Exempt Reporting Adviser Registration – Part II

[Continued from Exempt Reporting Adviser Registration – Part I]

Requirements for Exempt Reporting Advisers:

Exempt Reporting Advisers (“ERAs“) must submit to the SEC, and periodically update, a truncated version of the Form ADV.  More specifically, ERAs must complete the following items of Part 1A of Form ADV:

  • Item 1. – Identifying Information (g., ownership, description of advisory business, and fees charged);
  • Item 2. B and C – SEC and State Reporting by Exempt Reporting Advisers;
  • Item 3. – Form of Organization;
  • Item 6. – Other Business Activities;
  • Item 7. – Financial Industry Affiliations and Private Fund Reporting;
  • Item 10. – Control Persons;
  • Item 11. – Disclosure Information (g., disciplinary history); and,
  • Schedules A, B, C, and D with respect to any corresponding answers to the above items.

However, ERAs need not prepare a Form ADV Part 2A firm brochure.  Additionally, states may require notice filings and fees for ERAs depending on the firm’s nexus with that state.

Ongoing Requirements

Updates to Form ADV Part 1:

ERAs are required to update their Form ADV Part 1 at least annually within 90 days of the end of the adviser’s fiscal year, and more frequently for material developments as required by the instructions to Form ADV.

Policies Regarding Material Nonpublic Information (“MNPI”):

Section 204A of the Advisers Act includes a general requirement that all advisers subject to Section 204 (which does include ERAs):

“…establish, maintain and enforce written policies and procedures reasonably designed, taking into consideration the nature of such investment adviser’s business, to prevent the misuse in violation of [the Advisers] Act or the Securities Exchange Act of 1934, or the rules or regulations thereunder, of material, nonpublic information by such investment adviser or any person associated with such investment adviser.”

ERAs should consider the nature of their business and establish appropriate written policies designed to prevent the misuse of MNPI.

Other Requirements:

In addition to compliance requirements that apply to advisers regardless of their registration status, including the Advisers Act’s anti-fraud provisions, ERAs must also comply with the Advisers Act’s “pay to play” rule and may be subject to SEC “for cause” examinations when the Commission believes there have been indications of wrongdoing (e.g., examinations prompted by tips, complaints, and referrals).  That said, the SEC does not currently anticipate that it will conduct routine examinations of ERAs, although it has the authority to do so.

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