On November 20, 2015, Marc Wyatt, the director of the Office of Compliance and Examinations ("OCIE") of the Securities and Exchange Commission (the "SEC"), reportedly indicated that OCIE has begun subjecting exempt reporting advisers to OCIE's routine examination program. This statement was made at a meeting of the ABA Hedge Fund Subcommittee at the ABA Business Law Section Fall Meeting in Washington, D.C.

Exempt reporting advisers are investment advisers who are exempt from registration with the SEC as an investment adviser because they meet one of two exemptions from such registration: (i) the exemption for Venture Capital Fund Advisers; and (ii) the Private Fund Adviser Exemption (i.e., the exemption relied upon by investment advisers who have less than $150 million of assets under management and advise solely private funds).

These two exemptions were established by rules adopted by the SEC to effectuate the provisions of Title IV of the SEC Dodd-Frank Wall Street Reform and Consumer Protection Act. Based on these rules, exempt reporting advisers (i) must submit and update at least annually certain parts of Part 1 of Form ADV; (ii) will be subject to any record-keeping rules established by the SEC with respect to exempt reporting advisers (which have not yet been proposed); (iii) must establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of material non-public information; and (iv) are subject to the anti-fraud provisions (and certain of the rules associated with these provisions, which include the pay-to-play rules set forth in Rule 206(4)-5) of the Investment Advisers Act of 1940. However, while it was understood that the SEC would have the right to inspect exempt reporting advisers on a "for cause" basis where the SEC had identified a potential regulatory concern, the SEC had previously indicated that it did not expect to subject exempt reporting advisers to routine examinations.

Accordingly, if true, this statement by Marc Wyatt would appear to reflect a significant change in the SEC's approach to its oversight of exempt reporting advisers. It is currently unclear whether the SEC has focused more time on the inspection of advisers exempt by virtue of the Venture Capital Fund Adviser Exemption or those exempt pursuant to the Private Fund Adviser Exemption or whether there has been more of a focus on U.S. or non-U.S. exempt reporting advisers. Nevertheless, exempt reporting advisers should plan to review their policies and procedures covering compliance with the Investment Advisers Act in order to be better prepared for routine examinations by the SEC.