding plan assets for a fee.
Has any discretionary authority in the administration of the plan.
Note that fiduciary status is determined by function, what duties an individual performs or has the right to perform, rather than an individual’s title or how they are described in a service agreement. Fiduciaries include named fiduciaries. Those specified in the plan documents are plan trustees, plan administrators, investment committee members, investment managers, and other persons or entities that fall under the functional definition. When determining whether a third-party administrator is a fiduciary, it is important to identify whether their administrative functions are solely ministerial or directed or whether the administrator has discretionary authority.
What Rules Must Fiduciaries Follow?
Fiduciaries must understand and follow the four main fiduciary duties:
Duty of Loyalty: Known as the exclusive benefit rule, fiduciaries are obligated to discharge their duties solely in the interest of plan participants and beneficiaries. Fiduciaries must act to provide benefits to participants and use plan assets only to pay for benefits and reasonable administrative costs.
Duty of Prudence: A fiduciary must act with the same care, skill, prudence, and diligence that a prudent fiduciary would use in similar circumstances. Even when considering experts’ advice, hiring an investment manager, or working with a service provider, a fiduciary must exercise prudence in their selection, evaluation, and monitoring of those functions and providers. This duty extends to procedural policies and plan investment and asset allocation, including evaluation of risk and return.
Duty of Diversification: Fiduciaries must diversify plan investments to minimize the risk of large losses, with limited exceptions for ESOPs.
Duty to Follow Plan Documents and Applicable Law: Fiduciaries must act in accordance with plan documents and ERISA. Plans must be in writing, and a summary plan description of the key plan terms must be provided to participants.
Fiduciaries also have a duty to avoid causing the plan to engage in any prohibited transactions. Prohibited transactions include most transactions between the plan and individuals and entities with a relationship to the plan. Several exceptions exist, including one that permits ongoing provision of reasonable and necessary services.
Liabilities and Penalties
An individual or entity that breaches fiduciary duties and causes a plan to incur losses may be personally liable for undoing the transaction or making the plan whole. Additional penalties, often at a rate of 20% of the amount involved in the violation, may also apply. While criminal penalties are rare, are possible when violations of ERISA are intentional. Causing the plan to engage in prohibited transactions may also result in excise taxes established by the Internal Revenue Code.
To limit potential liability, plan sponsors and fiduciaries should ensure the appropriate allocation of fiduciary responsibilities, develop adequate plan governance policies, and participate in regular training. Plan sponsors may purchase fiduciary liability insurance to cover liability or losses arising under ERISA. In addition, the DOL has established the Voluntary Fiduciary Correction Program (VFCP), which can provide relief from civil liability and excise taxes if ERISA fiduciaries voluntarily report and correct certain transactions that breach their fiduciary duties. The VFCP program was recently updated with expanded provisions for self-correction of errors, which are addressed in a previous advisory.
AIFMD 2.0 – Draft RTS and Final Guidelines Published on Liquidity Management Tools
On 15 April 2025, the European Securities and Markets Authority (“ESMA”) published draft regulatory technical standards (the “Draft RTS”) and final guidelines (the “Guidelines”) on Liquidity Management Tools (“LMTs”), as required under the revised Alternative Investment Fund Managers Directive (EU/2024/927) (“AIFMD 2.0”).
Under AIFMD 2.0, ESMA is required to develop:
regulatory technical standards to specify the characteristics of the liquidity management tools set out in Annex V of AIFMD 2.0; and
guidelines on the selection and calibration of liquidity management tools by alternative investment fund managers (“AIFMs”) for liquidity risk management and mitigating financial stability risk.
The Draft RTS and Guidelines have been published following a consultation period by ESMA. The amendments introduced following the consultation are broadly seen as positive developments from ESMA, introducing greater flexibility for alternative investment funds (“AIFs”) in several cases.
Draft RTS
Some of the key provisions set out in the RTS include:
Redemption Gates
Redemption gates must have an activation threshold and apply to all investors. In the Draft RTS, ESMA has introduced flexibility in expressing activation thresholds for redemption gates. For AIFs, thresholds can be expressed in a percentage of the net asset value (“NAV”), in a monetary value (or a combination of both), or in a percentage of liquid assets. In addition, either net or gross redemption orders shall be considered for the determination of the activation threshold.
ESMA has also introduced a new alternative method for the application of redemption gates – redemption orders below or equal to a certain pre-determined redemption amount can be fully executed while orders above this amount are subject to the redemption gate. The purpose of this mechanism is to avoid small redemption orders being affected by larger redemption orders, that drive the amount of orders above the activation threshold.
Side Pockets
ESMA did not include any provisions in the Draft RTS relating to the management of side pockets, as ESMA concluded there was no mandate within the empowerment of the Draft RTS to allow them to do so.
Applicability of LMTs to Share Classes
The previously published version of the Draft RTS included provisions on the application of LMTs to share classes, requiring the same level of LMTs to be applied to all share classes (e.g. when AIFMs extend the notice period of a fund, the same extension of notice period shall apply to all share classes). ESMA has removed these provisions from the Draft RTS.
Use of other LMTs
Recital 25 of the Draft RTS clarifies that additional LMTs not selected in Annex V of AIFMD 2.0 may be used. These may include, for example, “soft closures” that consist of suspending only subscriptions, only repurchases or redemptions of the AIF.
Other Provisions
Other topics covered in the Draft RTS include swing pricing, dual pricing and anti-dilution levies, as well as redemptions in kind.
Guidelines
Some of the key provisions set out in the Guidelines include:
Selection of LMTs
In the selection of the two minimum mandatory LMTs in accordance with AIFMD 2.0 (set out in Annex V of AIFMD 2.0), ESMA states that AIFMs should consider, where appropriate, the merit of selecting at least one quantitative-based LMT (i.e. redemption gates, extension of notice period) and at least one anti-dilution tool (i.e. redemption fees, swing pricing, dual pricing, anti-dilution levies), taking into consideration the investment strategy, redemption policy and liquidity profile of the fund and the market conditions under which the LMT could be activated.
Governance Principles
AIFMs should develop an LMT policy, which should form part of the broader fund liquidity risk management process policy document, and should document the conditions for the selection, activation and calibration of LMTs. AIFMs also should develop an LMT plan, that should be in line with the LMT policy, prior to or immediately after the activation of suspensions of subscriptions, repurchases and redemptions and prior to the activation of a side pocket.
Disclosure to investors
AIFMs should provide disclosures to investors on the selection, activation and calibration of LMTs in the fund documentation, rules or instruments of incorporation, prospectus and/or periodic reports.
Depositaries
Depositaries should set up appropriate verification procedures to check that AIFMs have in place documented procedures for LMTs.
Other Provisions
The Guidelines also include certain other provisions that impose restrictive obligations on the selection, activation and calibration of LMTs (for example, preventing the systematic activation of redemption gates for funds marketed to retail investors).
Next Steps
The European Commission has three months (i.e. until 15 July 2025) to adopt the Draft RTS, although this period can be extended by one month. The European Commission also has the ability to amend the Draft RTS as required.
Once adopted by the European Commission, the Draft RTS will come into force 20 days following publication in the Official Journal of the European Union.
The Guidelines will be applicable from the day after the Draft RTS comes into force, although AIFMs of funds existing before the date of application of the Guidelines will have a 12-month grace period.
Combatting Scams in Australia, Singapore, China and Hong Kong
Key Points:
Singapore’s Shared Responsibility Framework
Comparing scams regulation in Australia, Singapore and the UK
China’s Anti-Telecom and Online Fraud Law
Hong Kong’s Anti-Scam Consumer Protection Charter and Suspicious Account Alert Regime
The increased reliance on digital communication and online banking has created greater potential for digitally-enabled scams. If not appropriately addressed, scam losses may undermine confidence in digital systems, resulting in costs and inefficiencies across industries. In response to increasingly sophisticated scam activities, countries around the world have sought to develop and implement regulatory interventions to mitigate growing financial losses from digital fraud. So far in our scam series, we have explored the regulatory responses in Australia and the UK. In this publication, we take a look at the regulatory environments in Singapore, China and Hong Kong, and consider how they might inform Australia’s industry-specific codes.
SINGAPORE
Shared Responsibility Framework
In December 2024, Singapore’s Shared Responsibility Framework (SRF) came into force. The SRF, which is overseen by the Monetary Authority of Singapore (MAS) and Infocomm Media Development Authority (IMDA), seeks to preserve confidence in digital payments and banking systems by strengthening accountability of the banking and telecommunications sectors while emphasising individuals’ responsibility for vigilance against scams.
Types of Scams Covered
Unlike reforms in the UK and Australia, the SRF explicitly excludes scams involving authorised payments by the victim to the scammer. Rather, the SRF seeks to address phishing scams with a digital nexus. To fall within the scope of the SRF, the transaction must satisfy the following elements:
The scam must be perpetrated through the impersonation of a legitimate business or government entity;
The scammer (or impersonator) must use a digital messaging platform to obtain the account user’s credentials;
The account user must enter their credentials on a fabricated digital platform; and
The fraudulently obtained credentials must be used to perform transactions that the account user did not authorise.
Duties of Financial Institutions
The SRF imposes a range of obligations on financial institutions (FIs) in order to minimise customers’ exposure to scam losses in the event their account information is compromised. These obligations are detailed in table 1 below.
Table 1
Obligation
Description
12-hour cooling off period
Where an activity is deemed “high-risk”, FIs must impose a 12-hour cooling off period upon activation of a digital security token. During this period, no high-risk activities can be performed.
An activity is deemed to be “high-risk” if it might enable a scammer to quickly transfer a large sum of money to a third party without triggering a customer alert. Examples include:
Addition of new payee to the customer’s account;
Increasing transaction limits;
Disabling transaction notification alerts; and
Changing contact information.
Notifications for activation of digital security tokens
FIs must provide real-time notifications when a digital security token is activated or a high-risk activity occurs. When paired with the cooling off period, this obligation increases the likelihood that unauthorised account access is brought to the attention of the customer before funds can be stolen.
Outgoing transaction alerts
FIs must provide real-time alerts when outgoing transactions are made.
24/7 reporting channels with self-service kill switch
FIs must have in place 24/7 reporting channels which allow for the prompt reporting of unauthorised account access or use. This capability must include a self-service kill-switch enabling customers to block further mobile or online access to their account, thereby preventing further unauthorised transactions.
Duties of Telecommunications Providers
In addition to the obligations imposed on FIs, the SRF creates three duties for telecommunications service providers (TSPs). These duties are set out in table 2 below.
Table 2
Obligation
Description
Connect only with authorised alphanumeric senders
In order to safeguard customers against scams, any organisation wishing to send short message service (SMS) messages using an alphanumeric sender ID (ASID) must be registered and licensed. TSPs must block the sending of SMS messages using ASIDs if the sending organisation is not appropriately registered and licensed.
Block any message sent using an unauthorised ASID
Where the ASID is not registered, the TSP must prevent the message from reaching the intended recipient by blocking the sender.
Implement anti-scam filters
TSPs must implement anti-scam filters which scan each SMS for malicious elements. Where a malicious link is detected, the system must block the SMS to prevent it from reaching the intended recipient.
Responsibility Waterfall
Similar to the UK’s Reimbursement Rules explored in our second article, the SRF provides for the sharing of liability for scam losses. However, unlike the UK model, the SRF will only require an entity to reimburse the victim where there has been a breach of the SRF. The following flowchart outlines how the victim’s loss will be assigned.
HOW DOES THE SRF COMPARE TO THE MODELS IN AUSTRALIA AND THE UK?
Scam Coverage
The type of scams covered by Singapore’s SRF differ significantly to those covered by the Australian and UK models. In Australia and the UK, scams regulation targets situations in which customers have been deceived into authorising the transfer of money out of their account. In contrast, Singapore’s SRF expressly excludes any scam involving the authorised transfer of money. The SRF instead targets phishing scams where the perpetrator obtains personal details in order to gain unauthorised access to the victim’s funds.
Entities Captured
Australia’s Scams Prevention Framework (SPF) covers the widest range of sectors, imposing obligations on entities operating within the banking and telecommunications sectors as well as any digital platform service providers which offer social media, paid search engine advertising or direct messaging services. The explanatory materials note an intention to extend the application of the SPF to new sectors as the scams environment continues to evolve.
In contrast, the UK’s Reimbursement Rules only apply to payment service providers using the faster payments system with the added requirement that the victim or perpetrator’s account be held in the UK. Any account provided by a credit union, municipal bank or national savings bank will be outside the scope of the Reimbursement Rules.
Falling in-between these two models is Singapore’s SRF which applies to FIs and TSPs.
Liability for Losses
Once again, the extent to which financial institutions are held liable for failing to protect customers against scam losses in Singapore lies somewhere between the Australian and UK approaches. Similar to Singapore’s responsibility waterfall, a financial institution in Australia will be held accountable only if the institution has breached its obligations under the SPF. However, unlike the requirement to reimburse victims for losses in Singapore, Australia’s financial institutions will be held accountable through the imposition of administrative penalties. In contrast, the UK’s Reimbursement Rules provide for automatic financial liability for 100% of the customer’s scam losses, up to the maximum reimbursable amount, to be divided equally where two financial institutions are involved.
CHINA
Anti-Telecom and Online Fraud Law of the People’s Republic of China
China’s law on countering Telecommunications Network Fraud (TNF) requires TSPs, Banking FIs and internet service providers (ISPs) to establish internal mechanisms to prevent and control fraud risks. Entities failing to comply with their legal obligations may be fined the equivalent of up to approximately AU$1.05 million. In serious cases, business licences or operational permits may be suspended until an entity can demonstrate it has taken corrective action to ensure future compliance.
Scope
China’s anti-scam regulation defines TNF as the use of telecommunication network technology to take public or private property by fraud through remote and contactless methods. Accordingly, it extends to instances in which funds are transferred without the owner’s authorisation. To fall within the scope of China’s law, the fraud must be carried out in mainland China or externally by a citizen of mainland China, or target individuals in mainland China.
Obligations of Banking FIs
Banking FIs are required to implement risk management measures to prevent accounts being used for TNF. Appropriate policies and procedures may include:
Conducting due diligence on all new clients;
Identifying all beneficial owners of funds:
Requiring frequent verification of identity for high-risk accounts:
Delaying payment clearance for abnormal or suspicious transactions: and
Limiting or suspending operation of flagged accounts.
The People’s Bank of China and the State Council body are responsible for the oversight and management of Banking FIs. The anti-scams law provides for the creation of inter-institutional mechanisms for the sharing of risk information. All Banking FIs are required to provide information on new account openings as well as any indicators of risk identified when conducting initial client due diligence.
Obligations of TSPs and ISPs
TSPs and ISPs are similarly required to implement internal policies and procedures for risk prevention and control in order to prevent TNF. This includes an obligation to implement a true identity registration system for all telephone/internet users. Where a subscriber identity module (SIM) card or internet protocol (IP) address has been linked to fraud, TSPs/ISPs must take action to verify the identity of the owner of the SIM/IP address.
HONG KONG
Hong Kong lacks legislation which specifically deals with scams. However, a range of non-legal strategies have been adopted by the Hong Kong Monetary Authority (HKMA) in order to address the increasing threat of digital fraud.
Anti-Scam Consumer Protection Charter
The Anti-Scam Consumer Protection Charter (Charter) was developed in collaboration with the Hong Kong Association of Banks. The Charter aims to guard customers against digital fraud such as credit card scams by committing to take protective actions. All 23 of Hong Kong’s card issuing banks are participating institutions.
Under the Charter, participating institutions agree to:
Refrain from sending electronic messages containing embedded hyperlinks. This allows customers to easily identify that any such message is a scam.
Raise public awareness of common digital fraud.
Provide customers with appropriate channels to allow them to make enquiries for the purpose of verifying the authenticity of communications and training frontline staff to provide such support.
More recently, the Anti-Scam Consumer Protection Charter 2.0 was created to extend the commitments to businesses operating in a wider range of industries including:
Retail banking;
Insurance (including insurance broking);
Trustees approved under the Mandatory Provident Fund Scheme; and
Corporations licensed under the Securities and Futures Ordinance.
Suspicious Account Alerts
In cooperation with Hong Kong’s Police Force and the Association of Banks, the HKMA rolled out suspicious account alerts. Under this mechanism, customers have access to Scameter which is a downloadable scam and pitfall search engine. After downloading the Scameter application to their device, customers will receive real-time alerts of the fraud risk of:
Bank accounts prior to making an electronic funds transfer;
Phone numbers based on incoming calls; and
Websites upon launch of the site by the customer.
In addition to receiving real-time alerts, users can also manually search accounts, numbers or websites in order to determine the associated fraud risk.
Scameter is similar to Australia’s Scamwatch, which provides educational resources to assist individuals in protecting themselves against scams. Users can access information about different types of scams and how to avoid falling victim to these. Scamwatch also issues alerts about known scams and provides a platform for users to report scams they have come across.
KEY TAKEAWAYS
Domestic responses to the threat of scams appear to differ significantly. Legal approaches explored so far in this series target financial and telecommunications sectors, seeking to influence entities in these industries to adopt proactive measures to prevent, detect and respond to scams. While the UK aims to achieve this by placing the financial burden of scam losses on banks, China and Australia adopt a different approach by imposing penalties on entities failing to comply with their legal obligations. Singapore has opted for a blended approach whereby entities which have failed to comply with the legal obligations under the SRF will be required to reimburse customers who have fallen victim to a scam. However, where the entities involved have met their legal duties, the customer will continue to bear the loss.
Look out for our next article in our scams series.
The authors would like to thank graduate Tamsyn Sharpe for her contribution to this legal insight.
The QPAM Exemption – Key Takeaways for Fund Managers with Benefit Plan Investors
As an asset manager, you may be familiar with the regulatory issues that come into play when a fund permits investments from “benefit plan investors,” which generally include certain employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and individual retirement accounts. The main concerns include the need to avoid “prohibited transactions” under ERISA and the Internal Revenue Code of 1986, as amended (the “Code”), and the application of fiduciary status under ERISA when benefit plan investor investments become significant enough so that the fund is deemed to hold ERISA “plan assets.”
Often, managers will work to structure the fund so as to avoid being deemed to hold ERISA plan assets, for example, by limiting benefit plan investor investments to no more than 25% of the fund’s total assets. But what if a sizeable benefit plan investor wants to invest in the fund? How can you track what may and may not be considered a “prohibited transaction” or be confident you’re not inadvertently triggering a breach of your ERISA fiduciary duties? For funds with numerous or sizeable benefit plan investors (generally those exceeding 25% of the fund assets), asset managers may seek relief under the Department of Labor’s Prohibited Transaction Exemption 84-14, as amended, which applies to certain “qualified professional asset managers” or “QPAMs.” This exemption is commonly referred to as the “QPAM Exemption.”
What is the QPAM Exemption?
The QPAM Exemption provides relief from federal excise taxes and required compliance actions that otherwise apply if the fund were to engage in a prohibited transaction under ERISA or the Code.
What transactions are prohibited under ERISA and the Code?
As a general rule, a fiduciary that manages ERISA assets may not use those assets to engage in the sale or exchange, leasing of property, loan or extension of credit, or certain other transactions with a “party in interest” or a “disqualified person.” These transactions are prohibited unless an exception applies. Under ERISA and the Code, the list of “parties in interest” and “disqualified persons” is long and includes service providers to the employee benefit plan (such as the plan’s accountants, attorneys, and brokers with whom the plan conducts business), certain affiliates of the plan, and employee participants and employer sponsors of the plan, among other persons. Many ordinary course transactions are swept into the category of “prohibited transactions.”
What happens if the fund engages in a prohibited transaction?
The IRS imposes a 15% excise tax on the amount involved in any prohibited transaction for each year in which the transaction continues. In addition, any prohibited transaction must be unwound, which can be costly and time-consuming. Engaging in a prohibited transaction is also considered a breach of fiduciary duty under ERISA, which could result in personal liability for plan losses with respect to any individual asset manager with discretionary management authority over the fund’s ERISA plan assets.
Why is it important to qualify as a QPAM?
Asset managers must avoid entering into prohibited transactions when no exemption is available. Due to the sweeping nature of the types of transactions deemed prohibited under ERISA and the Code, managers may find it nearly impossible to enter into many types of transactions on behalf of benefit plan investor clients without first obtaining extensive representations from the investor to ensure the fund won’t inadvertently engage in a prohibited transaction. The QPAM Exemption relieves a manager that qualifies as a QPAM of this administrative burden and operates to avoid the potential for excise taxes and other penalties by excluding many of common transactions that would otherwise be prohibited under ERISA and the Code. In addition, certain lenders transacting with the fund often require the fund to either represent that it does not manage ERISA plan assets or that it qualifies as a QPAM under the QPAM Exemption before moving forward with any loan or credit facility transaction.
Are all prohibited transactions exempt under the QPAM Exemption?
No. Prohibited transactions are generally divided into two categories – party in interest transactions, and fiduciary self-dealing transactions. The QPAM Exemption only applies to the party in interest transactions. Unless another exception applies, a fiduciary managing ERISA plan assets may not engage in certain self-dealing transactions (for example, those involving conflicts of interest between the fund and the benefit plan investor).
Who may qualify as a QPAM?
QPAM status is only available to registered investment advisers (RIAs) and certain types of banks and savings and loan institutions. RIAs seeking QPAM status must generally have total client assets under management and shareholder or partner equity in excess of the thresholds stated in the table below.
Fiscal Year Ending no Later than
AUM Requirement
Equity Ownership Requirement
December 31, 2024
$101,956,000
$1,346,000
December 31, 2027
$118,912,000
$1,694,000
December 31, 2030
$135,868,000
$2,040,000
What else is required to maintain status as a QPAM?
In addition to the qualification requirements, an RIA seeking QPAM status must meet the requirements summarized below.
The RIA must notify the DOL of its intent to rely on the QPAM Exemption, when it changes its name, and again when it no longer qualifies as a QPAM.
The QPAM must acknowledge its fiduciary status in writing.
No single employee benefit plan (including certain affiliate plans) may make up more than 20% of the QPAM’s assets under management.
The party in interest cannot have certain types of authority over the manager.
The QPAM must make an independent decision to enter into the transaction and must have the sole responsibility for the management of plan assets.
The party in interest involved in the transaction cannot be the QPAM or a person related to the QPAM.
The terms of the transaction must be at arm’s length.
The QPAM must maintain records of the transaction for at least six years.
The QPAM and its affiliates must not have engaged in certain disqualifying acts.
We are an RIA seeking to qualify as a QPAM. What’s next?
An investment manager seeking to qualify as a QPAM should first determine whether it currently meets or will meet all of the requirements to satisfy the QPAM Exemption. The qualification points should be fully vetted before notifying the DOL of the intent to qualify and well before making any representations to benefit plan investors or other parties that it may engage in a transaction as a QPAM.
TCPA REVOCATION LESSON: Cenlar’s $714,000.00 TCPA Revocation Settlement Arrives Just In Time to Crystalize Risk
So last Friday the FCC’s new TCPA revocation order went into effect.
While the nastiest parts of the ruling were stayed for one year thanks in large part to the major banks–thanks ABA/MBA and the rest of you!–a good portion of the rule did go into effect.
For those who are not on their revocation game and properly tracking requests the final approval order in a new TCPA class settlement arrives just in time to help you change your ways!
In Kamrava v. Cenlar 2025 WL 1116851 (C.D. Cal April 14, 2025) the court granted final approval to Cenlar’s settlement of a TCPA class involving servicing calls made after revocation of consent.
In many ways this was a throw back case as revocation classes have fallen by the wayside in recent years– leading to less focus on getting it right in some circles. Indeed, the case was filed way back in 2020 and is something of an oddity in today’s TCPAWorld landscape. However, the FCC’s new ruling supercharges risk here, which is why the settlement is so important.
The classes in Kamrava are as follows:
All persons within the United States who received an automated call to their cellular telephone, after revocation of consent, within the TCPA Class Period from defendant or a loan servicer on whose behalf Defendant was sub-servicing, its employees or its agents (the “TCPA Settlement Class”).and
All persons with addresses within the State of California who requested in writing that Defendant or the loan servicer on whose behalf Defendant was sub-servicing to stop contacting them and thereafter (i) received a letter asking them to sign and return a form confirming their cease-and-desist request or (ii) received at least one subsequent telephone call within the RFDCPA Sub-Class Period (the “RFDCPA Settlement Sub-Class”).
I was not involved in the case but I would guess what happened here is Cenlar was only temporarily stopping calls in response to an oral revocation request and then sending out a written letter which, if not returned within a certain timeframe, would result in calls beginning anew.
Thee claims arise between tension between TCPA and FDCPA/RFDCPA revocation rules. Under the debt collection statutes only written requests to stop calls must be honored. But under the TCPA any reasonable means of conveying a revocation is effective– so calls using regulated technology must stop immediately, even if manually launched calls may continue.
Its all part of a thicket of arcane TCPA requirements that can twist an ankle or skin a knee. And in this case Cenlar got snagged for nearly three quarters of a million dollars.