The Bright Alternative
Dodd Frank update

comment - 18 June 2015

Dodd Frank update

Since 31 March 2012 certain non-US investment advisers have had to register as exempt reporting advisers (ERA) with the Securities and Exchange Commission (the SEC) by completing part 1 of the Form ADV and updating details at least annually.
On 20 May the SEC proposed amendments to Form ADV.

In summary, the changes are being proposed for the purpose of:

+ filling certain data gaps and enhance current reporting requirements in respect of ‘separately managed accounts’, including pension plans, endowments, foundations, other institutional clients and retail clients. Advisers will be required to provide information on regulatory assets under management, investments and use of derivatives and borrowings. This aspect of the proposal, which will be analysed under a separate posting, closely mirrors similar requirements under existing Form PF. The SEC has also proposed changes that would require advisers to provide information about the use of social media and whether the adviser has offices other than its principal office;

+ incorporating a single ‘umbrella registration’ for private fund advisers that use multiple legal entities instead of a single advisory business. These changes are intended to make the availability of umbrella registration more widely known to advisers. Additionally, the SEC intends for the changes to provide for uniform filing requirements, more consistent data and greater comparability across private fund advisers; and

+ tidying the form and instructions with the ultimate goal of making Form ADV easier to understand and complete.

In addition to the Form ADV changes, the SEC has also proposed several amendments to rules that it promulgated under the Investment Advisers Act of 1940 (the Advisers Act). In particular, the SEC has proposed changes to paragraphs 2(a)(16) and 2(a)(7) of Advisers Act Rule 204-2 (the ‘books and records rule’) that would require advisers to maintain additional materials related to the calculation and distribution of performance information. The following is a summary of these proposed rule changes:

+ Rule 204-2(a)(16) currently requires advisers to maintain records supporting performance claims in communications that are distributed or calculated to ten or more persons. The proposed changes to paragraph 2(a)(16) would remove the ten or more persons condition and require advisers to maintain the materials that demonstrate the calculation of the performance or rate of return in any communication to any person (i.e. regardless of whether it is sent to ten or more persons or a single person).

+ Rule 204-2(a)(7) currently requires advisers to maintain certain categories of written communications received and copies of written communications sent by it. The proposed changes would clarify that this recordkeeping requirement applies to that relate to the performance or rate of return of any or all managed accounts or securities recommendations.

If you have any concerns about Dodd Frank, please contact me for futher information.


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