Two states have created a time-table to help mid-sized firms make the switch from Securities and Exchange Commission (SEC) supervision to state regulated supervision. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection (Dodd-Frank) Act, those investment advisers with $100 million or less but more than $25 million in assets under management will be required to register with the state or states in which they do business instead of the SEC. We have already discussed the switch in Mid-Sized Advisers Should Have Already Commenced Transition. Both Iowa and Missouri are helping mid-sized firms in their state by creating time-tables and providing guidance for the transition.
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As a result of the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), mid-sized firms of less than $100 million in assets under management should make the switch from Securities and Exchange Commission (SEC) oversight to state regulatory oversight. Most advisers know that under the newly adopted SEC rules, mid-sized advisers that were SEC registered prior to Dodd-Frank must remain SEC registered through the first quarter of 2012, and then complete their switch to state regulation by June 28, 2012. Firms wishing to switch should have already completed the state registration process to become effective in the state or states in which the adviser is registering.
It was estimated by this time that 3,200 firms would have made the switch to state regulation. However, spokesman John Nester for the SEC announced that as of April 5, a little more than 1,900 firms claimed that they were no longer eligible for SEC registration and needed to make the switch.
On June 22, 2011, the Securities and Exchange Commission (SEC) adopted new rules and rule amendments under the Investment Advisers Act of 1940 to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, the rules, as adopted, provided transitional provisions for investment advisers required to switch from SEC to state registration because they fail to meet the new requirement of $100 million in assets under management, require advisers to hedge funds and other private funds to register with the SEC, require reporting by certain exempt investment advisers, and make substantial changes to the Form ADV.
The final rule relating to transition differed somewhat from the rule originally proposed by the SEC. The final rule requires that any "mid-sized" registrant with the SEC (defined as any firm with between $25 million and $100 million under management) that is registered as of July 21, 2011 (Dodd-Frank's effective date) must remain registered with the SEC through the transition. New applicants that meet the definition of mid-sized advisers and who seek to apply between January 1, 2011 and July 21, 2011 can apply either with the SEC or the state or states in which it must register.
Although the U S Securities and Exchanges Commission (SEC) has publicly stated that the July 21, 2011 deadline for "Mid-Sized Investment Advisers" to register with the States will likely be moved, as of yet there is no rule formally postponing the deadline. The same looming deadline applies to hedge funds required to register for the first time.
The switch delay is thought to have been driven primarily by Investment Advisor Registration Depository (IARD) programming delays and the logistical issue of collecting asset under management data from all firms in order to qualify them for the switch. Some advisers, out of caution, are registering dually with the SEC and the states so as to cover their bases; they plan on de-registering with the SEC at the appropriate time.
The deadline may be formally moved at the upcoming June 22 SEC meeting, whose agenda identifies consideration of adoptions of new rules and amendments to implement Dodd-Frank; considering Investment Adviser Act exemption rules for venture capital funds and advisers with assets under management of less than $150 million; and considering the proposed rule defining "family offices" that will be excluded from the definition of an investment adviser under the Investment Advisers Act.
According to a recent letter addressed to the North American Securities Administrators Association (NASAA) from Robert Plaze, associate director for regulation of the SEC's division of investment management, a switch in regulators for advisers who manage between $25 million and $100 million in assets that was supposed to start occurring this summer may now be extended to the first quarter of 2012. The reason is that regulators need until the end of 2011 to reprogram a national registration database for advisers.
Advisers are still waiting for the SEC to adopt the proposed rules that will make the regulatory transition official. The extension of the deadline also must be considered in a rule-making procedure by the SEC.
The Florida Office of Financial Regulation (OFR) issued a press release this week encouraging all federal covered investment advisers with less than $100 million under management to consider dually registering with OFR and the SEC, and to initiate OFR registration as soon as possible. Dual registration would allow the investment adviser to continue as a federal covered adviser while Florida reviews the firm's application. Upon being approved by OFR, the firm can then withdraw its SEC registration after July 21, 2011.
Florida's recommendation was prompted by the time it takes to renew and approve applications. Early application increases a firm's chance of being approved prior to July 21.