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Regulatory Update, July 2010

I'm pleased to provide ICSGroup's latest regulatory update. Just yesterday President Obama sign the Dodd-Frank Wall Street Reform into law. This is a massive piece of legislation full of implications for the financial services industry. We highlight some of the key provisions impacting investment advisors, particularly those related to mandatory SEC registration.

We also provide updates on Pay-To-Play rules recently issued by the SEC and recently approved changes to Form ADV Part II.

As always, feel free to contact me if you have questions about any of the information covered in this update.

In This Issue
Dodd-Frank Wall Street Reform Signed Into Law
SEC Approves Changes to Form ADV Part II
Complying With New Pay-To-Play Rules
Dodd-Frank Wall Street Reform Signed Into Law

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. Among the voluminous requirements contained in the Dodd-Frank Act, Title IV of the Act requires advisers to hedge funds, private equity funds and certain other types of private investment vehicles to register with the SEC.

The Act provides an exemption for investment advisers to private funds which the Act defines as an issuer that would be an investment company but for section 3(c)1 and 3(c)7 of the Investment Company Act if the investment advisor acts solely as an advisor to private funds and has assets under management of less than $150M.

Investment advisors may voluntarily register with the SEC if they have between $25M and $100M in assets under management. Otherwise, such advisors are required to register with their home state and will be subject to examination by the home state regulator.

Title IV becomes effective one year from the date of enactment of the Dodd-Frank Act - July 21, 2011.

As we've updated in the past, SEC registration requires an investment advisor to comply with the Investment Advisor's Act which, among other things, mandates the development and implementation of an effective compliance program, including implementation of a compliance manual and code of ethics and designation of a chief compliance officer.

Development of a compliance program can be an onerous task for a firm that does not have an experienced compliance professional on staff. It can also divert critical staff away from their important job functions. The use of a compliance consultant can ease the burden, both administratively and financially.  

ICSGroup can help with the registration process as well as development of your compliance program. Contact us today to discuss our compliance services.
 

SEC Approves Changes to Form ADV Part II

The Securities and Exchange Commission recently voted unanimously to adopt changes to the format of the Form ADV Part II. The Form ADV Part II, commonly referred to as the "brochure", provides information to investors about a registered investment advisor, such as the qualifications of its officers, its fee structure, its investment strategies, any conflicts of interest and other important disclosures.

Said SEC Chairman, Mary Shapiro, "these amendments will transform the brochure into a plain english narrative that is well suited to serve investors' needs..."

Full article
 

Complying With New Pay-To-Play Rules

The SEC recently passed new rules governing "pay-to-play" practices. "Pay-to-play" activity is defined as:

1) making a contribution to certain elected officials or candidates; 2) soliciting from others, or coordinating, contributions to certain elected officials, candidates or political parties where the advisor is providing or seeking government business; and 3) paying third-party placement agents, solicitors, finders or similar parties to solicit a governmental agency.

Investment advisors who "pay-to-play", either directly or indirectly, are prohibited from receiving compensation for their advisory services for that governmental entity for a period of two years after the advisor or its "covered associates" make such a payment.

By this rule, the SEC is attempting to curtail payments that might induce investments by public pension funds. According to the SEC, making investment decisions based on the payment of political contributions can distort the process by which investment advisors are selected. Such "induced" investments may not be in the best interest of the plan or its beneficiaries as they may receive inferior advisory services and pay higher fees which implicates the fiduciary duty that plans have to their beneficiaries.

ICSGroup Has a Solution
Because of the significant potential impact making a political contribution can have on a firm's ability to be compensated for its advisory services, ICSGroup is now offering its clients a solution. ICSGroup's state-by-state pay-to-play rules paired with its political contributions tracking and approval tool provides an effective means to ensure compliance with state rules as well as the much anticipated SEC rule. Our software enables employees to request approval electronically prior to making a political contribution. All requests, whether approved or not, are archived in a database for ease of accessibility.

Contact us to learn more about this state of the art compliance solution. mjett@i-c-solutions.net

 

 
Integrated Compliance Solutions Group LLC ("ICSGroup") is a regulatory compliance consulting firm specializing in providing '33 Act, '34 Act, Investment Advisor's Act and industry best practice compliance support to the investment management industry. 
 
Our target clients include: registered investment advisers, private equity funds, hedge funds, mutual funds, broker-dealers and pension funds.  We are a high quality, cost-effective outsourced compliance solution to complement in-house compliance staff.  ICSGroup is minority owned and managed.
 
 
Visit us at www.i-c-solutions.net to learn more.
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