Marc Wyatt, Director of the U.S. Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE), indicated on November 20, 2015 that the OCIE staff is now examining “Exempt Reporting Advisers” as a routine matter. Mr. Wyatt made these remarks to the ABA Hedge Fund Sub-Committee during ABA’s Business Law Section Fall Meeting in Washington, D.C. Mr. Wyatt’s statement is an important development and marks a departure from prior OCIE practice.

As background, in 2011, the SEC adopted new rules and rule and form amendments under the Investment Advisers Act of 1940, designed to implement and give effect to the provisions of Title IV of the Dodd-Frank Act. Among other changes, the final rules adopted by the SEC established new exemptions from Advisers Act registration, as well as reporting requirements for certain advisers relying on the so-called “Venture Capital Fund Adviser Exemption” or the “Private Fund Adviser Exemption” (collectively referred to as “Exempt Reporting Advisers”). The information reported by Exempt Reporting Advisers is publicly available and may be used by the SEC to determine whether the activities of an Exempt Reporting Adviser warrant further SEC attention, as these advisers would be subject to examination by the SEC.

At the time of the adoption of these rules, however, the Chairman of the SEC indicated that the Commission did not expect to subject Exempt Reporting Advisers to routine examinations. In a statement at the SEC Open Meeting when the rules were adopted, then-SEC Chairman Mary Schapiro indicated that “although the law enables the Commission to examine these ‘exempt but reporting advisers,’ we do not intend to conduct routine examinations of them…. [I]t is important therefore that we target [the Commission’s] resources toward the advisers that are actually registered with us, where the investing public expects us to be focused. At the same time, if there are indications that we should conduct an on-site visit of an exempt but reporting investment adviser, we legitimately and appropriately will have the ability to do so.”

The practical effect of Mr. Wyatt’s statement is that Exempt Reporting Advisers will be included in the pool when the OCIE staff analyzes what entities to examine on a “risk basis” and otherwise determines which advisers to consider for other types of routine examinations and not just on the basis of a tip or complaint.