A collection of firms that are taking advantage of an exemption for online advisors are facing the cancellation of their registrations by the U.S. Securities and Exchange Commission (SEC), which is enforcing changes to tighten its requirements.
The SEC released a list of 23 firms whose registrations are facing cancellation after the regulator determined that they no longer qualify for the exemption that is the basis for their current status — the so-called “internet adviser exemption” that aimed to allow startup fintech firms to obtain federal registration without meeting the usual asset threshold requirements.
The exemption was introduced in 2002 to enable small, digital-only firms to register federally while still at an early stage, rather than requiring them to acquire numerous state registrations.
However, in 2024, the SEC introduced changes designed to narrow that exemption, amid concerns that the exemption was being misused.
Among other things, the regulator altered the exemption to require that firms must provide advice to all of their clients online — eliminating a provision that allowed them to deal with some clients offline — and requiring them to have an operational interactive website providing services to at least one client on an ongoing basis.
“These changes better reflect what it means in 2024 truly to provide an exclusively internet-based service,” said then-chair of the SEC, Gary Genlser, when the changes were introduced.
“This will better align registration requirements with modern technology and help the commission in the efficient and effective oversight of registered investment advisers,” he added.
The narrowed requirements took effect as of March 31, 2025, and the SEC is now preparing to enforce compliance.
The affected firms have until May 11 to file a request to contest the preliminary decision to cancel their registrations.