6/30/2011 Investment Adviser Workshop 0 Navigating the Dodd-Frank Act’s New Regulatory Requirements for Investment Advisers Presented by Presented by Texas State Securities Board Benette L. Zivley, Securities Commissioner Patricia A. Loutherback, Director of Registration Workshop Topics 1 � What Dodd-Frank Means for Investment Advisers � IA Regulation in Texas � What to Expect from State IA Inspections Texas State Securities Board 1
6/30/2011 DISCLAIMER 2 This seminar and the accompanying materials are presented as an educational experience, covering some of the changes mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. You may be subject to all relevant laws, regulations, rules and y j , g , orders whether or not they are included in this presentation. The views expressed are those of the presenter, and the Texas State Securities Board reserves the right to change its position. Presenters believe all information is truthful and accurate; however, mistakes can occur. Texas State Securities Board About Us Our primary goal is to protect investors 3 � The Texas State Securities Board (TSSB) regulates: � Investment Advisers & Investment Adviser Representatives � Broker-Dealers & their Agents � Other responsibilities of the TSSB: � Enforcement of the Texas Securities Act E f t f th T S iti A t � Inspections � Securities Registration � Investor Education Texas State Securities Board 2
6/30/2011 What Dodd-Frank Means For IAs 4 Under the Dodd-Frank Wall Street Reform and Consumer Protection Act , state securities regulators will have greater responsibility for the regulation of investment advisers, by restoration of authority over certain investment advisers. Texas State Securities Board What Dodd-Frank Means For IAs 5 � Dodd-Frank establishes a threshold of $100 million assets under management (AUM) for federally covered advisers. � Law takes effect July 21, 2011 . � Approximately 4,000 advisers nationwide will be affected, including about 1200 who will be seeking registration in Texas. � Eliminates the private adviser exemption. Texas State Securities Board 3
6/30/2011 What Dodd-Frank Means For IAs 6 � Private Fund Investment Advisers Registration Act of 2010 (Title 4 of Dodd-Frank) – Significant reforms to the regulation of advisers to hedge funds and other private funds, including, but not limited to: � Eliminating the private adviser exemption at 203 (b) (3) � Requiring SEC registration for advisers to “private funds” with AUM of at least $150 million AUM of at least $150 million � Requiring SEC reporting for advisers to “private funds” with AUM of less than $150 million and for advisers to “venture capital funds” Insert Agency Name Here What Dodd-Frank Means For IAs 7 PRIVATE FUND DEFINITION � Private fund – An issuer that would be an investment company under the Investment Company Act, but for the exceptions contained in 3(c)(1) or 3(c)(7) of that Act. Insert Agency Name Here 4
6/30/2011 What Dodd-Frank Means For IAs 8 � 3(c)(1) � 3(c)(1) � securities are not publicly offered and are owned by not more than 100 persons � Interests typically offered pursuant to Reg D, Rule 506. � accredited investors � 3(c)(7) � Securities are not publicly offered and generally not owned by more than 499 persons � Investors must be qualified purchasers (individuals with investments of $5,000,000/institutions with $25,000,000 of investments) Insert Agency Name Here What Dodd-Frank Means For IAs 9 Advisers to Private Funds: Registration and Reporting Requirements g p g q � Advisers solely to private funds with AUM of less than $150 million � Exempt from registration with the SEC � Reporting requirement with SEC � No state preemption, subject to national de minimis � Advisers solely to private funds with AUM of $150 million or more � Advisers solely to private funds with AUM of $150 million or more � Register with the SEC � States are preempted – Notice Filing Requirement Insert Agency Name Here 5
6/30/2011 What Dodd-Frank Means For IAs 10 � In Texas, all advisers with $100 million or less under management will b be required to register with the state unless : i d t i t ith th t t l � They fall between $25 million and $100 million and are required to be registered in 15 or more states, or � The investment adviser qualifies for an exemption under Rule 203A-2 of the Investment Advisers Act of 1940 (i.e, an investment adviser is a pension consultant), or � Qualifies for another exemption under Texas Rule 109.6 Texas State Securities Board What Dodd-Frank Means For IAs 11 � Firms required to register with the TSSB: � Firms with AUM of $25 million or less ( through July 21, 2011 ) � Buffer between $25M & $30M – State or Federal � Firms with AUM of $100 million or less ( after July 21, 2011 ) � Firms with AUM of $25 million to $100 million may register with the TSSB prior to July 21 2011 but must also remain registered with the TSSB prior to July 21, 2011, but must also remain registered with the SEC until July 21, 2011. Texas State Securities Board 6
6/30/2011 What Dodd-Frank Means For IAs 12 Proposed Transition Schedule � Proposed New Rule 203A-5 of the Investment Advisors Act of 1940: Confirming SEC eligibility. Each IA registered with SEC on July 21, 2011 will file an amendment to ADV by August 20, 2011 to report AUM determined within 30 days of amendment filing. Terminating SEC registration. IAs no longer eligible for SEC registration must file ADV-W by October 19, 2011. must file ADV W by October 19 2011 Texas State Securities Board What Dodd-Frank Means For IAs 13 About State Regulation: � States are preparing to handle the switch. State securities regulators are working to ensure a seamless, comprehensive and effective switching process. � Switching is not new. Regulatory switches regularly happen when the asset levels of IA firms rise above or fall below mandated thresholds. � States conduct a thorough review of adviser applications. State reviews will not change with the migration of IAs with up to $100 million in assets under management. Texas State Securities Board 7
6/30/2011 What Dodd-Frank Means For IAs 14 About State Regulation: � Firms switching to state regulation for the first time can expect thorough inspections generally on a more frequent basis than they may have experienced before. � The goal of our inspections is to ensure compliance with the Texas Securities Act and regulations. Texas State Securities Board IA Regulation 15 Registration & Form ADV Texas State Securities Board 8
6/30/2011 IA Regulation: The Registration Process 16 You now have two choices regarding the timing of your registration. i t ti � Move forward with dual registration with the SEC and your state securities regulator between now and July 21, 2011 (proposed extension: August 20, 2011). � Submit documents for review to your state but request to remain in a pending status. If all conditions of registration have been met by g y p g October 19, 2011, your application for registration will be approved. Texas State Securities Board IA Regulation: Registration | Form ADV Part 1 17 � Form ADV Part 1 is: � a uniform form and must be used to register and describe the details of the registrant with the TSSB. � required to be filed electronically on the Investment Adviser Registration Depository (IARD) system � IARD is an electronic filing system that facilitates investment adviser registration, regulatory review and public disclosure g g y p information of investment adviser firms. � The beauty of the IARD system is the ability for firms to file one Form ADV simultaneously with multiple states. Texas State Securities Board 9
6/30/2011 IA Regulation: Registration | Form ADV Part 1 18 � Material changes must be filed within 30 days. � Called an “other than annual amendment” C ll d “ th th l d t” � Do not file hard copy changes with our office – Online ONLY � What is a material change that requires an other than annual amendment? � Change of name, address, contact information, form of organization, custodial arrangements, disciplinary actions, etc. � Texas recently adopted a rule that requires state registered advisers to file an Annual Amendment within 90 days of the end of fiscal year. The effective date is expected to be March 24, 2011. Texas State Securities Board IA Regulation: Registration | Form ADV Part 2 19 � July 28, 2010: SEC adopted a new Form ADV Part 2 replacing the old Part II, effective October 12, 2010. Part II effective October 12 2010 � As of Jan. 1, 2011: All new and current SEC advisers are required to use the new Form ADV Part 2 and uploaded onto the IARD system. � Part 2 will be available for viewing through Investment Advisor Public Disclosure System (IAPD) available from the SEC website at: t http://www.adviserinfo.sec.gov Texas State Securities Board 10
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