Do Family Offices Have To Register As State Investment Adviser
Family unit Matters: House Bill would Require SEC Registration for Certain Family Offices
Terminal summer, Representative Alexandria Ocasio-Cortez (D-NY) introduced bill H.R. 4620 to limit the exemption from registration requirements applicable to certain family offices under the Investment Advisers Human activity of 1940 (the "Advisers Act"). If the bill becomes constabulary, amid other things, a family office with $750,000,000 or more than in assets nether direction will no longer be exempt from registration nether the Advisers Act.
Family offices are private companies which provide investment and other services to members of high-internet-worth families. Prior to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 ("Dodd-Frank"), the Directorate Act provided for a wide exemption from registration with the Securities Commutation Commission (the "SEC") for so-called "individual advisers" (generally, an adviser who had 15 or fewer clients in any 12-calendar month period, was not investment adviser to a registered investment company or a business development visitor, and did not "concur itself out" equally an investment adviser). Following the repeal of that exemption, Dodd-Frank created a new carve out to exempt family offices from registration.
The SEC adopted Rule 202(a)(11)(Thou)-1, which defines the term "family unit office" for purposes of applying the Dodd-Frank exemption. Among other things, the rule defines a family role as a company (including its directors, partners, members, managers, trustees and employees acting within the scope of their position or employment) that (i) has no clients other than "family clients," (ii) is wholly owned by family clients and is exclusively controlled (directly or indirectly) by ane or more family members and/or family unit entities; and (iii) does not concord itself out to the public as an investment adviser. Family unit members include all lineal descendants (including by adoption, stepchildren, foster children, and individuals that were a minor when another family unit member became a legal guardian of that individual) of a living or deceased common antecedent and such lineal descendants' spouses or spousal equivalents, provided that the common ancestor tin exist no more than than 10 generations removed from the youngest generation of family members. Neither the dominion nor Dodd-Frank currently impose a limit on the amount of assets under management for a family office to avail itself of the exemption.
According to a markup memorandum from the bulk staff of the House Committee on Financial Services, H.R. 4620 responds to both the growth of family offices (both in terms of number and amount of assets under management) and the sudden collapse concluding year of Archegos Capital Management, a highly leveraged family part which had been established to manage approximately $10 billion for a single investor. Given the impact that family office investments can have on financial markets, H.R. 4620 would crave family unit offices with more $750,000,000 to annals as "exempt reporting advisers." An exempt reporting adviser is required to file with the SEC past completing and filing portions of Form ADV (which is the same registration document submitted by registered investment advisers). An exempt reporting adviser is required to disclose, among other things, basic identifying information such as its proper noun, principal office, and place of business, details about the size of any private funds it advises, other business concern interests of the adviser and its affiliates, and the disciplinary history of itself and its employees. In improver, an exempt reporting adviser must identify "control persons" that directly or indirectly control it.
H.R. 4620 would exclude from the definition of "family office" certain bad actors who have been barred from the fiscal industry by certain state or federal agencies, or who have been the target of final SEC orders involving fraudulent, manipulative, or deceptive conduct. In addition, the SEC would have rule making authority to lower the registration threshold for family unit offices which are "highly leveraged or engaged in high-take chances activities."
The Committee on Financial Services was divided on party lines (Democrats for, Republicans against). It is unclear when or whether the nib volition be voted on by the Firm and, even information technology is canonical by the Business firm, whether it will be approved by the Senate. Among other things, we anticipate scrutiny of the $750,000,000 threshold. Notwithstanding, even if the pecker is non approved, it reflects growing interest by politicians and regulators in the increased size and influence of family unit offices, and calls for increased disclosure of their activities and direction. We volition proceed to monitor and report developments related to HR 4620, and any other proposals to regulate family unit offices.
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Do Family Offices Have To Register As State Investment Adviser,
Source: https://www.pbwt.com/securities-litigation-insider/family-matters-house-bill-would-require-sec-registration-for-certain-family-offices
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