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United States: SEC Proposes New Requirements for Adviser Oversight of Service Providers & More Trending News


On October 26, 2022, the Securities and Exchange Commission (the “SEC”) proposed new rule 206(4)-11 and associated amendments underneath the Advisers Act, which might require registered funding advisers to satisfy sure necessities when outsourcing “covered functions” to service suppliers. Citing growing use of third-party service suppliers, SEC Chair Gary Gensler famous that the proposals are designed to make sure that outsourcing is per the obligations advisers should their purchasers. A associated truth sheet and the SEC’s press launch may be discovered right here and right here.

Specifically, the proposals would require advisers to:

  • Perform due diligence on a service supplier earlier than retaining it to carry out a “covered function”;
  • Monitor a service supplier’s efficiency and reassess the choice of the service supplier to carry out the “covered function”; and
  • Maintain books and information referring to its due diligence and monitoring actions.

The proposals additionally would require advisers to conduct due diligence on and monitor third-party recordkeepers, as if the third-party recordkeeper have been a “service provider” performing a “covered function”. Advisers additionally can be required to acquire “reasonable assurances” that the recordkeeper will meet particular requirements.

“Covered functions” are outlined as companies or features which are (1) vital to offer advisory companies in compliance with the federal securities legal guidelines; and (2) if not carried out or carried out negligently, can be moderately prone to trigger a cloth unfavourable influence on the adviser’s purchasers or on its capability to offer funding advisory companies.

The proposals are broad with probably far-reaching implications. For instance, a “covered function” might embody the engagement of an index supplier to create or lease an index for the adviser to observe as a technique for its advisory purchasers. The proposals don’t distinguish between third-party and affiliated service suppliers, so an adviser’s oversight obligations would additionally prolong to affiliated service suppliers. Similarly, the proposals additionally don’t embody an exception for sub-advisers or different service suppliers topic to different federal securities legal guidelines.

Comments to the proposals are due the latter of December 27, 2022 or 30 days after publication within the Federal Register.

Please keep tuned, further particulars to come back in our upcoming consumer alert.

United States: SEC Proposes New Requirements for Adviser Oversight of Service Providers

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United States: SEC Proposes New Requirements for Adviser Oversight of Service Providers

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United States: SEC Proposes New Requirements for Adviser Oversight of Service Providers

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