On July 21, 2010, President Obama signed into law the comprehensive financial reform package known as the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Securities and Exchange Commission, or SEC, and other federal regulatory agencies are currently in the midst of releasing and adopting rulemaking proposals under Dodd-Frank. Certain significant areas of regulatory reform under Dodd-Frank are set forth below.
- Investment Adviser Registration. Title IV of Dodd-Frank, known as the Private Fund Investment Advisers Registration Act of 2010, contains a comprehensive overhaul of the registration regime for investment advisers. The act eliminates the so-called "private adviser exemption" contained in Section 203(b)(3) of the Investment Advisers Act of 1940, as amended, or Advisers Act, that currently exempts from registration investment advisers with fewer than 15 clients who do not hold themselves out to the public as investment advisers. The effective date of the registration regime contained in Dodd-Frank is July 21, 2011, except that an investment adviser, subject to the rulemaking of the SEC, may voluntarily register with the SEC prior to such effective date.
- Exemption from Registration of Investment Advisers Who Solely Advise Private Funds. Dodd-Frank provides that any investment adviser who acts solely as an adviser to private funds, and has assets under management in the United States of less than $150 million, shall be exempt from the registration requirements under the Advisers Act. However, Dodd-Frank directs the SEC to require such investment advisers to maintain records and provide to the SEC any reports that the SEC determines are "necessary or appropriate in the public interest or for the protection of investors."
- Exemption from Registration for Investment Advisers Who Solely Advise Venture Capital Funds. Dodd-Frank exempts from registration investment advisers who solely advise venture capital funds. While investment advisers to venture capital funds may avail themselves of this exemption from registration under the Advisers Act, Dodd-Frank directs the SEC to require such advisers to maintain records and provide any reports that the SEC determines are "necessary or appropriate in the public interest or for the protection of investors."
- Exemption for Foreign Private Advisers. Dodd-Frank also amends Section 203(b)(3) of the Advisers Act by creating an exemption from registration for certain "foreign private advisers." A foreign private adviser is defined as any investment adviser who (i) has no place of business in the United States; (ii) has, in total, fewer than 15 clients and investors in the United States in private funds advised by the adviser; (iii) has aggregate assets under management attributable to clients in the United States, and investors in the United States in private funds advised by the adviser of less than $25 million; and (iv) does not hold him- or herself out to the public in the United States as an investment adviser or act as an investment adviser to either a registered investment company or a company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended.
- Exclusion of Family Offices. Dodd-Frank expressly removes family offices from the purview of the Advisers Act, thereby enabling investment advisers to family offices to avoid any registration or recordkeeping requirements under the Advisers Act. Dodd-Frank also contains certain provisions that will "grandfather" the exemption from registration for advisers who were not registered, or required to be registered, as investment advisers solely because of the provision of investment advice to certain natural persons associated with a family office, or certain entities, such as entities that are owned exclusively and controlled by members of the family of a family office. Advisers availing themselves of this exemption will nevertheless be subject to the antifraud provisions of Section 206(1), 206(2) and 206(4) of the Advisers Act.