TDCI is providing greater clarification and encouraging advisers to contact the Division
According to Kevin Walters of the Tennessee Dept. of Commerce & Insurance, the TDCI’s Securities Division has made immediate changes that “investment attorneys/advisers might care a great deal about.”
According to Walters, “TDCI’s Securities Division recently amended its current rules to allow certain investment advisers, private fund advisers, and venture capital firms whose only clients are private funds that meet the new rule’s definition, to be exempt from registration and custody requirements. However, these firms will be required to notice file and annually renew this notice filing with the Division.”
Walters says that since the change, there has been “confusion among advisers” regarding the “de minimis exemption and how the custody requirements apply.”
“Simply put, if an investment adviser has custody in any capacity, it cannot rely on the de minimis exemption unless it is an SEC-registered investment adviser that complies with SEC Rule 206(4)-2 (17C.F.R. § 275.206(4)-2),” according to a release.
The de minimis exemption, found in Tennessee Securities Rule 0780-04-03-.05(1)(b), exempts an investment adviser from the registration requirements if the adviser is domiciled in Tennessee and, during the course of the preceding 12 months, has had fewer than 15 clients and neither holds itself out generally to the public as an investment adviser or acts as an investment adviser to any investment company registered under the Investment Company Act.
The de minimis exemption only applies if firms do not have custody of funds. To curb confusion, TDCI is providing greater clarification and encouraging advisers to contact the Division with any questions they may have.
“Regulatory and compliance requirements are intended to protect Tennessee investors and maintain integrity in the securities industry,” said TDCI Assistant Commissioner for the Securities Division Elizabeth Bowling. “Our division recognizes the potential for some regulatory requirements to impede small business practices in our state. This new exemption for certain investment advisers, known as the ‘private fund exemption,’ strikes a balance between the regulatory requirements that ensure investor protection while still promoting venture capitalism in Tennessee. Working collaboratively with advisers in Tennessee speaks to our mission of empowering and protecting Tennesseans.”
TDCI Director April Odom says the organization listened to industry participants.
According to a release from the TDCI:
To clarify, the de minimis exemption never exempted an investment adviser from the requirement to comply with the custody rules.
However, those who meet the requirements of the newly created private fund exemption, found at Tennessee Securities Rule 0780-04-03-.05 (1)(c) are exempt from custody requirements.
The new exemption allows a qualifying investment adviser to notice file as an exempt reporting adviser with the Division rather than registering as an investment adviser. The advisers who qualify for the exemption and notice file will also require an annual renewal filing. All filings are completed through the Investment Adviser Registration Depository (IARD) system.
For more information about these amendments or to contact TDCI’s Securities Division, please visit tn.gov/securities, email securities.2@tn.gov or call 800-863-9117.
“The Division has worked to become a resource and partner for state-registered investment advisers,” said Odom. “We listened to industry participants and registrants and recognize the challenges facing small businesses and investment advisers. The adoption of the private fund exemption has eased regulatory requirements for investment advisers and encouraged business for Tennesseans without compromising investor protections.”
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