On April 8, 2011, in a letter to the North American Securities Administrators Association ("NASAA"), a senior staff member of the Securities and Exchange Commission's Division of Investment Management (the "Division") advised NASAA that the Division expects the Commission to consider extending until the first quarter of 2012 the date by which (1) advisers currently relying upon the "private fund adviser" exemption must register and come into compliance with the requirements of the Investment Advisers Act ("Advisers Act") as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), and (2) "mid-sized" advisers must withdraw their SEC registration and register instead with one or more states.
Adopted by Congress in July 2010, the Dodd-Frank Act amends the Advisers Act by eliminating the "private adviser exemption" (currently available to advisers with fewer than 15 clients) and requiring "mid-sized advisers" (advisers with assets under management of between US$25 million and US$100 million) to withdraw from registration with the SEC, subject to certain limited exceptions. These statutory amendments will go into effect on July 21, 2011. However, the Dodd-Frank Act required the SEC to adopt rules to implement these amendments and to adopt new rules to implement three new registration exemptions created by the Dodd-Frank Act. To date, the SEC has yet to adopt final rules implementing the new exemptions from adviser registration created by the Dodd-Frank Act. While the Division staff stated in its letter to NASAA that it expects the SEC to adopt such final rules before the July 21, 2011 deadline, it apparently recognizes that market participants may not have sufficient time to register with the SEC if required by the final rules. While not addressed in the letter to NASAA, the SEC has received a substantial number of comment letters on the proposed rules to implement the Dodd-Frank amendments and registration exemptions, and extending the deadline for compliance with the Dodd-Frank amendments could give the SEC staff additional time to further consider those comments in drafting the final rules.
While a letter from the Division staff is not binding on the SEC, the issuance of this letter by the Division staff makes it very likely that the SEC will extend the compliance dates for (1) registration by an adviser who could previously have relied upon the private adviser exemption and (2) mid-sized advisers who may need to withdraw their SEC registration and register with one or more states. We will continue to monitor the SEC's consideration of the final rules as this develops.
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