Covered Clearing Agencies – SEC Adopts Rule Amendments and New Rule to Improve Risk Management and Resilience of Covered Clearing Agencies

The SEC adopted rule amendments and a new rule to “improve the resilience and recovery and wind-down planning of covered clearing agencies. The rule amendments establish new requirements regarding a covered clearing agency’s collection of intraday margin as well as a covered clearing agency’s reliance on substantive inputs to its risk-based margin model. The new rule prescribes requirements for the contents of a covered clearing agency’s recovery and wind-down plan.”

Regarding intraday margin collection, the rule amendments require that a covered clearing agency that provides central counterparty services has policies and procedures to establish a risk-based margin system that monitors intraday exposures on an ongoing basis, includes the authority and operational capacity to make intraday margin calls as frequently as circumstances warrant (including when risk thresholds specified by the covered clearing agency are breached or when the products cleared or markets served display elevated volatility), and documents when the covered clearing agency determines not to make an intraday call pursuant to its written policies and procedures.

The rule amendments regarding substantive inputs require that a covered clearing agency that provides central counterparty services has policies and procedures to establish a risk-based margin system that uses reliable sources of substantive inputs, uses procedures to address circumstances in which substantive inputs are not readily available or reliable (to ensure that the covered clearing agency can continue to meet its credit exposures to its participants), and that such procedures must include either the use of price data or substantive inputs from an alternate source or a risk-based margin system that does not rely on substantive inputs that are unavailable or unreliable.

Existing rules require a covered clearing agency to have a recovery and wind-down plan, and the new rule requires such an entity to specify nine elements for its plan. The new rule’s required elements address: planning (e.g., the identification and use of scenarios, triggers, tools, staffing, and service providers); timing and implementation of the plans; and testing and board approval of the plans.

The SEC is adopting two compliance dates:

• 150 days after publication in the Federal Register for a covered clearing agency to file any required proposed rule changes or advance notices with the agency; and
• 390 days after publication in the Federal Register for such proposed rule changes and advance notices to be effective.

Inflation – New Edition of Inflation Rates for Judging Whether an Economy Is Highly Inflationary Memo Published

We have published a new edition of our Interpretation, Inflation Rates for Judging Whether an Economy Is Highly Inflationary-September 2024. This new edition has been issued and reflects the latest available inflation rate information.

The following change was made to the classification of countries under this Interpretation from the previous Interpretation dated June 30, 2024:

• Malawi has been moved to the list of countries have highly inflationary economies from the list of countries that may have highly inflationary economies.

Crypto and Digital Assets – SEC Commissioner Uyeda Discusses Crypto and Digital Assets

SEC Commissioner Mark T. Uyeda recently discussed developments in crypto and digital asset innovation. Commissioner Uyeda indicated that in his view “the SEC could do much more in addressing the key gating question of whether a crypto asset is a security. Market participants have been forced to struggle with this analysis and decipher SEC views from various settled enforcement actions and litigation in the courts.” Highlights of Commissioner Uyeda’s comments on crypto and digital assets included that the SEC:

• Does not have a specific form for crypto and thus issuers would seek to register their crypto offerings on Form S-1. Form S-1 is a form of general applicability. As such, it may require information that is not relevant or applicable to crypto, while at the same time, it may not require information that would be material to crypto investors. This approach neither protects investors nor facilitates capital formation.
• Should engage with participants in a more transparent way. Commissioner Uyeda understands that many other securities regulators around the world have taken this approach, such as hosting regular fintech events, providing regulatory sandboxes, or otherwise publicly engaging with the industry and investors. There can be benefits from this approach and Uyeda thinks the SEC should learn from its fellow regulators’ experiences.

Commissioner Uyeda cautioned that the SEC “cannot bury our heads in the sand about the growing benefits and risks of crypto and financial technology. Other regulators around the world are leading on these issues. I hope the United States takes note of this leadership and uses this experience to jumpstart our own regulatory framework as we work to facilitate innovation, capital formation, and investor protection.”

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AUDITING AND INTERNAL CONTROLS HEADLINES

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Not-for-Profit Entities – 2024-2025 Edition of Knowledge-Based Preparation, Compilation, and Review Engagements of Not-for-Profit Entities Published

We have published the 2024-2025 edition of Knowledge-Based Preparation, Compilation, and Review Engagements of Not-for-Profit Entities. This publication examines the AICPA’s review, compilation, and preparation engagement standards and shows you how to conduct engagements in an efficient and effective manner.

This publication incorporates the provisions of SSARS No. 26, Quality Management for an Engagement Conducted in Accordance With Statements on Standards for Accounting and Review Services. SSARS 26 is effective for engagements performed in accordance with SSARSs for periods ending on or after December 15, 2025. Early implementation is recommended.

Real Estate Entities – 2024-2025 Edition of Knowledge-Based Preparation, Compilation, and Review Engagements of Real Estate Entities Published

We have published the 2024-2025 edition of Knowledge-Based Preparation, Compilation, and Review Engagements of Real Estate Entities. This publication examines the AICPA’s review, compilation, and preparation engagement standards and shows you how to conduct engagements in an efficient and effective manner.

This publication incorporates the provisions of SSARS No. 26, Quality Management for an Engagement Conducted in Accordance With Statements on Standards for Accounting and Review Services. SSARS 26 is effective for engagements performed in accordance with SSARSs for periods ending on or after December 15, 2025. Early implementation is recommended.

ARM Engagement Standards – New Edition of ARM Engagement Standards - Attestation and Nontraditional Engagements – AICPA Published

We have published a new edition of ARM Engagement Standards - Attestation and Nontraditional Engagements - AICPA. This resource tool helps a user quickly locate guidance and resolve practice issues relating to audit engagements conducted in accordance with U.S. professional standards promulgated by the AICPA. The "Attestation and Nontraditional Engagements-AICPA" section of Engagement Standards has been updated for coverage/discussion of AICPA Statements on Standards for Attestation Engagements and incorporates the requirements of SSAEs issued through SSAE 22. The provisions SSAE-23 and related amendments have not been incorporated into this edition, but will be incorporated into a future edition.