Hedge Fund Compliance

President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act in July this year (2010). The Private Fund Investment Advisers Registration Act, Title IV of this Act removes the private adviser exemption that existed under previous legislation. This has ramifications for hedge fund compliance that everyone in the business needs to know.

The main changes to the lawisthe requirement of hedge fund, private equity and venture capital managers to have to register with the SEC as investment advisors. Up until then, they were excluded from the main SEC regulations regarding compliance.

The idea behind the changes to hedge fund compliance was to further the original goals of the legislation. To improve regulation and supervision of financial institutions and to establish adequate supervision of the financial markets. Both of these goals were designed with a view to protecting investors and customers from abuse.

The side-effect of these measures was to promote better international cooperation and seek to improve international regulation of financial markets. The reputation of Wall Street and our large financial institutions hasn’t been great for the past few years. That makes it necessary to bolster that with robust regulations to show the world we are getting our house in order.

There have been too many high profile financial failures over the past years. Add the fact that our banks caused the global recession, and we have a lot of work on our hands to rebuild confidence in the way we do business. This new Act is a small step on a long road, but a step in the right direction.

The changes mean that investment advisers need to produce financial reports on their funds. That includes information on how its managed and a risk assessment. This is to protect investors and improve transparency throughout the sector.

Specific requirements for archiving are listed below. These are all things needed to ensure hedge fund compliance but are already in the public domain. It’s just previously hedge fund managers didn’t have to comply.

• All incoming and outgoing information must be stored in its original form
• It has to be easily retrievable and searchable
• It has to be time-stamped
• All data has to be stored in the main office for the first two years
• Data has to be retained for five years but can be archived after two
• Data has to be put into tamper proof media
• Data has to be stored in a secondary, separate backup location
• Be able to access and provide archived data promptly
• Be able to provide data in its original format

Many financial institutions will have these measures in place already as they comprise existing law. However, those who specialize in hedge funds, or are regarded as separate entities will need to ensure they comply with these requirements.

Those listed above are just the highlights of the new law. For a complete copy of the requirements it’s important to contact an attorney or the SEC direct. As with other financial institutions failure to comply with hedge fund compliance rules is viewed very dimly indeed.

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1. Financial CRM, Too Little Too Late?
2. Methods of Email Compliance
3. HIPAA Email Compliance
4. Email Archive or Backup?
5. Email Archiving, A Necessary Burden for Your Business