Learn more about what is required for an exempt reporting adviser ("ERA") to stay compliant.
- Compliance Examinations: The SEC has the legal authority to examine an ERA’s books and records but has not traditionally conducted regular examinations of exempt reporting advisers. Instead, the SEC has generally limited its examinations to those "for cause" in which the SEC believes or has reason to believe there is wrongdoing.
- Form ADV Part 1A: ERAs have to submit an abbreviated Form ADV, but are not required to prepare or deliver a brochure to clients. Once registered, advisers must update the form at least once a year within 90 days of the firm's fiscal year end and more frequently in certain circumstances based on material developments in accordance with the Form ADV instructions.
- Regulation D and State Blue Sky Filings: Rule 506 of Regulation D is a “safe harbor” for the private offering exemption of Section 4(a)(2) of the Securities Act. Issuers relying on Rule 506 of Regulation D are exempt from registration with the SEC and state regulators, but they must file a Form D with the SEC and state regulators after the first sale of securities is made.
- Code of Ethics: Under rule 204A–1, commonly referred to as the Code of Ethics Rule of the Advisers Act, investment advisers are required to adopt and maintain a Code of Ethics. The rule requires an adviser’s Code of Ethics to layout standards of conduct and require compliance with Federal securities laws. In addition, a firm's code of ethics must also address personal trading. A firm's code of ethics has to require personnel to report their personal securities holdings and transactions, and require personnel to obtain pre-approval before buying or selling certain investments.
- Policies Regarding Material Non-Public Information (MNPI): Since ERAs are subject to Section 204 of the Advisers Act, they must implement written policies and procedures reasonably designed to prevent the misuse of material non-public information (MNPI). Additionally, compliance requirements that apply to all advisers regardless of registration status would apply to federally-filed ERAs such as the SEC’s “pay to play” provisions and the USA PATRIOT Act’s anti-fraud requirements. While ERAs may not be required to adopt a traditional RIA policies & procedures or compliance manual; ERAs should still strongly consider adopting relevant written policies and procedures. All advisory firms should note that once a compliance manual or other internal procedures are implemented, those procedures should be followed regardless of whether or not their adoption was strictly required in the first place.
- Record Keeping Obligations: Section 204 of the Advisers Act requires investment advisers to make and keep such records and to make and circulate such reports as instructed by the SEC. ERAs could be subject to SEC recordkeeping requirements and the SEC has the authority to examine such records.