On August 23rd, the Securities and Exchange Commission (SEC) approved new rules aimed at improving the operations of private fund advisers and updating compliance regulations for investment advisers. Despite facing some resistance from firms, the SEC has asserted that these rules offer several benefits to investors when implemented.
When the deadline is: 18 months from now
What needs to be done: Provide detailed reports to investors every three months. These reports will outline fund charges, expenses, and performance metrics. Annual financial audits for each fund will also be mandatory. Additionally, in specific transactions, advisers need to provide fairness or valuation opinions to ensure equitable practices.
These changes aim to create a fairer, more transparent, and efficient environment within the private investment fund sector. The primary goal is to protect investors and ensure that industry practices align with evolving standards. While there are major benefits to the investors, private funds must prepare for these incoming regulations by a full review of their current compliance systems.
To maintain fairness to the public and other investors, these rules identify restrictions put in place to prevent advisers from giving preferential treatment with potentially harmful activities. However, exceptions allow for such treatment with clear and comprehensive disclosures under specific circumstances, or in some cases, investor consent. Importantly, advisers cannot pass on certain costs if they have been sanctioned for breaking the rules. Recognizing existing agreements, the SEC has established special provisions. These provisions apply to activities and preferential treatment previously agreed upon in writing before the rules' implementation meaning any side letters that have been applied before this rule will be grandfathered in but cannot be created as of this rule.
In Summary
These new rules aim to enhance transparency, ensure fairness, and adapt to industry changes. They provide a roadmap for private fund advisers to remain compliant while safeguarding investor interests and maintaining a well-functioning market environment. Reviewing your order management systems can guarantee you are prepared for these upcoming changes. To make sure this transition is smooth and cost-efficient for your firm, consider using IMP’s CLEAR Compliance®. With the ability to create automated reports, record when new rules and requirements are implemented, and track when reports are required, CLEAR Compliance® is the perfect solution for ensuring adherence to the SEC’s new mandates.