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US Regulatory Update Q3 2023

29 November 2023

Regulatory changes in the US

  • Securities and Exchange Commission (“SEC”) adopted new rules for private fund advisers

On Wednesday, August 23, 2023, the SEC adopted new rules that modify the regulation of private fund advisers, excluding -asset-backed securities funds advisers, under the US Investment Advisers Act of 1940. The rules are designed to increase transparency, reduce investor harm, and prohibit activity that is contrary to the public interest and the protection of investors.

The new rules require SEC-registered private fund advisers to comply with the following:

Quarterly statement rule: Prepare and distribute quarterly statements to private fund investors that include detailed fund-level information regarding fees, performance, expenses, and adviser compensation.

Private fund audit rule: Obtain and distribute an annual independent audit for each private fund in adherence with the requirements of Rule 206(4)-2 of the Advisers Act (the “custody rule”).

Adviser-led secondaries rule: Obtain and distribute a fairness opinion or valuation opinion from an independent opinion provider regarding certain adviser-led secondary transactions and disclose in a summary to investors any material business relationships the adviser had with the independent opinion provider within the prior two years.

Restricted activities rule: Private fund advisers may have permission to engage in certain activities (e.g. certain fees, expenses, clawbacks) if they provide certain disclosures or, in some cases, investor consent.

Preferential treatment rule: The amended rules prohibit private fund advisers from providing preferential terms to investors unless properly disclosed to investors.

Books and records rule amendments: Registered advisers are required to retain books and records related to the quarterly statement rule, private fund audit rule, adviser-led secondaries rule, restricted activities rule and the preferential treatment rule.

Compliance rule amendments: All registered advisers, including those who do not advise private funds, are required to document in writing the required annual review of the adequacy of compliance policies and procedures and the effectiveness of their implementation.

The deadline for implementing these new rules varies. For the quarterly statement rule and the private fund audit rule, the compliance date is 18 months after the date of publication in the Federal Register (Thursday, September 14, 2023). The compliance rule amendments require implementation 60 days after publication in the Federal Register. The remainder of the rules require implementation between 12 and 18 months after publication in the Federal Register.

  • SEC amended rule for investment company names
    • Investment company names:The SEC amended the rule under the Investment Company Act of 1940 that addresses certain broad categories of investment company names that are likely to mislead investors about an investment company’s investments and risks. The amendments to this rule are designed to increase investor protection by enhancing the requirement for certain funds to adopt a policy to invest at least 80% of the value of their assets in accordance with the investment focus that the fund’s name suggests, updating the rule’s notice requirements, and establishing recordkeeping requirements. The SEC also adopted enhanced prospectus disclosure requirements for terminology used in fund names, and additional requirements for funds to report information on Form N-PORT regarding compliance with the names-related regulatory requirements. The new rule comes into force on Sunday, December 10, 2023.
  • SEC proposed new rules for safeguarding advisory client assets
    • Safeguarding advisory client assets:The SEC reopened the comment period for its proposal, Safeguarding Advisory Client Assets, Release No. IA-6240 (Wednesday February 15, 2023), which proposed a new rule under the Investment Advisers Act of 1940 that would amend the current custody rule. The proposed rule would enhance protections of customer assets managed by registered investment advisers and amend certain related recordkeeping and reporting obligations. Reopening the comment period allowed interested persons additional time to assess the proposed amendments considering the new private fund adviser audit rule, which requires a registered investment adviser to obtain an annual financial statement audit of each private fund it advises in accordance with the custody rule. The comment period was open for 60 days after publication in the Federal Register on Wednesday, August 30, 2023.
  • Financial Crimes Enforcement Network (“FinCEN”) issued additional guidance on beneficial ownership reporting requirements
    • Beneficial ownership information reporting requirements:On Friday, September 29, 2023, FinCEN issued additional guidance materials for beneficial ownership information reporting requirements. Updated frequently asked questions included new questions about beneficial owners, initial reports, FinCEN identifiers, and third-party service providers. Beginning on Monday, January 1, 2024, many companies in the U. S will have to report information about their beneficial owners to FinCEN.




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