On January 18, the SEC Division of Investment Management issued a No-Action Letter in response to a request from the American Bar Association Subcommittee on Hedge Funds, exempting from registration under the Investment Advisers Act of 1940 certain control affiliates of SEC registered advisers, subject to the fulfillment of certain conditions. The No-Action Letter also confirms prior SEC staff guidance from 2005, which provides a registration exemption to special purpose vehicles created by registered advisers. SEC No-Action Letter.
Asset Management
FINRA Rule Amendment on Protection of Documents from Discovery
On November 2, the SEC approved an amendment to FINRA Rule 9251 that explicitly protects from discovery during FINRA proceedings those documents that federal law prohibits FINRA from disclosing. The amended rule text will be effective December 2. FINRA Notice and Amended Rule.
CFTC Adoption of Final Form PF
On October 31, pursuant to Sections 404 and 406 of the Dodd-Frank Act, the CFTC adopted a new rule requiring certain advisers to private funds that are dually registered with the CFTC and the SEC to report information to the SEC on a new Form PF for use by the Financial Stability Oversight Council to monitor risks to the U.S. financial system. The SEC approved the joint rule on October 26. Most private fund advisers will be required to begin filing Form PF following the end of their first fiscal year or fiscal quarter ending on or after December 15, 2012, depending upon the type and amount of AUM. However, certain large reporting advisers will be required to file Form PF following their first fiscal year or fiscal quarter after December 15, 2012. CFTC Release. Final Rule. Form PF.
SEC Orders FINRA to Improve Internal Compliance Policies and Procedures
On October 27, the SEC ordered FINRA to hire an independent consultant and undertake other remedial measures to improve its policies, procedures, and training for producing documents during SEC inspections. The order was made in connection with alleged violations of Section 17(a) of the Exchange Act and Rule 17a-1, namely the alteration of certain records prior to submission to SEC inspection staff. SEC Release. SEC Order.
SEC Adoption of Final Form PF
On October 26, pursuant to Sections 404 and 406 of the Dodd-Frank Act, the SEC adopted a new rule requiring certain advisers to private funds to report information on a new Form PF for use by the Financial Stability Oversight Council to monitor risks to the U.S. financial system. Most private fund advisers will be required to begin filing Form PF following the end of their first fiscal year or fiscal quarter, depending upon type of and amount of AUM, to end on or after December 15, 2012. However, the following advisers must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after June 15, 2012: (i) advisers with at least $5 billion in AUM attributable to hedge funds; (ii) liquidity fund advisers with at least $5 billion in combined AUM attributable to liquidity funds and registered money market funds; and (iii) advisers with at least $5 billion in AUM attributable to private equity funds. Advisers to private funds with less than $150 million of AUM will not be required to file Form PF. SEC Release.
FINRA to Require Electronic Submission of Annual Audit Reports
On October 30, FINRA announced the revision of the process by which member firms submit annual audited financial statements pursuant to Rule 17a-5(d) under the Exchange Act. Member firms, for which FINRA is the designated examining authority, will be required, pursuant to NASD Rule 3170, to submit their annual audit reports in electronic form. The new requirements will be effective November 8 and will be applicable to annual audit reports with a fiscal year end on or after September 30. FINRA Notice.
SEC Custody Rule No-Action Letter
On July 21, the SEC provided no-action relief under Section 206(4) of the Investment Advisers Act of 1940 to investment advisers that for purposes of compliance with Rule 206(4)-2 (the “Custody Rule”), engage auditors for broker-dealers to: (i) perform surprise examinations required by the Custody Rule; (ii) prepare internal control reports; or (iii) audit the financial statements of a pooled investment vehicle. This no-action relief will expire upon the earlier of the approval of a permanent Public Company Accounting Oversight Board inspection program for broker-dealer auditors or December 13, 2013. SEC No-Action Letter.
FSA Report on Hedge Fund Systemic Risk
On July 27, the FSA published a report assessing possible sources of systemic risk from hedge funds. The report finds that hedge funds currently pose only a limited risk to the financial stability of the UK. FSA Report.
FSA Platform Regulation Rules
On August 1, the FSA published new rules concerning the regulation of platforms in order to expand the consumer protection elements of the Retail Distribution Review. The rules are designed to: (i) ensure that customers receive better service and (ii) enable greater transparency and efficiency in the market. FSA Release.
California Extension of Private Adviser Exemption From State Registration
On July 7, the State of California Department of Corporations issued an emergency regulatory action amending Section 206.204.9 of the California Code of Regulations to extend the exemption from adviser licensing requirements under Section 25230(a) of the California Corporate Securities Law of 1968. This exemption was available to advisers that were able to rely on Section 203(b)(3) of the Investment Advisers Act of 1940 (the “Private Adviser Exemption”). With the repeal of the Private Adviser Exemption by the Dodd-Frank Act on July 21, the action amends Section 206.204.9 by replacing references to Section 203(b)(3) with the substantive conditions of the Private Adviser Exemption. The action is effective as of July 21 and will expire on January 17, 2012. Emergency Regulatory Action.