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SEC Implements New Rules to Enhance Investor Protection under the Investment Advisers Act of 1940

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The SEC adopts new rules to safeguard private fund investors.

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The SEC adopted new rules under the Investment Advisers Act of 1940, which are designed to protect direct and indirect private fund investors. These rules aim to enhance investor protection, improve transparency, and strengthen the regulatory framework for investment advisers.

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The Division of Investment Management supports the Commission in its mission to protect investors, maintain fair, orderly, and efficient markets. As part of its ongoing efforts, the Division actively participates in rulemaking, provides guidance to investment advisers, and conducts examinations to ensure compliance with the Investment Advisers Act of 1940.

On September 11, 2023, the Securities and Exchange Commission (SEC) charged and settled proceedings with nine registered investment advisers. These advisers were found to have violated the antifraud provisions of the Investment Advisers Act by failing to disclose conflicts of interest related to the sale of certain investment products.

On August 23, 2023, the SEC issued sweeping final rules and amendments to the Investment Advisers Act of 1940. These rules enhance the reporting and disclosure obligations of investment advisers, require additional safeguards for client assets, and address the use of technology in the provision of advisory services.

In its 2023 fiscal year that ended on September 30, the U.S. Securities and Exchange Commission (SEC or Commission) brought over 150 enforcement actions against investment advisers for various violations of the federal securities laws. These actions highlight the SEC's commitment to protecting investors and promoting fair and transparent markets.

In the weeks since publishing our original alert, FinCEN released several frequently asked questions (FAQs) on the application of the Bank Secrecy Act (BSA) to investment advisers. These FAQs provide important guidance to investment advisers regarding their obligations under the BSA and help clarify the regulatory landscape in which they operate.

In this alert, we summarize the rules and provide a chart detailing key aspects of each rule and steps clients can take to prepare for compliance. Investment advisers should review these new rules carefully and ensure they have appropriate systems and procedures in place to meet their obligations.

The SEC's implementation of new rules under the Investment Advisers Act of 1940 demonstrates its commitment to protecting investors and promoting fair and transparent markets. These rules aim to address potential conflicts of interest, enhance investor disclosures, and strengthen the regulatory oversight of investment advisers.

Overall, the new rules and amendments under the Investment Advisers Act of 1940 are a significant step towards ensuring investor protection and maintaining the integrity of the investment advisory industry. Investment advisers and other market participants should familiarize themselves with these rules and take proactive measures to comply with the enhanced regulatory requirements.

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