United States: 2014 Compliance Checklist For Investment Advisers

For those of you still easing into 2014, we thought that now would be a good time to help you plot out your regulatory and internal compliance schedules for the upcoming calendar year.

Annual Regulatory Filings

  • Form ADV—All registered investment advisers ("RIAs") and exempt reporting advisers ("ERAs") must file an annual amendment to Form ADV with the SEC and/or state securities authorities within 90 days of the end of their fiscal year (which is March 31 for a December 31st fiscal year).  Otherwise Form ADV amendments are only required in the event of material changes to the RIA's business (please consult your compliance counsel to determine materiality of any changes).
  • Form PF—Most RIAs must file an updated Form PF with the SEC annually within 120 days of fiscal year end.  Note that advisers to large hedge and liquidity funds must file on a quarterly basis within 60 days and 15 days, respectively, of quarter end.
  • SEC Form D—Form D filings for funds with ongoing offerings need to be amended on an annual basis, on or before the anniversary of the initial SEC Form D filing (common for hedge funds and increasingly common for private equity funds – at least upon the first anniversary).  
    • We note that Form D has changed slightly due to the Dodd-Frank Act Reg D "bad actor" prohibitions that were finally adopted by the SEC in July 2013, in particular due to a new "bad actor" certification required under Rule 506(d) of Reg D. 
    • Also, keep alert for SEC action on further proposed changes to the Form D, which could have a major impact on Form D filings (and potentially how attractive an option Reg D is).
  • Schedule 13G/D and Section 16 Filings—Advisers who exercise investment discretion over funds that are beneficial owners of 5% or more of a registered voting equity security must report these positions on Schedule 13G or Schedule 13D.  Please note that Schedule 13G filings must be updated annually within 45 days of the end of the year (by February 14, 2014).  Advisers should also review any necessary Section 16 filings.
  • Form 13F—Advisers must file a Form 13F if it exercises investment discretion with respect to $100 million or more in certain identified 13F securities within 45 days after the end of the year in which the adviser reaches the $100 million filing threshold.  Thereafter, advisers must make 13F filings within 45 days after end of calendar quarter.  The list of 13F securities may be found here.
  • Form 13HAdvisers who meet the SEC's "large trader" thresholds (in general, trades (i) 2 million shares or $20 million FMV daily or (ii) 20 million shares or $200 million FMV monthly) are required to file an initial Form 13H with the SEC within 10 days of crossing the threshold.  Large traders also need to amend Form 13H annually within 45 days of the end of the year and make quarterly update filings to the extent that information changes. 
  • US Tax & Treasury Department
    • FATCA—Foreign Account Tax Compliance Act ("FATCA") requires certain financial institutions (including advisers to pooled investment funds) to identify and disclose direct and indirect US investors and withhold U.S. income tax on nonresident aliens and foreign corporations or be subject to a 30% US withholding tax.  Advisers should review their compliance with FATCA.
    • Form SLT—Private fund sponsors that have portfolio investments in foreign issuers or have issued interests in their funds to foreign residents may be required to report these transactions on the Treasury International Capital system on a monthly basis.
  • CFTC & NFA
    • Advisers relying on the exemption from registration with the CFTC pursuant to Rule 4.13(a)(3), the "de minimis exemption," must reaffirm their claim of exemption each year annually by March 1 (within 60 days of the end of the calendar year).
    • Registered CPOs and CTAs must prepare and file annual filings with the National Futures Association.   Registered CPOs must also prepare and file their fourth quarter report for each commodity pool (Form CPO-PQR), and CTAs must file a quarterly Form CTA-PR within 45 days of the end of the quarter.

Annual Audits and Recordkeeping

  • Custody Rule Annual Audit—Most RIAs comply with certain custody procedures by having an independent public accountant registered with the Public Company Accounting Oversight Board prepare audited financial statements in accordance with GAAP and sending such audited financial statements to the investors within 120 days after the fund's fiscal year end.
    • The SEC staff have made clear in numerous settings that they are dedicating heightened attention in upcoming exams to compliance with the custody rules of RIAs of private funds.  So particular vigilance to the (none-too-simple) strictures of Rule 206(4)-2 is recommended.  This link is to the SEC's recent release regarding examination priorities.
  • Annual Privacy Policy Notice—Advisers should provide its individual investors with a copy of its privacy policy.
  • Pay-to-Play and Lobbyist Rules—Review state and local lobbyist rules to ensure that lobbyist reporting is current for internal investor relations professionals who may meet the definition of placement agents.

Internal Compliance Matters

  • Annual Compliance Review—RIAs must conduct an annual review of their compliance policies and procedures. (Rule 206(4)-7 of the Investment Advisers Act of 1940)
  • Annual Training—RIAs should consider instituting annual RIA compliance training for employees. (Although not technically required by the rules under the Investment Advisers Act of 1940, the SEC encourages investment advisers to conduct training for employees.)
  • New Issue StatusAdvisers need to confirm or reconfirm on an annual basis the eligibility of investors that participate in initial public offerings or new issues pursuant to both FINRA Rules 5130 and 5131.
  • ERISA Status—Advisers should consider annually confirming the ERISA percentage of their funds.  For funds that rely on VCOC and REOC exemptions, they will have testing periods that are proscribed by the date of their initial investment.
  • HSR Thresholds—Review HSR thresholds to monitor HSR filing requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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