In juli 2010 werd in de Verenigde Staten de ‘Dodd-Frank Wall Street Reform and Consumer Protection Act’ aangenomen. Dit belangrijke stuk wetgeving (ongeveer 2.300 pagina's lang) omvat een groot aantal uiteenlopende onderwerpen, zoals nationale financiële stabiliteit, consumentenbescherming, wetgeving met betrekking tot derivaten, hervorming van verzekeringswetgeving en rapportage over de veiligheid in kolenmijnen. Het onderwerp van deze Engelstalige flash is titel IV van de Dodd-Frank wet: ‘Regulation of Advisors to Hedge Funds and Others’. Als gevolg van titel IV van de Dodd-Frank wet vervallen de huidige vrijstellingen van beleggingsadviseurs van registratie bij de SEC. De Engelse tekst van deze flash volgt hieronder:

In July 2010, the United States Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. This major piece of legislation (around 2,300 pages long) covers a variety of topics as diverse as nationwide financial stability, consumer protection, derivatives legislation, insurance regulation reform, and coal mine safety reporting. The topic of this flash is Title IV of the Dodd-Frank Act: Regulation of Advisors to Hedge Funds and Others.

Title IV of the Dodd-Frank Act eliminates current exemptions to investment advisors from registration with the SEC. Such registration is mandated in the United States Investment Advisors Act of 1940. An ‘investment advisor’ under the Advisors Act is “any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities”. Certain activities and entities, such as banks, accountants, and lawyers, are excluded from the definition of investment advisor. Another very important exemption from registration was made for the investment advisor who had less than 15 clients in the preceding 12 months, and who neither presented itself as an investment advisor generally to the public, nor advised certain types of companies, defined in the Investment Advisors Act. Many non United States investment advisors with no or few clients in the United States rely on this ‘private advisors exemption’.

The Dodd-Frank Act brings an end to the ‘private advisors exemption’ and, consequently, every foreign investment advisor active in the United States, even those with very limited activity, needs to register with the SEC, unless it qualifies as a ‘foreign private advisor’.

The ‘foreign private advisor’ exemption is a new exemption from registration created by the Dodd-Frank Act. A ‘foreign private advisor’ is an investment advisor:

• without place of business in the United States;
• with less than 15 clients or investors in the United States in private funds advised by the investment advisor;
• with less than 25 million assets under management (the SEC may set a higher threshold) of clients in the United States or of investors in private funds advised by the investment advisor; and
• who does not present itself as an investment advisor to the public in the United States, and does not advise a business development company (or a company that has elected to be treated as such) or an SEC-registered investment company.

The above criteria are cumulative and they all have to be met in order for the investment advisor to qualify as a ‘foreign private advisor’. The practical consequence of this appears to be that many private equity, venture capital, and hedge fund managers now qualify as an investment advisor under and fall within the scope of the Investment Advisors Act of 1940, and need to register with the SEC. In particular fund managers with 15 or more United States investors, or with United States investors investing USD 25 million or more, now become subject to SEC registration.

It is uncertain to what extent the Dodd-Frank Act will offer further exemptions, now or in the near future. The SEC has instructions to create an exemption for investment advisors to private funds, with less than USD 150 million of assets under management. There is also an exemption for ‘family offices’ in the Dodd-Frank Act. Many provisions of the new law have yet to be analyzed and interpreted.

The obligation for as yet unregistered investment advisors to register with the SEC becomes effective a little under a year from now (on 21 July 2011). We advise all of our clients in the asset management business to verify the consequences of the Dodd-Frank Act for their business, and to seek advice from United States law legal counsel to assist in the process in a timely manner. Loyens & Loeff will be happy to assist you in the selection of your counsel.

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This flash is distributed as a service to clients and potential clients of Loyens & Loeff. Loyens & Loeff do not advise on US law. Please contact any of the following Loyens & Loeff attorneys with questions in relation hereto, or if you should require assistance in selecting United States counsel with expertise in these matters:

Jack Berk, New York, +1 212 471 9338 or jack.berk@loyensloeff.com
Mark van Dam, Amsterdam, +31 20 578 5460 or mark.van.dam@loyensloeff.com
Johan Terblanche, Luxembourg, +352 466 230 245 or johan.terblanche@loyensloeff.com
Marc Vermylen, Brussels, +32 2743 4315 or marc.vermylen@loyensloeff.com

Although great care has been taken when compiling this newsletter, Loyens & Loeff N.V. does not accept any responsibility whatsoever for any consequences arising from the information in this publication being used without its consent. The information provided in the publication is intended for general informational purposes and can not be considered as advice.