Prioritizing Limited Resources: What You Need to Know ...National Firm Conferences and NSCP Regional and National Conferences. Ms. May has been a member of NSCP (National Association

© 2016 Financial Industry Regulatory Authority, Inc. All rights reserved. 1

Prioritizing Limited Resources: What You Need to Know Thursday, November 10 1:45 p.m. – 2:45 p.m. Do you ever wonder how some small firm business owners manage their compliance requirements and still have time to have a successful practice with limited staff? Join FINRA staff and industry panelists as they share how they stay informed of regulatory changes and limit risk exposure, and provide tips and techniques they use to get the job done with limited resources. Moderator: David Greene District Director FINRA Los Angeles District Office Panelists: Nicholas Cochran Vice President American Investors Company Donna DiMaria Principal, Chief Executive Officer, and Chief Compliance Officer Tessera Capital Partners, LLC Carolyn May Compliance Consultant Smith, Brown & Groover, Inc.


Prioritizing Limited Resources: What You Need to Know Panelist Bios: Moderator: David Greene is District Director of FINRA’s Los Angeles District 2 Office. He served in the same role at NASD before its 2007 consolidation with NYSE Member Regulation, which resulted in the formation of FINRA. In his capacity as District Director, Mr. Greene oversees the sales practice oversight process of FINRA-regulated securities firms based in District 2, as well their employees, with responsibility for ongoing surveillance, examinations and investigations. In January 2000, Mr. Greene joined FINRA (then NASD) as a regional counsel for FINRA’s Enforcement Department, and was based in the Los Angeles District Office. For two-and-a-half years preceding his appointment as Director, Mr. Greene served as the Deputy Regional Chief Counsel, FINRA Enforcement Western Region, where his responsibilities included managing enforcement attorneys in FINRA district offices of Los Angeles, San Francisco, Denver and Seattle; developing and overseeing FINRA’s national non-summary proceedings programs; as well as his own enforcement docket. Among the significant cases Mr. Greene handled were those involving mutual fund share classes, gifts and gratuities, market timing, brokered certificates of deposit, sales practice violations and operational compliance issues. Prior to joining FINRA, Mr. Greene was associated with a law firm in Los Angeles for 10 years. Mr. Greene received his undergraduate degree from Pepperdine University and his law degree from Southwestern University School of Law. Mr. Greene is licensed to practice law in California, and is admitted to practice before various federal courts. He is an executive committee liaison of the Los Angeles County Bar Association Business & Corporations Law Section and is frequently a speaker at securities industry events. Mr. Greene is also designated as a Certified Regulatory and Compliance Professional™ through the FINRA Institute at Wharton. Panelists: Nicholas C. Cochran is Vice President of American Investors Company, a FINRA member firm and registered investment adviser. Mr. Cochran served as President of the Alliance of Independent Broker-Dealers, a non-profit, mutual benefit corporation dedicated to the review and research of investment offerings, from 1998 through 2012; and also served as an elected Director of the National Association of Independent Broker-Dealers (NAIBD), an organization dedicated to small firm advocacy, from 2003 through 2010. Additionally, Mr. Cochran was elected to a four-year term on the Securities Industry/Regulatory Council on Continuing Education in 2009 and was elected Chair in 2012. Mr. Cochran had previously served on FINRA’s Continuing Education Content Committee from 2004 through 2009. He served on the NASD’s National Nominating Committee from 2001 through 2007, and was a member of NASD’s Board of Governors in 1999 and 2000. Additionally, he was elected to the NASD’s National Adjudicatory Council in 1998 and served as Chair in 1999 and 2000. Mr. Cochran also served as an elected member of NASD District 1 Committee from 1994 through 1996, was elected Chair in 1996 and was appointed to an additional one-year term in 2002. He has previously served three separate elected terms on the District 1 Nominating Committee, serving one term as Chair. Before joining American Investors Company in 1992, Mr. Cochran was President of the NASD member firm Equity Engineering, Inc., and in 1990 founded Nicholas C. Cochran & Associates, an investment planning and asset supervisory firm. In addition to his experience in the securities industry, Mr. Cochran has served as the Board Vice Chair and Finance Committee Chair at the Pacific Graduate School of Psychology, Vice President of Finance at the University of Phoenix, Corporate Accounting Manager for Raychem Corporation, Controller for Behavioral Research Laboratories and Senior Accountant for Price Waterhouse & Co. Mr. Cochran holds a CPA certificate and earned a bachelor’s degree from San Jose State University. Donna DiMaria, Principal, CEO and CCO, launched Tessera Capital Partners, LLC (“Tessera”) in March 2004. Tessera is an independent third party marketing firm representing both traditional and alternative investment strategies to institutional investors and financial intermediaries. The firm is a member of FINRA and SIPC. Tessera also operates as a State Registered Investment Adviser and is registered as a Municipal Advisor with the SEC and MSRB. Ms. DiMaria is the founder of the firm and serves as the company’s CEO and CCO. In this role she oversees the firm’s compliance function and handles all of Tessera’s due diligence. Prior to Tessera, Ms. DiMaria was the Director of Consultant Relations at WestAM where she also oversaw the firm’s marketing support functions. Prior to joining WestAM, Ms. DiMaria was a Vice President at Forstmann-Leff International where she was responsible


for US Consultant Relations and Institutional Sales. Before Forstmann-Leff, she was a Marketing Analyst and Fixed Income Product Specialist at UBS Asset Management. Prior to moving her career to the investment management industry, Ms. DiMaria was employed as an Investment Banking Analyst at Kidder Peabody and a MBS/ABS Accountant at Prudential Securities. Ms. DiMaria received a Bachelor of Science degree with a concentration in Finance from Binghamton University in May 1988. She graduated as a Stern Scholar with a Masters of Business Administration degree in Finance in May 1999 from NYU’s Leonard N. Stern School of Business. Ms. DiMaria is the Chairman and Treasurer of the Third Party Marketers Association (“3PM”), she was also formerly the President of 3PM, a position she held for more than 5 years. She currently sits on FINRA’s Membership Committee, is a member of the National Society of Compliance Professionals (“NSCP”), and a member of Beta Gamma Sigma, the premier honor society recognizing academic excellence in business studies. She holds the Series 7, 24, 63, 65, 79 and 99 licenses and recently sat for the Series 50 pilot examination. Carolyn R. May currently serves as a Compliance Officer for Smith, Brown & Groover, Inc., a full service retail broker dealer in Macon, GA. Prior to her association with SBG, Ms. May served as Senior Vice President and Chief Financial Officer of Simmons First Investment Group, Inc., a bank-affiliated, full service Broker Dealer in Little Rock, Arkansas. In addition Ms. May has been a Compliance Consultant to Broker Dealers, Investment Advisors, CPAs and attorneys for over 30 years. Her industry experience includes acting as Chief Compliance Officer and Chief Financial Officer for several regional and local small firms (both self-clearing and introducing). She has received her Certified Securities Compliance Professional (CSCP) certification through the program offered by the National Society of Compliance Professionals (NSCP). She has served as the Southern Regional Representative to FINRA’s District 5 Committee as well as on FINRA’s Small Firm Advisory Board; the District 5 Committee from 2003 – 2005 (acting as Vice Chairman and Chairman of the Committee); the Regional Nominating Committee for the South Region from 2004 – 2005; the District Nominating Committee from 2006 – 2007 (served as Chairman); the National Advisory Council (2005) and the Consultative Committee (2006 – 2007). In addition to committee service, she has been an instructor/developer for several NASD (now FINRA) Seminar Programs and has been an instructor for the Wharton NASD Institute for Professional Development. She has also served on various panels for FINRA Regional and National Firm Conferences and NSCP Regional and National Conferences. Ms. May has been a member of NSCP (National Association of Compliance Professionals) since 1989 (she served as Secretary of the Board of Directors from 1992 – 1994) and is a member of the SIFMA Compliance and Legal Division. Ms. May sits on the Board (Secretary) of the Arkansas Compliance Professionals Network (ACPN). She also has served as Chairman of the Board of the National Association of Independent Broker Dealers (NAIBD), a small firm advocacy group.

Small Firm ConferenceNovember 9-10, 2016 • Phoenix, AZ

Prioritizing Limited Resources: What You Need to Know

FINRA Small Firm Conference © 2016 FINRA. All rights reserved.

Moderator David Greene, District Director, FINRA Los Angeles District

Office PanelistsNicholas Cochran, Vice President, American Investors

CompanyDonna DiMaria, Principal, Chief Executive Officer, and Chief

Compliance Officer, Tessera Capital Partners, LLCCarolyn May, Compliance Consultant, Smith, Brown & Groover,

Inc.

1

Panelists


AML Procedures Updating FINRA Template FinCEN Notices

Dealing with RIAs and Funds SEC No Action Letter

Using Checklists and Tools Verification of Entities, Investor Due Diligence, Client Screening

2

Anti-Money Laundering (AML)


Product Due Diligence Employee Due DiligenceBackground ChecksOutside Business Activities

Third-Party Vendor Due Diligence Include Cybersecurity Questions

New Due Diligence vs. On-going Checks and Reviews Documentation!

3

Due Diligence


FINRA Cybersecurity Checklist Electronic Storage RequirementsSEC Rules

Low / No Cost Solutions Affects all areas of firm businessChanges in Code or Software

4

Cybersecurity


Diminished CapacityClients

– Information Sharing

Reps

Training – Red Flags and Escalation New Rule Proposal

5

Senior Issues


Google Alerts Email Lexicon Reviews Update Current Forms Explanation of what is considered a security List all sources of compensation Details regarding passive investments

Rule 3270.01 – Roadmap for OBA Compliance Multiple OBAs due to affiliate relationships Consultants RIAs

6

Outside Business Activities / Private Securities Transactions


Keeping Up With ChangesRule Status Reports

Updating Policies and ProceduresCompliance MemosUse of outside vendors

FINRA WSP Checklist TestingCompliance Calendar

7

New Rules


System to Monitor Changes to State Rules Updating Forms Form BD Form ADV Insurance

8

State Registration


Time ManagementUtilize unlicensed personnel Free up management time by having admin gather infoUtilize reports for more than one compliance areaUse checklists and tools

9

Takeaways


Training Local FBIAttorneys / Regulatory WebinarsRegulatory ExaminersCompliance Associations FINRA Podcasts and Online Training

10

Takeaways


SubscriptionsEmail updates (FINRA Weekly Update, Notifications), podcasts,

RSS feeds, Twitter, LinkedInwww.finra.org/industry/subscriptions

Compliance Resource Provider Programwww.finra.org/complianceresourceprovider

CRD Small Firms Informationwww.finra.org/industry/webcrd/crd-small-firms-information

11

FINRA Resources

http://www.finra.org/industry/subscriptionshttp://www.finra.org/complianceresourceproviderhttp://www.finra.org/industry/webcrd/crd-small-firms-information


SEC RIA No Action Letter Extension of No Action Letter Identity Verification for Entities Form Investor Due Diligence Form Client Screening Form Due Diligence – Product New Product Onboarding – Alternative Investments New Product Onboarding – Non-Alternative Investments FINRA 5123 Test Form

12

Handouts


Third-Party Vendor Matrix Small Firm Cybersecurity Checklist Client Information Sharing Form Senior Issues Red Flags OBA Disclosure Form OBA Review Matrix TCP Monthly Certification Form WSP Testing Template Sample Compliance Calendar

13

Handouts


Trade Associations and Other Compliance Information List

Cybersecurity Low/No Cost Solutions

14

Handouts

Home | Previous Page

February 12, 2004

Mr. Alan SorcherVice President & Associate General CounselSecurities Industry Association1425 K Street, N.W., 7th FloorWashington, DC 20005-3500

Re: Financial Recordkeeping and Reporting of Currency and ForeignTransactions / Broker-Dealer Customer Identification Rule

Dear Mr. Sorcher:

I am writing in response to your letter of January 6, 2004, concerning thereliance provisions in the new broker-dealer customer identification rule("CIP Rule").1 Specifically, you have asked whether the staff of the Divisionof Market Regulation would recommend to the Securities and ExchangeCommission ("Commission") that enforcement action be taken if broker-dealers treat registered investment advisers ("advisers") as if they weresubject to an anti-money laundering program rule under 31 U.S.C. 5318(h)("AML Rule") for the purposes of paragraph (b)(6) of the CIP Rule.2

I understand the following facts are pertinent to your question. On April 29,2003, the Commission issued the CIP Rule jointly with the Treasury3 underSection 326 of the Uniting and Strengthening America by ProvidingAppropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001(USA Patriot Act).4 The rule is codified in 31 CFR Part 103,5 which containsregulations under the Bank Secrecy Act ("BSA").6 Commission Rule 17a-87

requires broker-dealers to comply with applicable BSA regulations,including the CIP Rule.8

The CIP Rule requires brokers-dealers to implement customer identificationprograms that contain the following elements: (1) procedures for verifyingthe identities of customers, (2) procedures for maintaining records of theverification process, (3) procedures for comparing customers with lists ofknown or suspected terrorists or terrorist organizations, and (4) proceduresfor providing customers with notice that information is being collected toverify their identities.9

Paragraph (b)(6) of the CIP Rule permits broker-dealers to rely on certainother financial institutions to undertake the required elements with respectto shared customers.10 The rule permits such reliance if, among otherthings, the other financial institution is subject to an AML Rule andregulated by a Federal functional regulator. Paragraph (b)(6) also requiresthat the reliance be reasonable under the circumstances and that therelied-on financial institution enter into a contract requiring it to certifyannually to the broker-dealer that it has implemented an anti-moneylaundering program, and that it will perform (or its agent will perform)specified requirements of the broker-dealer's customer identificationprogram. The reliance provisions are designed to permit two financialinstitutions with mutual customers to reach agreements between

Securities Industry Association: No-Action Letter dated February 12, 2004 https://www.sec.gov/divisions/marketreg/mr-noaction/sia021204.htm

1 of 3 10/25/16, 12:22 PM

themselves as to how they should allocate performance of the requirementsof the rule and, thereby, rely on one another to avoid unnecessaryduplication of efforts with respect to a given customer.

You state that the interrelationship between broker-dealers and advisers isthe type of situation intended to be covered by the reliance provisions. Inparticular, you point out that advisers have the most direct relationshipwith the customers they introduce to broker-dealers and, therefore, are inthe best position to perform some of the requirements of the CIP Rule. Youpoint out that the advisers typically are authorized to direct securitiestransactions in a securities account opened in the name of the customer ata broker-dealer.11 You also note that some advisers, for competitivereasons, may be hesitant to give broker-dealers direct access to theircustomers. You report that some advisers have implemented AML programsand will agree to enter into reliance contracts. You argue that broker-dealers will incur unnecessary compliance costs if they are not permitted torely on advisers.

Because these advisers are registered with the Commission, they meet therequirement that the relied-on financial institution be regulated by aFederal functional regulator. However, they are not currently subject to anAML Rule and, consequently, do not meet this condition of paragraph (b)(6)of the CIP Rule. On April 28, 2003, the Financial Crimes EnforcementNetwork (FinCEN), Department of the Treasury, proposed an AML Rule forregistered investment advisers.12 Final rules have not been adopted. Youhave asked that broker-dealers be permitted to treat registered investmentadvisers as if they are subject to an AML Rule for the purposes of paragraph(b)(6) of the CIP Rule. If such relief is granted and Treasury ultimatelydecides not to issue an AML Rule for advisers, you ask that broker-dealersbe permitted to continue relying on advisers under paragraph (b)(6) untilthirty days after Treasury publicly announces such a decision.

Based on the foregoing, the Division staff will not recommend enforcementaction to the Commission under Rule 17a-8 if a broker-dealer relies on aninvestment adviser, prior to such adviser becoming subject to an AML Rule,provided all the other requirements and conditions in paragraph (b)(6) ofthe CIP Rule are met, namely that: (1) such reliance is reasonable underthe circumstances; (2) the investment adviser is regulated by a Federalfunctional regulator; and (3) the investment adviser enters into a contractrequiring it to certify annually to the broker-dealer that it has implementedan anti-money laundering program, and that it will perform (or its agentwill perform) specified requirements of the broker-dealer's customeridentification program. This letter is withdrawn without further action on theearlier of: (1) the date upon which an AML Rule for advisers becomeseffective, or (2) February 12, 2005.

This is a staff position with respect to enforcement only and does notpurport to express any legal conclusions. It may be withdrawn or modifiedif the staff determines that such action is necessary to be consistent withthe BSA and in the public interest.

Sincerely,

Annette L. NazarethDirector


2 of 3 10/25/16, 12:22 PM

1 31 CFR 103.122.

2 Sections 203 and 203A of the Investment Advisers Act of 1940, and therules promulgated thereunder, govern which investment advisers mustregister with the Commission.

3 Customer Identification Programs for Broker-Dealers, Securities ExchangeAct of 1934 Release No. 47752 (April 29, 2003), 68 FR 25113 (May 9,2003) (CIP Rule Final Rule Release).

4 Pub. L. 107-56.

5 31 CFR 103.122.

6 31 U.S.C. 5311 et seq.

7 17 CFR 240.17a-8.

8 The CIP Rule applies to all "broker-dealer[s]" as defined in paragraph(a)(2) of the rule. Under the definition, a broker-dealer is any personrequired to register with the Commission under the Securities Exchange Actof 1934, except persons who register pursuant to 15 U.S.C. 78o(b)(11).

9 See 31 CFR 103.122(b)(2), (b)(3), (b)(4) and (b)(5), respectively.

10 31 CFR 103.122(b)(6).

11 Investment advisers also may open accounts in their own name at abroker-dealer to facilitate trading on behalf of their clients until transactionscan be settled to their clients' individual securities accounts at anotherbroker-dealer or bank. Less commonly, advisers may open omnibusaccounts for the benefit of their customers. In these cases, under the CIPRule, the investment adviser, rather than the beneficial owners, would bethe broker-dealer's customer.

12 68 FR 23646 (May 5, 2003).

Incoming Letter:

The Incoming Letter is in Acrobat format.

http://www.sec.gov/divisions/marketreg/mr-noaction/sia021204.htm

Home | Previous Page Modified: 02/09/2005


3 of 3 10/25/16, 12:22 PM

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

D I VIS ION OF

TRAD I NG AND MARKETS

January 9, 2015

Mr. Ira D. Hammerman Executive Vice President and General Counsel Securities Industry and Financial Markets Association 1101 New York Avenue, NW, 81h Floor Washington, DC 20005

Re: Request for No-Action Relief Under Broker-Dealer Customer Identification Program Rule (31 C.F.R. § 1023.220)

Dear Mr. Hammerman:

In your letter dated January 5, 2015, you request assurances that the staff of the Division of Trading and Markets will not recommend enforcement action to the Securities and Exchange Commission under Rule 17a-8 under the Securities Exchange Act of 1934 ("Exchange Act") if a broker-dealer relies on a registered investment adviser to perform some or all of its customer identification program ("CIP") obligations, subject to certain enumerated conditions set forth in your incoming letter. Specifically, you request that the Division extend a no-action position that it took in 2013, which is substantially similar to previous no-action positions first taken by the Division in 2004. 1

See Letter from Annette L. Nazareth, Director, Division of Market Regulation, Securities and Exchange Commission, to Alan Sorcher, Securities Industry Association, dated February 12, 2004 (the "2004 Letter"); Letter from Annette L. Nazareth, Director, Division of Market Regulation, Securities and Exchange Commission, to Alan Sorcher, Securities Industry Association, dated February 10, 2005; Letter from Robert L.D. Colby, Acting Director, Division of Market Regulation, Securities and Exchange Commission, to Alan Sorcher, Securi ties Industry Association, dated July 11, 2006; Letter from Erik Sirri, Director, Division of Trading and Markets, Securities and Exchange Commission, to Alan Sorcher, Securities Industry and Financial Markets Association, dated January 12, 2008 ; Letter from Daniel M. Gallagher, Jr., Deputy Director, Division of Trading and Markets, Securities and Exchange Commission, to Ryan Foster, Securities Industry and Financial Markets Association, dated January 11 , 2010; Letter from Lourdes Gonzalez, Acting Co-Chief Counsel , Division of Trading and Markets, Securities and Exchange Commission, to Ryan Foster, Securities Industry and Financial Markets Association, dated January 11, 2011; Letter from Emily Westerberg Russell, Senior Special Counsel, Division of Trading and Markets, Securities and Exchange Commission, to Ira Hammerman, Senior Managing Director and General Counsel, Securities Industry and Financial Markets Association, dated January 11 ,2013 (the "2013 Letter").

Mr. Ira Hammerman Page 2 of 4 January 9, 2015

On February 12, 2004, the Division, in consultation with the Department of Treasury's Financial Crimes Enforcement Network ("FinCEN"), issued a letter stating that it would not recommend enforcement action to the Commission if a broker-dealer treated a registered investment adviser as if it were subject to an anti-money laundering program rule under 3 1 U.S.C. § 5318(h) ("AML Program Rule") for the purposes of paragraph (b)(6) (now (a)(6)) of the CIP rule applicable to broker-dealers, 31 C.F.R. § 103.122 (now 31 C.F.R. § 1023.220) ("CIP Rule"). By its terms, the 2004 Letter was to be withdrawn without further notice on the earlier of: (1) the date upon which an AML Program Rule for investment advisers becomes effective, or (2) February 12, 2005. Because an AML Program Rule for investment advisers did not become effective, and in response to your subsequent requests for no-action relief, the no-action position in the 2004 Letter was extended for an additional18 months on February 10, 2005, for an additional18 months on July 11, 2006, for an additional two years on January 10, 2008, for an additional12 months on January 11, 2010, for an additional two years- subject to certain additional conditions- on January 11, 2011, and for an additional two years on January 11, 2013.

In your letter, you indicate that broker-dealers have come to rely on the no-action position that was taken in the Division's previous letters, and ask that the Division extend the position taken in the 2013 Letter.

Response

Without necessarily agreeing with your assertions, the Division, following further consultation with FinCEN staff, extends the no-action position in the 2013 Letter until the earlier of: (1) the date upon which an AML Program Rule for investment advisers becomes effective,2 or (2) two years from the date of this letter.

Accordingly, the Division will not recommend enforcement action to the Commission under Exchange Act Rule 17a-8 if a broker-dealer treats an investment adviser as if it were subject to an AML Program Rule for the purposes of paragraph (a)(6) of the CIP Rule provided that the other provisions of the CIP Rule are met, and: ( 1) the broker-dealer's reliance on the investment adviser is reasonable under the circumstances, as discussed in more detail below; (2) the investment adviser is a U.S. investment adviser registered with the Commission under the Investment Advisers Act of 1940; and (3) the investment adviser enters into a contract with the broker-dealer in which the investment adviser agrees that: (a) it has implemented its own anti-money laundering program consistent with the requirements of 31 U.S.C. 5318(h) and will update such anti-money

See Introduction to the Unified Agenda of Federal Regulatory and Deregulatory Actions, 79 FR 76455, 76609 (Dec. 22, 2014).

2


laundering program as necessary to implement changes in applicable laws and guidance, (b) it (or its agent) will perform the specified requirements of the broker-dealer's CIP in a manner consistent with Section 326 of the PATRIOT Act, (c) it will promptly disclose to the broker-dealer potentially suspicious or unusual activity detected as part of the CIP being performed on the broker-dealer's behalf in order to enable the broker-dealer to file a Suspicious Ac tivity Report, as appropriate based on the broker-dealer's judgment,3 (d) it will certify annually to the broker-dealer that the representations in the reliance agreement remain accurate and that it is in compliance with such representations, and (e) it will promptly provide its books and records relating to its performance of the CIP to the Commission, to a self-regulatory organization that has jurisdiction over the broker-dealer, or to authorized law enforcement agencies, either directly or through the broker-dealer, at the request of (i) the broker-dealer, (ii) the Commission, (iii) a self-regulatory organization that has jurisdiction over the broker-dealer, or (iv) an authorized law enforcement agency.

As to the reasonableness of a broker-dealer's reliance on an investment adviser, we understand that broker-dealers seeking to rely on the no-action position taken in this letter will undertake appropriate due diligence on the investment adviser that is commensurate with the broker-dealer's assessment of the money laundering risk presented by the investment adviser and the investment adviser's customer base. Such due diligence would be undertaken at the outset of the broker-dealer's relationship with the investment adviser, and updated during the course of the relationship, as appropriate.

Further, we expect that a broker-dealer's assessment of the money laundering risk presented by an investment adviser and the investment adviser's customer base would depend on the particular facts and circumstances. For example, in some instances, a broker-dealer may consider an affiliated investment adviser to present a lower money laundering risk than an unaffiliated investment adviser. The investment adviser's status as an affiliate, however, is one of many factors that may be relevant to such a risk

Firms are reminded that nothing in this no-action letter relieves a broker-dealer of its obligation to establish policies, procedures, and controls that are reasonably designed to detect and report suspicious activity that is attempted or conducted by, at, or through the broker-dealer. See 31 C.P.R.§ 1023.320(a)(2).

A broker-dealer that chooses not to avail itself of the relief being granted pursuant to this letter may still contractually del egate the implementation and operation of its CIP to an investment adviser; however, the broker-dealer will remain solely responsible for assuring compliance with the CIP Rule and therefore, must actively monitor the operation of its CIP and assess its effectiveness. See "Customer Identification Programs for Broker-Dealers," Exchange Act Release No. 47752 (Apr. 29, 2003), 68 FR 25113,25123 n. 132 (May 9, 2003).

4


assessment, and an affiliated investment adviser may or may not present a lower money laundering risk, depending on the facts and circumstances. 5

This is a staff position with respect to enforcement action only and does not purport to express any legal conclusions. It may be withdrawn or modified if the staff determines that such action is necessary to be consistent with the Bank Secrecy Act and in the public interest.

Sincerely,

L~~~ Lourdes Gonzalez Assistant Chief Counsel Division of Trading and Markets

See, ~. United States Senate, Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, "U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History" (July 17, 2012), available at: http://www.hsgac.senate.gov/subcommittees/investigations/reports.

5

http://www.hsgac.senate.gov/subcommittees/investigations/reports

January 5, 2015

Via Electronic Mail

Lourdes Gonzalez

Assistant Chief Counsel

Division of Trading and Markets

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

Re: Request for No-Action Relief under Broker-Dealer Customer Identification Rule (31 C.F.R. § 1023.220)

Dear Ms. Gonzalez:

On behalf of its member broker-dealers, the Securities Industry and Financial Markets Association

(“SIFMA”)1 hereby requests that the staff of the Division of Trading and Markets (the “Division”) of

the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) extend the no-action

relief currently in effect with respect to the reliance provisions of the customer identification rule

applicable to broker-dealers (31 C.F.R. § 1023.220) (the “CIP Rule”). 2

Under a letter dated January

11, 2013 (the “2013 No-Action Letter”), the current relief expires January 11, 2015.3

As you know, the CIP Rule, which was adopted pursuant to Section 326 of the USA PATRIOT Act,4

requires each broker-dealer to adopt a written customer identification program (“CIP”) that includes

risk-based procedures for verifying the identity of each customer. The CIP Rule permits broker-

dealers to rely on certain financial institutions to perform CIP procedures with respect to shared

customers. Such reliance is permissible under the CIP regulations where: (1) it is reasonable under the

circumstances; (2) the relied-on financial institution is subject to an anti-money laundering program

rule (“AMLP Rule”) under 31 U.S.C. § 5318(h) of the Bank Secrecy Act (“BSA”)5

and is regulated by

1 SIFMA brings together the shared interests of hundreds of securities firms, banks and asset managers. SIFMA’s mission

is to support a strong financial industry, investor opportunity, capital formation, job creation and economic growth, while

building trust and confidence in the financial markets. SIFMA, with offices in New York and Washington, D.C., is the

U.S. regional member of the Global Financial Markets Association. For more information, visit www.sifma.org.

2 See Letter from Emily Westerberg Russell, Senior Special Counsel, Division of Trading and Markets, SEC, to Ira

Hammerman, Senior Managing Director and General Counsel, SIFMA, dated January 11, 2013, available at

http://www.sec.gov/divisions/marketreg/mr-noaction/2013/sifma011113-17a-8.pdf.

3 See id.

4 Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of

2001 (the “USA PATRIOT Act”), Pub. L. No. 107-56 (2001).

5 31 U.S.C. § 5311 et seq.

http://www.sifma.org/http://www.sec.gov/divisions/marketreg/mr-noaction/2013/sifma011113-17a-8.pdf

Lourdes Gonzalez

January 5, 2015

Page 2 of 4

a federal functional regulator; and (3) the relied-on financial institution enters into a contract requiring

it to certify annually to the broker-dealer that it has implemented its anti-money laundering (“AML”)

program and that it (or its agent) will perform specified requirements of the broker-dealer’s CIP.6

The

reliance provision is designed to permit financial institutions with shared customers to agree as to how

they will allocate performance of the CIP requirements and, thereby, rely on one another to avoid

unnecessary duplication of efforts with respect to a given customer.

At the time that the CIP Rule became effective, SEC-registered investment advisers (“RIAs”) were the

subject of a proposed AMLP Rule that had not been finalized.7

As a result, broker-dealers were not

permitted under the CIP Rule to rely on RIAs to perform any part of their CIP requirements. For that

reason, SIFMA specifically sought no-action relief addressing a broker-dealer’s reliance on an RIA

under 31 C.F.R. § 1023.220(a)(6) (then 31 C.F.R. § 103.122(b)(6)) to perform some or all of the

broker-dealer’s CIP obligations with respect to shared customers. As discussed below, that relief was

granted and has since been extended a number of times, and SIFMA now seeks a further extension of

the Division staff’s no-action position.

No-Action Relief to Date

The requested relief was first issued by the staff of the Division (then known as the Division of Market

Regulation), in consultation with the Department of the Treasury’s Financial Crimes Enforcement

Network (“FinCEN”), in 2004. 8

Since that time, the no-action relief has been extended a number of

times,9

including three extensions granted after the withdrawal of FinCEN’s proposal to subject certain

investment advisers to an AMLP Rule.10

In each of the no-action letters since 2004, Division staff has stated that it will not recommend to the

Commission that enforcement action be taken under Rule 17a-8 under the Securities Exchange Act of

1934, as amended,11

based on a broker-dealer’s reliance on an RIA to perform certain CIP obligations,

subject to certain conditions. Most recently, under the 2013 No-Action Letter, Division staff stated

that it would not recommend enforcement action if a broker-dealer treats an investment adviser as if it

were subject to an AMLP Rule for the purposes of paragraph (a)(6) of the CIP Rule, provided that the

6 31 C.F.R. § 1023.220(a)(6).

7 See Anti-Money Laundering Programs for Investment Advisers, 68 Fed. Reg. 23646 (May 5, 2003).

8 See Letter from Annette L. Nazareth, Director, Division of Market Regulation, SEC, to Alan Sorcher, Vice President and

Associate General Counsel, Securities Industry Association (“SIA”), dated February 12, 2004.

9 See Letter from Annette L. Nazareth, Director, Division of Market Regulation, SEC, to Alan Sorcher, Vice President and

Associate General Counsel, SIA, dated February 10, 2005; Letter from Robert L.D. Colby, Acting Director, Division of

Market Regulation, SEC, to Alan Sorcher, Vice President and Associate General Counsel, SIA, dated July 11, 2006; Letter

from Erik Sirri, Director, Division of Trading and Markets, SEC, to Alan Sorcher, Vice President and Associate General

Counsel, SIFMA, dated January 10, 2008; Letter from Daniel M. Gallagher, Jr., Deputy Director, Division of Trading and

Markets, SEC, to Ryan Foster, Manager, SIFMA, dated January 11, 2010 (the “2010 No -Action Letter”); Letter from

Lourdes Gonzalez, Acting Co-Chief Counsel, Division of Trading and Markets, SEC, to Ryan D. Foster, Manager, SIFMA,

dated January 11, 2011 (the “2011 No-Action Letter”); and the 2013 No-Action Letter.

10 See Withdrawal of the Notice of Proposed Rulemaking; Anti-Money Laundering Programs for Investment Advisers, 73

Fed. Reg. 65568 (November 4, 2008), and the 2010 No-Action Letter, the 2011 No-Action Letter and the 2013 No-Action

Letter, supra.

11 17 C.F.R. § 240.17a-8.

Lourdes Gonzalez

January 5, 2015

Page 3 of 4

other provisions of the CIP Rule are met, and: (1) the broker-dealer’s reliance on the investment

adviser is reasonable under the circumstances;12

(2) the investment adviser is a U.S. investment adviser

registered with the Commission under the Investment Advisers Act of 1940, as amended; and (3) the

investment adviser enters into a contract with the broker-dealer in which the investment adviser agrees

that (a) it has implemented its own AML program consistent with the requirements of 31 U.S.C.

5318(h) and will update such AML program as necessary to implement changes in applicable laws and

guidance, (b) it (or its agent) will perform the specified requirements of the broker-dealer’s CIP in a

manner consistent with Section 326 of the PATRIOT Act, (c) it will promptly disclose to the broker-

dealer potentially suspicious or unusual activity detected as part of the CIP being performed on the

broker-dealer’s behalf in order to enable the broker-dealer to file a Suspicious Activity Report, as

appropriate based on the broker-dealer’s judgment, (d) it will certify annually to the broker-dealer that

the representations in the reliance agreement remain accurate and that it is in compliance with such

representations, and (e) it will promptly provide its books and records relating to its performance of

CIP to the Commission, to a self-regulatory organization that has jurisdiction over the broker-dealer, or

to authorized law enforcement agencies, either directly or through the broker-dealer, at the request of

(i) the broker-dealer, (ii) the Commission, (iii) a self-regulatory organization that has jurisdiction over

the broker-dealer, or (iv) an authorized law enforcement agency. As indicated above, this no-action

position is in effect until January 11, 2015.

Reliance on Registered Investment Advisers

As indicated in our prior requests for no-action relief, some of SIFMA’s broker-dealer members have

come to rely on RIAs under the CIP Rule and the staff’s no-action relief to perform some or all of the

CIP obligations related to customers with which both have a customer relationship. SIFMA believes

strongly that the reliance provisions of the CIP Rule play an important and necessary role in effective

anti-money laundering compliance because intermediary and shared business relationships are a

common and legitimate part of the securities industry and U.S. capital markets. RIAs are regulated by

a federal functional regulator, and many have established AML programs consistent with 31 U.S.C.

5318(h). Permitting two regulated financial institutions with a common customer to rely on one

another to perform some or all of the CIP requirements under the CIP Rule avoids duplication of

efforts and inefficient allocation of significant and costly resources.

SIFMA also believes that the interaction between broker-dealers and RIAs is precisely the type of

relationship intended to be covered by the reliance provisions, and that the staff’s no-action relief

should continue to be available to firms in a position to implement such reliance. RIAs often have the

most direct relationship with the customers they introduce to broker-dealers, are best able to obtain the

necessary documentation and information from and about the customers, and therefore are in the best

position to perform some or all of the requirements of the CIP Rule. Moreover, RIAs are often

12 As to the reasonableness of a broker-dealer’s reliance on an investment adviser, Division staff stated in the 2013 No-

Action Letter its understanding that broker-dealers seeking to rely on the no-action position in the letter “will undertake

appropriate due diligence on the investment adviser that is commensurate with the broker -dealer’s assessment of the money

laundering risk presented by the investment adviser and the investment adviser ’s customer base. Such due diligence would

be undertaken at the outset of the broker-dealer’s relationship with the investment adviser, and updated during the course of

the relationship, as appropriate.” The staff stated further that a broker-dealer’s assessment of the money laundering risk

presented by an investment adviser and the investment adviser’s customer base would depend on the particular facts and

circumstances, and that an investment adviser’s status as an affiliate is one of many factors that may be relevant to such a

risk assessment. See 2013 No-Action Letter, at p. 3.

Lourdes Gonzalez

January 5, 2015

Page 4 of 4

reluctant to have the broker-dealer contact the customer because they view the broker-dealer as their

competitor. Accordingly, SIFMA’s broker-dealer members would like to continue to have the staff’s

no-action position available for reliance on RIAs under the CIP Rule to perform some or all of broker-

dealers’ CIP obligations with respect to shared customers.

Request for No-Action Relief

For the foregoing reasons, SIFMA respectfully requests that the Division staff extend the no-action

position stated in the 2013 No-Action Letter, subject to the conditions stated in that letter. We note

that FinCEN has publicly stated that it has drafted a notice of proposed rulemaking that would

prescribe minimum standards for AML programs to be established by certain investment advisers and

would require such investment advisers to report suspicious activity to FinCEN.13

* * *

We thank you for the opportunity to submit this no-action request and would be happy to discuss our

request. Please do not hesitate to contact me if you would like to discuss these matters further.

Respectfully submitted,

Ira D. Hammerman

Executive Vice President and General Counsel

cc: Jennifer Shasky Calvery, Director, FinCEN Jamal El-Hindi, Associate Director, FinCEN John Fahey, Branch Chief, SEC Emily Westerberg Russell, Senior Special Counsel, SEC Lindsay Kidwell, Special Counsel, SEC

13 See Introduction to the Unified Agenda of Federal Regulatory and Deregulatory Actions, 79 Fed. Reg. 76455, 76609

(December 22, 2014). FinCEN has stated further that it has been working closely with the Commission on issues related to

the draft proposal. See id.

http:FinCEN.13

Member FINRA / SIPC, MA Registered with the SEC and MSRB

421 Penbrooke Drive, Suite 12B ● Penfield, New York 14526 ● (585) 364‐3065 ● www.tesseracapital.com

Identity Verification Form Entities

Full Legal Name: ____________________________________________________________________

Exemptions

Prospective Advisory Clients who are included in any of the following categories are exempt from the Client identification procedures:

Check All that Apply Accounts opened for retirement plans established under the Employee Retirement Income

Security Act of 1974 (ERISA); An Entity that has an existing account with Tessera; provided Tessera has a reasonable

belief that it knows the true identity of the Person; An Entity that is a department or agency of the U.S., of any State of the U.S. or of any

political subdivision of any State; An entity established under the laws of the U.S., of any State or of any political subdivision

of any State or under an interstate compact between two or more States, that exercises governmental authority on behalf of the U.S. or any such State or political subdivision;

An entity that is a financial institution regulated by a Federal Functional Regulator; or any entity, other than a Bank, whose common stock or analogous equity interests are listed

on the New York Stock Exchange or the American Stock Exchange or whose common stock or analogous equity interests have been designated as a Nasdaq National Market Security listed on Nasdaq Stock Market (except stock or interests listed under Nasdaq Small‐Cap Issues heading). An entity that is a financial institution, other than a Bank, is exempt only to the extent of its U.S. operations.

If an entity does not fit any of the above categories listed above then please continue to complete the remainder of the form in its entirety.


Other Names Entity Does Business As: ______________________________ Main Address: Other Locations: Tax Payer Identification Number: Entity Formed In: ______________________________ Type of Business: ______________________________ Sources of Income: ______________________________ Sources of Funds for this Account: ______________________________

Is the entity a foreign institution located outside the US? Yes No Is the entity located in Canada, the UK or Switzerland? Yes No (If the answer to the last question is No then Heightened Verification is required on this entity)


Identification Verification

The following is a list of acceptable identification sources. Please select those items that were collected and verified for the specific entity.

documents verifying the existence of the Entity, such as copies of articles of incorporation, trust documents, operating agreements, partnership agreements or government issued licenses, certified by a regulatory authority with which the license is held or the document has been filed;

resolutions or other documentation certified by a senior officer, manager or other member

of senior management verifying the ability of the entity to open a securities account or otherwise contract for the services being requested;

certificates or other representations of directors, managing partners or other members of

senior management of the entity documenting the authority of the individual opening the account or contracting for services with Tessera, to do so;

good standing certificates from appropriate jurisdictions; and copies or confirmations of any material government issued licenses. For US Based entities at least one of the above sources is required to be checked and verified. If an entity is located in Canada, UK or Switzerland, the entity shall be treated, for verification purposes, as if it were located in the US. For non‐US entities located outside of Canada, UK or Switzerland, heightened verification is required and at least 3 of these verification sources must be checked and verified. Notes:

Supervisory Approval:

Signature: ______________________________ Lisa Roth – AML CO, Tessera Capital Partners

Date:

Investor Name:

Entity Type:

Investment:

Note: Include manager name and vehicle invested in

Is the prospective client a legal entity in good standing? Yes NoNote: Attach copy of information from Sec of State Website

Does the prospective client's investment policy allow for investment in this strategy or security? Yes NoNote: Attach copy of ips if available

Website Search Have any matters been uncovered that could affect the investment? Yes No

Google Search Have any matters been uncovered that could affect the investment? Yes NoNote: If yes, then add appropriate documentation

Criminal Search Have any matters been uncovered that could affect the investment? Yes No

Civil Search Have any matters been uncovered that could affect the investment? Yes No

Regulatory Search Have any matters been uncovered that could affect the investment? Yes NoNote: Check SEC, FINRA, CFTC, Sec of State, etc.

Is the investor an Accredited Investor? Yes No

Does this offering require investor to be accredited? Yes No

Has a suitability assessment been completed? Yes NoNote: Attach a copy of the suitability assessment to this document

Who is signing the investment management agreement?

Is this person authorized to act on behalf of the client? Yes No

How do you know?

Preparer:

Name and Title

Name, Title and Date

Investor Due Diligence Checklist



Client Screening Form

Name: ___________________________________________________________________________

Account Beneficiary: ______________________________

Complete only if different than the person opening account

The client has been screened against the following lists and is not a match: OFAC List

Firm Designated Prohibited Person List

Persons Prohibited by Future Law or Regulation List

FINCEN Advisory

This client is considered to be a High Risk Client for the following reasons: Senior Foreign Political Figure

Located outside the US (exceptions are: Canada, the UK and Switzerland)

Foreign Bank

FINCEN Advisory

Other High Risk Person ________________________________ (describe reason)


Signature: ______________________________ Lisa Roth – AML Compliance Officer, Tessera Capital Partners

Date:

Due Diligence Report

I. Summary

Fund Name:

Address:

Key Contact Information

Target Fund Size

Capital Raised to date:

Closing Date:

II. General Partner Information Full legal name of fund:

Fund type:

GP:

Primary contact information for General Partner:

The Partnership

The Offering

Purpose of the Partnership:

Objectives of the Partnership:

Sponsor:

Details of ownership structure

Legal structure of fund:

Domicile of Fund:

Offshore vehicles:

Domicile of Offshore Fund: Investment Manager:

Describe organization, including: partners, principals, and associates

Does Firm/Manager have real estate focused research professionals?

History of the Firm

Is the Investment Manager registered?

Does the firm or any personnel have any disclosure items, had their licenses suspended,

cancelled or revoked, been barred from the industry, had any discipline actions against them?

Total AUM managed Previous Fund Information

Are there any other issues that could affect the management of the fund?

III. Legal Issues Affecting GPs Are there any outstanding legal judgments against the partners or professionals?

Are there any conflicts of interest?

What controls are in place to protect the interests of the Fund’s Investors?

IV. The Strategy

Location of the Properties and surrounding areas – Blind Pool

Objective:

V. Partnership‐level Information The Offering:

Eligible Investors:

Target Capital Raise:

Amount raised to date: Use of Proceeds

Will GP invest as limited partner;

If so who and how much?

Will Principals, employees or other affiliated individuals be allowed to make personal investments in the fund?

Shares and Minimum commitment

Compensation of the GP

Management fees for the GP?

Is leverage used?

Performance and Preferred Return

Subscriptions (timing and notice)

Redemptions and Terms (timing, notice and lock‐up)

Distributions:

Transfers of Shares

What is the holding period for this Fund:

Shareholder Meetings:

Will new money be accepted after capacity of the fund is reached?

VI. Organization / Management Team Describe the Organization

How long have key principals worked together?

Bios of Officers

Have there been any turnover among senior investment professionals over the past three years?

Employment Contracts in Place? If not how do they retain people?

Board of Directors? Is there one?

Previous Experience Applicable to Current Fund

Other Activities of the GP and its Affiliates

Locations of offices?

Does the firm carry any insurance?

VII. Investment Environment and Competition How do you monitor the current market environment?

Current Market

Competitive Advantages

Competitors

VIII. Investment Management and Decision Making Process

Describe the investment decision making process and everyone’s role – Include: Investment Committee and any other committees that might be a part of the process

How are investment opportunities staffed?

How are projects identified and selected?

How are properties evaluated?

IX. Strategy and Approach

Summary of Investment Strategy

Investment philosophy

Describe how the Partnership monitors its investment.

X. Evaluation of Risk

Describe the potential risk factors related to overall market conditions.

Other Risk Factors

Conflicts of Interest:

Financial Forecasts:

Describe your operational risk management process – including: Accounting and Reporting, Bank Accounts and Controls, Information Systems

Legal Due Diligence Process

XI. Performance

What is the fund’s targeted performance?

How will the performance be achieved?

Discuss the key factors that may impact the financial performance of the Partnership.

Are returns designed to be absolute or relative to an index? Do the principals have consistent long‐term track record?

How do targeted returns compare to actual returns?

XII. Compliance

Who handles the firm’s compliance?

Any material criminal, civil or administrative proceedings against the firm or its personnel?

XIII. Operations and Back office

Accounting

How do you inform investors as to minor and major changes make to your process?

What reports and information do you provide?

What are the operational or affiliate relationships?

Firm policies and procedures?

Anti‐Money Laundering Procedures

BCP and DRP

Cybersecurity

Service Providers

XIV. Documents required for due diligence:

Offering Memorandum Partnership Agreement Subscription Document Audit Reports LLC Documents Operating Agreement Copy of Reg D Filing Bad Actors Certification SEC Exam Reports – Including Findings and deficiency letters if available. ADV Parts I & II (2A & 2B) + Form PF Any Subpoenas or Regulatory Action Notices AML policy with details on CIP BCP / DRP Plans Policy and Procedures manual Any and all Marketing materials Monthly performance in excel spreadsheet Access to Website if password protected Any Regulatory filings if appropriate Details on Ownership structure if not in PPM Bios or description of any owners not in PPM Any past or current litigation, arbitrations or legal proceedings against firm List of service providers if not included in PPM Written description of investment process – as detailed as possible

List of all social media used by firm Any other information you want to tell us.

XV. Other Information Review of subscription documents

Review of LP Agreement

Review of any other key docs

Site visits

Staff / Principal Meetings and conference calls.

Member NASD / SIPC

New Product Approval Evaluation Form

Product Name: Brief Product Description:

If you require additional space attach additional pages to this document.

Is the product similar to any product currently offered by the firm? Yes No Would you consider this product to be More or Less complex than other products currently offered by the firm? What types of investors would be interested in this product? Retail Institutional Was the product designed for a specific geographic region? Yes No If Yes, please specify: How many competitors are there in relation to this product offering? Is the product competitive with other similar products available in the industry? Yes No Is the experience required to sell this product similar to the experience required to sell any of the firm’s existing products Yes No Will employee training be required? Yes No Are there any conflicts of interest related to the sale of this product with the firm’s existing business lines? Yes No What is the proposed fee for this product? Are there are specific resources required to sell this product? Yes No

If Yes, please specify:

708 Third Avenue, 6th Floor • New York, NY 10017 • (212) 209 – 3822 • www.tesseracapital.com

Member NASD / SIPC

Please submit any comments, materials or other relevant information you have pertaining to this product. Tessera’s goal is to ensure that a fair and thorough review may be undertaken in

order to protect the firm and its employees.

Submitted by: Reviewed by: Name: Name: Signature: Title: Date: Date: Status: Accepted Rejected More information requested Date: Notes: Status: Accepted Rejected More information requested Date: Notes:

708 Third Avenue, 6th Floor • New York, NY 10017 • (212) 209 – 3822 • www.tesseracapital.com

New Product Onboarding Alternative and Direct Investments

o Make an initial determination as to whether or not a particular product is worthy of further consideration and whether it warrants a place on the firm’s platform, if approved, i.e., that it may be suitable for someone. A particular focus during this initial step will involve an evaluation of risks, potential rewards and conflicts of interest.

o Initial evaluation of deal drivers is crucial; for example, how might rising interest rates or dramatic changes in the price of oil and gas affect a particular investment’s prospects and outcome. Does the particular investment under consideration have a “reasonable” chance of meeting its objectives and/or reaching a successful outcome? Are any inherent conflicts of interest adequately addressed and resolvable?

o Review prospectus/offering memorandum, paying particular attention to use of proceeds, fees, deal terms and sharing arrangements, profit participation, etc., for fairness; where financial forecasts are included, assess reasonableness of attendant assumptions

o Selectively obtain third party DD reports; third party DD reports (see current utilization list below) are ancillary documents used in connection with execution of the firm’s internal DD requirements. They are not a substitute for the firm’s internal DD requirements but are used to augment the firm’s responsibilities in those areas best served by a third party, e.g., principal background checks, disclosure/disposition of regulatory issues, if any, review of sponsor and deal-related organizational documents, verification of escrow/title/leasehold/insurance coverage/encumbrance documentation, tax issues, prior performance and adequacy of legally-required disclosures

o Third party DD providers will be subjected to the same level of initial and ongoing scrutiny as offering sponsors in order to ascertain their general capabilities, staffing levels and specific competencies.

o Obtain and review audited financial statements, where available; ensure the auditors are credible

o Obtain and review other third party independent reports, where applicable, including such items as real estate appraisals, property condition reports, geology, engineering and/or leasehold valuation reports; other independent reports in instances where valuations are essential, e.g., repriced follow-on offerings; assess credibility of underlying report providers

o Arrange site visit if vetting a new sponsor and/or meet face-to-face with principals; because of heightened uncertainty and attendant risk in onboarding a new sponsor, extra care and diligence will be taken in order to establish a high level of comfort with respect to a new sponsor’s reputation, prior experience, background, etc., before seriously entertaining new product offerings

o Where appropriate and/or where deemed necessary, obtain list of other BDs in the selling group and confer therewith

o Make an assessment as to whether the stated suitability guidelines are sufficient and determine whether ancillary acknowledgments are warranted for the purpose of enhancing compliance considerations

o Ensure training availability through AI Insight; if no training is available, consider severely limiting who can sell the product based on predetermined factors

o Prepare an internal memorandum detailing the firm’s DD process, what was reviewed, what material questions arose, if any, and how they were disposed of

o Conduct ongoing due diligence for purposes of continuing in-force selling agreements, through: A periodic review of sponsor-filed quarterly reports and SEC filings, where

applicable A periodic review of third-party DD provider quarterly reports and

sponsor updates Participate in third-party DD provider conference calls Attend industry trade group meetings and DD forums

o Third party DD providers with whom AIC has current relationships are listed below. Both sponsor and/or program-level reports are obtained from one or more providers, as deemed necessary. Third party reports are considered ancillary to and an adjunct of the firm’s principal responsibility for conducting adequate internal due diligence on any program(s) with which the firm enters into a selling agreement. Mick Law, P.C., LLO, Omaha, NE Bowman Law Firm, LLC, McEwen, TN FactRight, LLC, Minneapolis, MN SK Research LLC, Columbia, MD Buttonwood Investment Services, LLC, Littleton, CO Miterko & Associates, Roswell, GA

New Product Onboarding Mutual Funds (MF)

Insurance-based product (IBP) Third-party asset management programs (TAMP)

o Meet with wholesaler for initial product introduction (usually as a result of a field referral from one of our RRs)

o Make an initial determination as to whether or not the product is worthy of further consideration and whether it warrants a place on our platform, if approved, i.e., that it may be suitable for someone

o Review prospectus and/or offering documents and marketing materials o Selectively obtain general due diligence information, where available, using such

resources as: Morningstar Insurance company rating information SEC ADV filings and updates

o In the case of indexed annuities, insure that new products fall within the company’s established product guidelines vis a vis, surrender charges, insurance company ratings, no two-tier structure, etc.

o In the case of TAMPs, insure a minimum of three-year history o Review audited results and GIPS compliant performance data, where available;

investigate alternative assurances if such information is not available o Arrange a site visit, face-to-face meeting or teleconference with principals if

vetting a new sponsors, where appropriate o Obtain list of other BDs in the selling group and confer therewith, if deemed

necessary o Make an assessment as to whether the stated suitability guidelines, if any, are

sufficient and determine whether ancillary acknowledgments are warranted for the purpose of enhancing compliance considerations



FINRA Rule 5123 Test

Offering Name: _____________________________________________________________________

FINRA Rule 5123 Test Each member that sells a security in a non‐public offering in reliance on an available exemption from registration under the Securities Act (“private placement”) must:

(i) submit to FINRA, or have submitted on its behalf by a designated member, a copy of any private placement memorandum, term sheet or other offering document, including any materially amended versions thereof, used in connection with such sale within 15 calendar days of the date of first sale; or

(ii) indicate to FINRA that no such offering documents were used.

Exemptions ‐ The following private placements are exempt from the requirements of this Rule:

1. offerings sold by the member or person associated with the member solely to any one or more of the following:

a. institutional accounts, as defined in Rule 4512(c); b. qualified purchasers, as defined in Section 2(a)(51)(A) of the Investment Company

Act; c. qualified institutional buyers, as defined in Securities Act Rule 144A; d. investment companies, as defined in Section 3 of the Investment Company Act; e. an entity composed exclusively of qualified institutional buyers, as defined in

Securities Act Rule 144A; f. banks, as defined in Section 3(a)(2) of the Securities Act; g. employees and affiliates, as defined in Rule 5121, of the issuer; h. knowledgeable employees as defined in Investment Company Act Rule 3c‐5; i. eligible contract participants, as defined in Section 3(a)(65) of the Exchange Act; and j. accredited investors described in Securities Act Rule 501(a)(1), (2), (3) or (7). **

2. offerings of exempted securities, as defined in Section 3(a)(12) of the Exchange Act;

3. offerings made pursuant to Securities Act Rule 144A or SEC Regulation S; 4. offerings of exempt securities with short term maturities under Section 3(a)(3) of the Securities


Act and debt securities sold by members pursuant to Section 4(2) of the Securities Act so long as the maturity does not exceed 397 days and the securities are issued in minimum denominations of $150,000 (or the equivalent thereof in another currency);

5. offerings of subordinated loans under SEA Rule 15c3‐1, Appendix D (see NASD Notice to

Members 02‐32 (June 2002));

6. offerings of “variable contracts,” as defined in Rule 2320(b)(2);

7. offerings of modified guaranteed annuity contracts and modified guaranteed life insurance policies, as referenced in Rule 5110(b)(8)(E);

8. offerings of non‐convertible debt or preferred securities that meet the transaction eligibility

criteria for registering primary offerings of non‐convertible securities on Forms S‐3 and F‐3; 9. offerings of securities issued in conversions, stock splits and restructuring transactions that are

executed by an already existing investor without the need for additional consideration or investments on the part of the investor;

10. offerings of securities of a commodity pool operated by a commodity pool operator, as defined

under Section 1a(11) of the Commodity Exchange Act; 11. business combination transactions as defined in Securities Act Rule 165(f); 12. offerings of registered investment companies; 13. standardized options, as defined in Securities Act Rule 238; and 14. offerings filed with FINRA under Rules 2310, 5110, 5121 and 5122, or exempt from filing

thereunder in accordance with Rule 5110(b)(7).


Who is the investor? What type of entity is making the investment? Does the investor fall under one of the exemptions listed above? Yes No Which exemption? If No, then complete the following: Date of subscription? Date PPM or Offering Documents Filed with FINRA


Signature: ___________________________ Donna DiMaria ‐ Chief Compliance Officer, Tessera Capital Partners

Date:


Definitions Used Accredited Investor: ((1) Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self‐directed plan, with investment decisions made solely by persons that are accredited investors; (2) Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940; (3) Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000; (7) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in § 230.506(b)(2)(ii); and

**Please note that the definition of an accredited investor for the Purpose of Rule 5123 does not include the exemptions for every type of accredited investors.

Institutional Account

(1) a bank, savings and loan association, insurance company or registered investment company;

(2) an investment adviser registered either with the SEC under Section 203 of the Investment Advisers Act or with a state securities commission (or any agency or office performing like functions); or

(3) any other person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million.


Qualified Institutional Buyer:

(1) Any of the following entities, acting for its own account or the accounts of other qualified institutional buyers, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity:

a. Any insurance company as defined in section 2(a)(13) of the Act;

b. Any investment company registered under the Investment Company Act or any business development company as defined in section 2(a)(48) of that Act;

c. Any Small Business Investment Company licensed by the U.S. Small Business

Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; d. Any plan established and maintained by a state, its political subdivisions, or any agency

or instrumentality of a state or its political subdivisions, for the benefit of its employees; e. Any employee benefit plan within the meaning of title I of the Employee Retirement

Income Security Act of 1974; f. Any trust fund whose trustee is a bank or trust company and whose participants are

exclusively plans of the types identified in paragraph (a)(1)(i) (D) or (E) of this section, except trust funds that include as participants individual retirement accounts or H.R. 10 plans.

g. Any business development company as defined in section 202(a)(22) of the Investment

Advisers Act of 1940; h. Any organization described in section 501(c)(3) of the Internal Revenue Code,

corporation (other than a bank as defined in section 3(a)(2) of the Act or a savings and loan association or other institution referenced in section 3(a)(5)(A) of the Act or a foreign bank or savings and loan association or equivalent institution), partnership, or Massachusetts or similar business trust; and

(2) Any investment adviser registered under the Investment Advisers Act.

(3) Any dealer registered pursuant to section 15 of the Exchange Act, acting for its own account or the accounts of other qualified institutional buyers, that in the aggregate owns and invests on a discretionary basis at least $10 million of securities of issuers that are not affiliated with the dealer, Provided, That securities constituting the whole or a part of an unsold allotment to or subscription by a dealer as a participant in a public offering shall not be deemed to be owned by such dealer;

(4) Any dealer registered pursuant to section 15 of the Exchange Act acting in a riskless principal

transaction on behalf of a qualified institutional buyer;


Qualified purchaser:

(1) Individuals who own $5 million in investments, which include securities, financial contracts entered into for investment purposes, cash, cash equivalents held for investment purposes, real estate held for investment purposes, CDs, bankers acceptances and other similar bank instruments held for investment purposes. Investments do not include real estate held for personal purposes, jewelry, art, antiques, and other collectibles. Debt used to acquire the investments is excluded from the value of the investments;

(2) Institutional investors who own $25 million in investments;

(3) A family owned company that owns $5 million in investments;

(4) For trusts with less than $25 million, a trust where the trustee and each person who contributes assets to the trust is a Qualified Purchaser;

(5) A "Qualified Institutional Buyer" under Rule 144A of the 33 Act, except that "dealers" under Rule

144 must meet the $25 million standard of the 1940 Act, rather than the $10 million standard of Rule 144A. Rule 144A generally defines a "Qualified Institutional Buyer" as institutions, including registered Investment Companies, that own and invest on a discretionary basis $100 million of securities that are affiliated with the institution, banks that own and invest on a discretionary basis $100 million in QIB securities and have an audited net worth of $25 million, and certain registered dealers;

(6) A company owned beneficially only by Qualified Purchasers; however, a company will not be

deemed to be a qualified purchaser if it was formed for the specific purposes of acquiring the securities offered by a 3(c)(7) fund.

Tessera Capital Partners, LLC As of: 10/4/2016Third Party Service Providers

Name of Provider Services Provided

Frequency of Service / Type of

Contract

Agreement on file Date Contracted Expiration Auto Renewel

Provider Background and Experience Reviewed By:

Annual Due Diligence Review Privacy Policy NDA on File

Social Media Review OFAC Check 1099/W9

bookkeeping on‐going No 4/1/2016 upon notification

no 3/1/2016 no yes 3/15/2016 LinkedIn and facebook

3/15/2016 pending W9

401 K and Profit Sharing Plan

Annual Yes 9/20/2011 upon notification

yes No ‐ Initial only No ongoing

1/28/2016 No 1/27/2016 LinkedIn and Facebook

1/27/2016 NA

Background Checks

On‐going Yes 11/7/2013 upon notification No notice needed

yes No 1/28/2016 No 1/27/2016 LinkedIn and Facebook

1/27/2016 NA

Technology Support

As needed / Engagement Letter

Yes 5/14/2010 upon 2 weeks notification

yes 2/11/2016 2/10/2016 Yes 2/11/2016 LinkedIn and Facebook

2/1/2016 yes

Health Care/Dental

Annual Yes 10/4/2010 ‐ Start Date 11/1/2010

Renews unless cancelled


1/27/2016 no

database Annual Yes 12/1/2015 11/30/2016 no No 1/28/2016 No 1/27/2016 LinkedIn and Facebook

1/27/2016 yes

ERISA bond Annual current bond policy

10/1/2014 Renews unless cancelled

yes No 2/4/2016 No 1/27/2016 Linked In and Facebook

1/27/2016 no

Securities Dealers Bond

Annual current bond policy

11/1/2015 11/1/2016 yes No 2/4/2016 No 1/27/2016 Linked In and Facebook

1/27/2016 no

Email Back‐up and Review

3 year term Yes 8/3/2012 ‐ for 3 year term

Auto renewel 1 year at a time. 90 days notice to cancel


1/27/2016 no

Manager Database Analysis

Annual Engagement Renews automatically

Yes 12/1/2014 11/30/2016 no No 1/28/2016 No 1/28/2016 LinkedIn and Facebook

1/25/2016 no

Email Hosting Monthly Yes 11/17/2010 Monthly ‐ renews unless cancelled


1/28/2016 no

Accounting Software

monthly subscription fee renews automaticlly unless cancelled

Yes 1/8/2013 Renews unless cancelled


1/28/2016 no

FINOP Engagement 30 Days

Yes 11/1/2007 ‐ FINOP Engagement ‐ 4/23/2008 ‐ Services Start 5/1/2008

30 days notice yes 2/11/2016 2/3/2016 Yes 2/11/2016 LinkedIn and Facebook

2/11/2016 no

Onsite Review AML testing

Engagement No Upon completion of services

no 2/1/2016 2/10/2016 Yes 2/11/2016 LinkedIn and Facebook

2/1/2016 no

Phishing test and training

annual No 9/2