Monday, November 16, 2009

Senator Proposes "Comprehensive Financial Reform"

On November 10, 2009, Senate Banking Committee Chairman Chris Dodd (D-CT) unveiled the discussion draft of the "Restoring American Financial Stability Act of 2009" (the "Bill"). The Bill proposes a comprehensive reform of the financial system and aims to "eliminate regulatory gaps that allow risky practices to fly beneath the radar" including hedge funds. The investment adviser registration provisions in the Bill essentially mirror the Private Fund Registration Act that was introduced in the House in October, and would require advisers to hedge funds and other private funds to register with the SEC and comply with certain reporting requirements that will allow the SEC to assess systemic risk. The Bill also raises the threshold for federal regulation of investment advisers from $25,000,000 to $100,000,000, which is expected to increase the number of advisers subject to state supervision by 28%. While the Bill includes an exemption from registration as an investment adviser with the SEC for venture capital fund advisers (similar to the one proposed by the Private Fund Registration Act), it would also exempt advisers to private equity funds from SEC registration. The SEC would be required to define the meaning of the term "private equity fund" for the purposes of the exemption. Finally, the Bill would exempt any "family office", as defined by the SEC, from the definition of an "investment adviser" pursuant to Section 202(a)(11) of the Investment Advisers Act of 1940.