Amendments to Investment Advisers Act Rules to Reflect Changes Made by the FAST Act

A Small Entity Compliance Guide[1]

Introduction

On January 5, 2018, the Securities and Exchange Commission (the "Commission") voted to adopt amendments to rules 203(l)-1 and 203(m)-1 under the Investment Advisers Act of 1940 (the "Advisers Act"), in order to reflect changes made by Title LXXIV, sections 74001 and 74002, of the Fixing America's Surface Transportation Act of 2015 (the "FAST Act") which amended sections 203(l) and 203(m) of the Advisers Act. 

Amendments to Advisers Act rule 203(l)-1

The FAST Act amended two sections in the Advisers Act regarding the registration of investment advisers to "small business investment companies" ("SBICs").  First, the FAST Act amended Advisers Act section 203(l), which provides an exemption from registration for investment advisers that solely advise "venture capital funds" (the "venture capital fund adviser exemption").  The FAST Act deemed SBICs to be "venture capital funds" for purposes of the exemption, which had the effect of permitting these advisers to advise both SBICs and other venture capital funds without registering as investment advisers under the Advisers Act.  However, these venture capital fund advisers are considered exempt reporting advisers under the Advisers Act.  Exempt reporting advisers are required to file a subset of the information requested by Form ADV with the Commission but are not subject to many of the other substantive requirements to which registered investment advisers are subject.  To reflect the changes made by the FAST Act, the Commission amended the definition of a "venture capital fund" in Advisers Act rule 203(l)-1.

Amendments to Advisers Act rule 203(m)-1

The FAST Act also amended Advisers Act section 203(m), which directs the Commission to provide an exemption from registration to any investment adviser that solely advises "private funds" if the adviser has assets under management in the United States of less than $150 million (the "private fund adviser exemption").  The FAST Act amended the private fund adviser exemption by excluding the assets of SBICs for purposes of calculating private fund assets towards the registration threshold of $150 million.  Investment advisers relying on the private fund adviser exemption also are considered exempt reporting advisers under the Advisers Act and are required to file a subset of the information requested by Form ADV with the Commission but are not subject to many of the other substantive requirements to which registered investment advisers are subject.  To reflect the changes made by the FAST Act, the Commission amended the definition of "assets under management" in Advisers Act rule 203(m)-1 to exclude the assets of SBICs. 

Other Resources

The final adopting release and related rules can be found on the Commission's website at: https://www.sec.gov/rules/final/2018/ia-4839.pdf.  The proposing release can be found on the Commission's website at: https://www.sec.gov/rules/proposed/2017/ia-4697.pdf.  The text of the amended rules can be accessed through the "Laws and Rules" section of the Division of Investment Management page of the Commission's website at: http://www.sec.gov/divisions/investment.shtml. 

Contacting the Commission

The Commission's Division of Investment Management is happy to assist with questions regarding the amendments to Form ADV and the Advisers Act rules.  The Division's Investment Adviser Regulation Office answers questions submitted by e-mail and telephone.  You can submit a question by e-mail to iarules@sec.gov and a staff member of the office will call or email you to discuss your question.  In addition, you can contact the Investment Adviser Regulation Office at (202) 551-6999.  Questions on other investment management matters may be directed to the Division's Chief Counsel's Office by e-mail at IMOCC@sec.gov, or by telephone at (202) 551-6825.