A Compliance Officer's Best Tools and Tips for the SEC Exam Process
On September 13, MyComplianceOffice co-hosted a webinar with Milne Legal. Our presenters Dustin Milne, Charles Lerner and Laetitia Mantel discussed what an investment advisory firm outside of the US needs to consider when dealing with the US. This included discussions on what defines a US person, when to register with the SEC, how to handle a SEC exam and what sort of compliance program you should have in place.
You can download a full copy of the slides from this webinar.
Full video transcript available below:
Our clients and prospects who approach us are concerned about whether they need to register as an investment adviser under the Investment Advisers Act of 1940. We begin to ask questions about their background, the kind of activities that they conduct, but it all starts with the definitely of an investment adviser under the act.
As a non-U.S. entity, are you in the business of advising others concerning securities for compensation? Those are the key elements. If you are in such a business and you meet that definition, then you need to look further in deciding whether or not you need to register with the SEC. Perhaps an applicable exemption is available to you.
It's worth noting that most of our clients that come to us ... This is really not one of the major drivers here. They are in the business; there is no doubt. They advise on securities, that's their profession, and they do indeed receive compensation.
It is, however, worth noting for those who are not sure, each of these definitions are broadly defined by the SEC. For example, securities. It's a laundry list of investment instruments that fit within this definition of securities. Same with compensation. Some of our clients who are advisers approach us and say, "What if I waive the compensation component?" That's certainly a good fact, but keep in mind that compensation by the SEC is interpreted as direct compensation or indirect compensation, so it can really be any economic benefit that you receive can meet this criteria. Just be mindful that these terms are incredibly broad, when trying to see if they apply to your non-U.S. firm.
I like to begin with this slide of my non-U.S. adviser. Shane, or Bethany, please flip the slide. Next slide. Bethany, will you please flip the slide? Thank you. To begin with this just as an optical. I'm there with the illustration of the map of the United States, for those who are participating. We have a non-U.S. adviser here. The purpose is to put him inside the territory of the United States. It's just an optical; I've been showing this for years. Whatever's in that briefcase, perhaps marketing materials or some form of advisory contracts. Once you place yourself inside of the United States, the 50 states, territories, or possessions, please first seek advice from Council. Understand what the regulatory laws are before you take these initial steps to go inside the United States. Next slide please.
As lawyers, we quite often define these 50 states as ... We refer to it colloquially as the U.S. jurisdictional means. It's really under section 203(a) of the Investment Advisers Act. If you're a non-U.S. organized entity who meets the definition of an investment adviser, you need to be mindful of any means of marketing, mails, or anything that you may put in to process inside the 50 states if it is with regards to advising on securities.
For example, one of the things that we quite often look at it is an investment adviser's website. The website alone can be construed as marketing materials and you really need to look at it closely. If you're not registered as an investment adviser, look at that closely and make sure that the intent of that website is clear; i.e., meaning that you have a disclaimer on the website clearly defining that your intent is not to target residents or entities organized inside the United States for your investment advisory services. You really want to stay outside of the U.S. For your websites we recommend to begin with a disclaimer but also to consider other methods such as a blocker to make it clear that you are not targeting the U.S.
Our clients come to us; they meet the definition of an investment adviser, they are providing advice on securities, they are receiving compensation ... Now the question is, where it gets a little more difficult, is is my client or prospect a U.S. person?
This webinar was co-hosted with Milne Legal. To learn more visit www.milnelegal.com