SEC revises registration exemptions for non-US advisers

Non-US private advisers may lose their exemption from registering with the Securities and Exchange Commission (SEC) under Dodd-Frank rules.

As the Dodd-Frank Act takes effect in the US, the SEC is proposing to tighten requirements of private advisers with business linked to the region.

Non-US private advisers with fewer than 15 clients previously enjoyed an exemption from registering with the SEC under the US Investment Advisers Act of 1940.

Under new suggested rules, private advisers are only likely to maintain both registration and reporting exemptions if they have no business based in the US, fewer than 15 US advisory clients and investors and less than $25 in AUM invested in private funds.

If the new proposals go ahead, advisers caught by the new rules will need to register with SEC by 21 July 2011. Initial reports will also have to be filed by 20 August 2011.

The revision was made as regulators judged the previous exemption was too broad.

Advisers with a US office where they regularly offer services will only be exempt from registration if clients are private funds with less than £150mn in AUM.

Advisers to funds other than private funds in the US have to register, while those with over $150mn in AUM have to both register and meet reporting requirements.

Private fund advisers who meet the exemptions meanwhile will still have to fulfill some filing duties with the SEC.

They will need to provide:

  • Basic identifying information about the adviser;
  • The identity of direct and indirect owners and its control persons;
  • Financial industry affiliations;
  • Other business activities in which the adviser and its affiliates engage;
  • Disciplinary history of the adviser and its employees that may reflect on their integrity.

Private banking and institutional support firm SEI said it is not yet clear whether non-US advisers under the Private Fund Adviser exemption will need to file information about use of leverage, investment positions, side letters, and counterparty credit risk exposure.

SEI also warned advisory firms they will have to take a number of steps in advance of meeting the new regulatory rules.

Organisations will have to:

  • Hire a chief compliance officer;
  • Adopt and implement written compliance policies and procedures designed to avoid violating the Advisers Act;
  • Prepare and file Form ADV Part I with the SEC to register;
  • Give clients and prospective clients Form ADV Part II;
  • Adopt a Code of Ethics outlining the standard of business conduct expected of advisers and those involved in personal securities-trading and insider-trading;
  • Maintain certain books and records.


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