As U.S. regulators overhaul the financial regulatory landscape south of the border with the implementation of the Dodd-Frank Act, Canadian financial advisors are being urged to familiarize themselves with new registration requirements that could impact their business.
At the Strategy Institute’s Registrant Regulation Compliance Strategies Summit in Toronto on Thursday, lawyer Jane Kanter, partner with Dechert LLP in Washington, D.C., explained that some Canadian advisors will have to register in the U.S. for the first time under the new rules.
But Kanter said a variety of exemptions may apply. Canadian advisors have the best opportunity to avoid registration requirements if they qualify for the ‘foreign private advisers’ exemption or ‘private fund advisers’ exemption, she said.
The foreign private adviser exemption likely caters to a narrow segment of the market. It applies to advisors who have no office or place of business in the U.S., who have fewer than 15 clients and investors in private funds in the U.S., and who have assets attributable to those clients of less than US$25 million.
“The foreign private advisor exemption is extremely limited,” Kanter said. “This is really designed for someone who has very, very small business in the U.S. – maybe someone who is making their first step into providing advice in the U.S.”
Once an advisor’s U.S. client roster surpasses 15 clients, she said, they have to register.
The private fund adviser exemption applies to individuals who act as advisors to private funds in the U.S., as long as their assets in the U.S. are less than $150 million and their primary place of business is outside of the U.S. Other exemptions include venture capital fund advisers and advisors to small business investment companies, among others.
Even if you qualify for one of the exemptions, however, Kanter said you’ll still be required to report certain information to the U.S. Securities and Exchange Commission under the Dodd-Frank rules.
“You still are going to be an exempt reporting advisor,” she said. “You’re going to have to file information with the SEC about your activities having to do with your U.S. clients.”
Furthermore, Kanter warned that advisors who are exempt from registration with the SEC may still need to register with the appropriate regulators in the states in which they’re operating.
Kanter pointed out that the Dodd-Frank act continues to be a work in progress. The act consists of about 400 different rules which must be passed by multiple U.S. agencies, and so far, only a fraction have been finalized, she said.
“A majority of what we’re expecting to see ultimately from Dodd-Frank has not happened yet,” said Kanter. “It’s hard to get the full picture of what’s going on with Dodd-Frank.”
Even rules that have been finalized may be subject to change, Kanter said. For instance, she expects that the Volcker rule – the aspect of Dodd-Frank dealing with proprietary trading by banks and hedge fund investing activities, among other things – will be the subject of further debate, even though it’s supposed to take effect on July 21st.
“There has been a substantial amount of talk about not meeting that deadline,” she said. “I think it is subject to change.”