Dodd-Frank - SEC Investment Adviser Registration, Exemptions and Reporting - October 2011

Download our latest regulatory brief which focuses on SEC Investment Adviser Registration, Exemptions and Reporting under The Dodd-Frank Wall Street Reform and Consumer Protection Act ("the Act").


The Dodd-Frank Act was signed by President Obama on 21 July 2010.  Asset managers that have US clients or US investors in the funds they manage may be required to register as investment advisors with the US Securities and Exchange Commission (SEC) due to changes brought about by this Act.  Further, those advisors with a place of business in the US, from which investment decisions are made, may also be required to register.  The Act is likely to have a significant impact on asset managers around the world that were formerly exempt from registration.

This Act eliminated the existing ''private investment advisor'' exemption, whereby advisors to private funds were not required to register with the SEC if they had fewer than 15 clients (e.g. institutional funds).  In eliminating this exemption, Congress intended for previously excluded advisers to register, including advisers to hedge funds, private equity funds, and other types of pooled investment vehicles that are excluded under the definition of ''investment company'' under the Investment Company Act of 1940, based on certain provisions.  

Additionally, recent rule making created a new form of registration, the Exempt Reporting Adviser, which requires even more advisers to file a limited registration statement but still follow certain SEC rules. Recent investigations by the SEC indicate its keen interest in the activities of non-US advisors and an ability to coordinate efforts with other regulators.

Global Cooperation and increased focus

Over 50 jurisdictions around the world signed the International Organization of Securities Commissions’ Multilateral Memorandum of Understanding (MMOU).  According to the SEC, the MMOU has enhanced the SEC’s enforcement program by increasing and expediting its ability to obtain information (i.e. bank accounts and brokerage statements) from a growing number of jurisdictions worldwide.  Furthermore, the SEC has expressed its desire to continue cooperation with non-US regulators in performing cooperative examinations, and has increased its coordination with global regulators, particularly in the UK, the EU and Asia. The SEC is casting a critical eye on asset management and has, accordingly, established separate specialised units devoted to both examination and enforcement of asset managers. In order to staff this initiative, the SEC’s exam program and enforcement divisions recently hired investigators with industry expertise and are looking to increase the sophistication of their examiners.  

Registration requirements at a glance

What it means to be an SEC adviser?

Additional compliance requirements of a fully registered adviser include, but are not limited to the designation of a Chief Compliance Officer, implementation of robust compliance policies and procedures, development and performance of an annual review, maintenance of specific books and records and proper governance, training, and oversight.

Risk of non-compliance and SEC's enforcement capabilities:

  • Monetary penalties
  • Imprisonment
  • Disclosure of SEC actions on all marketing material for up to 10 years
  • Restrictions or prohibitions from US markets
  • Restrictions or prohibitions on US investors/clients

What should you do now?

Although the exemptions to registration for certain advisers have been greatly limited by this new legislation, a current state analysis would provide insight into an organisations position with regard to the requirements under Dodd-Frank.  Accordingly, some of the highlights of such an exercise would be:

  • Analysis of current legal and operational structure
  • Analysis of US clients
  • Review of AuM by client and location
  • Review of high-level gaps between current state and planned future state based on findings

Services offered
PwC is positioned to be your trusted advisor in compliance matters and bring a coordinated team from across service lines and locations to assist you in establishing a strong and up-to-date compliance program.  We offer assistance in assessing your firm-wide compliance risks, reviewing compliance policies and procedures, designing and implementing book-and-records readiness programs, migration from an unregistered operating environment to a registered operating environment, firm-wide and/or senior management training and workshops as well as analysis of existing policies and procedures to identify current regulatory gaps and preparation for a SEC examination. Chris Stuart has recently returned from a placement with the US firm of PwC in their Asset Management Regulatory Practice, working on such projects assisting Asset Management clients that are grappling with the impact of Dodd-Frank.

As always, we are more than happy to talk with you about any aspect of Dodd-Frank and how we can support you. Please contact a member of the Dodd-Frank team whose details are alongside or your usual PwC contact.

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