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Private equity firms and other investment advisers must navigate complex SEC disclosure requirements. Both SEC-registered investment advisers and exempt reporting advisers are obligated to file Form ADV when registering with federal and state securities regulators.
Private funds, specifically, must submit annual Form ADV Amendments and additional updates to maintain accurate registration information.
Staying compliant with evolving SEC rules is crucial for private equity firms. In addition to annual filings, PE firms must file Form ADV Amendments to reflect changes mandated by new SEC regulations.
This blog post will delve into the specific disclosures required of private funds, the potential penalties for non-compliance, and practical strategies for adapting to Form ADV Amendments.
According to the Investment Advisers Act of 1940, investment advisers are required to file Form ADV annually within 90 days of the fiscal year-end. In addition, investment advisers need to pay annual filing fees depending on the amount of assets under management.
Since the last day of the 90-day period can fall on a weekend and transfers do not happen momentarily, it is always recommended to avoid leaving everything until the last minute and to make filings and transfers prior to the deadline.
In addition to annual amendments, investment advisers need to file other-than-annual amendments to the SEC reflecting changes in information previously provided and correcting any records that became materially inaccurate.
The examples where private equity funds may need to file their other-than-annual amendments to Form ADV include:
The obligations to file annual updating amendments and other-than-annual amendments expand to both SEC- and state-registered advisers and exempt reporting advisers.
Meanwhile, failure to update the Form ADV is considered a violation of the SEC rules or similar state rules and can lead to severe repercussions and penalties.
In its instructions to Form ADV, the SEC makes it clear that failing to file Form ADV Amendments could lead to registration being revoked. While this is an utmost worst scenario for any PE firm, there are multiple other negative consequences for not filing required disclosures with the SEC.
In 2023, the SEC reported the highest number of monetary recoveries in its history, amounting to almost $5 billion. Although the larger part of this staggering amount of penalties is related to financial fraud, a certain percentage of SEC penalties refers to cases of non-compliance, including failure to update Form ADV.
For example, in an earlier landmark case involving two advisory firms paying combined penalties of over $1 million, the SEC stated that “failures to fulfill…reporting obligations make it harder for the SEC to identify firms with possible ongoing issues.” The regulator further underscored that updating filings with the SEC by private fund advisers is critical for investor protection.
In practice, private equity firms failing to file their annual Form ADV amendments or other-than-annual amendments face a number of negative consequences, including:
Protect your firm’s reputation, financial stability, and operational continuity by ensuring strict adherence to Form ADV filing requirements. See how it works.
In addition to filing Form ADV Amendments, private equity firms need to implement specific disclosures following the SEC new rules for investment advisers. For example, in one of its proposals, the SEC plans to amend Form ADV to have investment advisers provide additional information on their ESG practices.
If the proposal is adopted, both registered investment advisers and exempt reporting advisers will have to make disclosures about their use of ESG factors in their advisory business.
Similarly, private equity firms can be expected to file other-than-annual amendments to Form ADV after the adoption of other SEC rules, which are now in the proposal stage, for example:
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PE firms that aim to ensure compliance with the ADV Form filing and reporting have a multifaceted task complicated by the ever-changing SEC rulemaking and extensive nature of expected disclosures.
These challenges require private funds to take a proactive stance in monitoring the regulatory landscape, implementing change management and introducing effective processes to ensure timely and comprehensive reporting.
In particular, private funds need to monitor SEC rulings throughout the year and initiate other-than-annual amendments to Form ADV. PE firms need to track changes in their corporate records and compare them against information previously reported to the SEC and make necessary amendments promptly if any information becomes “materially inaccurate.”
The increasing size and complexity of private equity firms call for new approaches to ensure compliance with disclosure obligations to the SEC at all times. The PE compliance teams need effective regulatory filing software to eliminate data silos, have all their records centrally stored and updated in real-time and automate their reporting.
The increasing number of disclosures to the SEC prompts PE firms to follow proactive approaches to provide for timely filings and ensure compliance. These approaches need effective technologies to streamline data flows, automate filings, and ensure timely disclosures.
The Athennian regulatory filing software offers an extensive toolset for private equity firms looking to ensure compliance with Form ADV Amendments filing and reporting. For more information, please do not hesitate to contact the Athennian team for a free demo.
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