Gaps in Regulatory Landscape Filled’ As SEC Imposes Mandatory Registration for Investment Advisers

Jack Humphrey, Regulatory journalist
June 27, 2011 /

Investment advisers for hedge funds and other private funds are now required to register with the Securities and Exchange Commission (SEC) as the securities regulator adopted rules implementing the core provisions of the Dodd-Frank Act.

“These rules will fill a key gap in the regulatory landscape. In particular, our proposal will give the Commission, and the public, insight into hedge fund and other private fund managers who previously conducted their work under the radar and outside the vision of regulators,” SEC Chairman Mary Schapiro said in a statement.

The rules further establish new exemptions from SEC registration and reporting requirements for certain investment advisers, and reallocate regulatory responsibility for advisers between the SEC and states.

Investment advisers must also expand their disclosures about the private funds they manage, and revise the SEC’s pay-to-play rule.

The rules enforce a “transitional exemption period” to extend the registration period for private advisers, including hedge fund and private equity fund advisers,until March 30, 2012.

The rules regarding exemptions for venture capital fund and certain private fund advisers are effective July 21, 2011.

The SEC noted that investment advisers managing hedge funds and private equity funds were subject to little regulatory measures before the passage of the Dodd-Frank Act.

But Title IV of the Dodd-Frank Act eliminated this exemption, resulting in many previously unregistered investment advisers to be forced to register with the SEC and be subject to its regulatory oversight, rules and examination.

“With the Dodd-Frank Act, Congress closed this regulatory gap by generally extending the registration requirements under the Investment Advisers Act to the advisers of these funds,” the SEC said in a press release.

“The new law also provided the Commission with the ability to require the limited number of advisers to private funds that will not have to register to file reports about their business activities.”

Under the amended adviser registration form, advisers to private funds will have to provide basic information about each fund they manage, such as the type of private fund that it is, general information about the size and ownership of the fund, general fund data, and the adviser’s services to the fund.

Investment advisers will also be required to furnish the identity of five categories of “gatekeepers” that perform critical roles for advisers and the private funds they manage such as the auditors, prime brokers, custodians, administrators and marketers.

“These reporting requirements are designed to help identify practices that may harm investors, deter advisers’ fraud, and facilitate earlier discovery of potential misconduct. And this information will provide for the first time a census of this important area of the asset management industry,” the SEC pointed out.

Amendments to the adviser registration form also include the requirement for all registered advisers to provide more information about their advisory business like the types of clients they advise, their employees, and their advisory activities, and their business practices that may present significant conflicts of interest.


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