Business solutions for regulatory challenges


The last four years brought tumultuous change to the financial services industry. The passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in 2010 fundamentally changed the asset management industry. The requirement for Investment Advisors to register with the SEC is for many a first step in a set of important compliance disclosures designed to increase the amount of information available to regulators charged with protecting investor’s interests. Development of a strong compliance culture is now a key element in an Investment Advisors business strategy to ensure regulatory risks are managed properly and the business reputation is not adversely impacted. The SEC recently ramped up its investigative and enforcement efforts, a trend that is likely to continue in the foreseeable future.

In 2011 the SEC bought 735 SEC enforcement actions against investment advisers and investment companies representing a 30% increase over 2010 and a 92% increase over 2009. Civil penalties totaled close to US $1.0 billion. Investment Advisor registration brings with it heightened scrutiny and transparency. Form ADV required for registration increased the quality and quantity of information publicly available about the Investment Advisor. Form PF, a periodic filing, provides financing and portfolio information to regulators to allow them to assess systemic risks. The assumptions and disclosures made in Form PF are complex and may require some advisors to invest in technology to ensure disclosures can be produced in a timely and accurate fashion. The requirement to complete Form PF varies depending on the asset size of the Advisor, with most small and mid-sized Advisors filing for the first time in early 2013.

In addition, Dodd-Frank’s inclusion of swaps as commodity interests, and the repeal of a key exemption relied on by many investment advisers to avoid registration with the U.S. Commodity Futures Trading Commission (“CFTC”), will result in many investment advisers registering with the CFTC through the National Futures Association (“NFA”) as commodity pool operators and commodity trading advisers by the close of 2012.