New Audit Requirement 2023 for Private Fund Advisors by SEC

The Securities Exchange Commission (SEC) has announced new rules which are applicable to all registered advisors particularly for private funds advisers. The SEC has taken this step to protect investors from losses resulting from compensation schemes, fraud, conflicts of interest and other malpractices.

One of the rules is that all the advisory firms need to obtain an annual Financial Statement audit of all private funds they are advising. Furthermore, the advisory firm will also require a ‘Fairness Opinion or Valuation Opinion in case of Advisor led secondary transaction. This Valuation Opinion should be obtained from an independent service provider.

The new rules include:

  • Distributions of quarterly statement to investors, releasing fund-level data and information on performance, investment cost and fees and expenses.

  • This rule restricts all private fund advisors from engaging in activities which are without investors knowledge and consent. These include charging the fund for expenses tied to adviser investigations, reducing adviser claw back amounts by certain taxes, charging the fund for regulatory or compliance fees, and borrowing from clients. It also abides advisors to disclose information and decisions.

  • Private fund advisers will be barred from offering certain types of preferential treatment. This includes specific redemptions from the fund and providing preferential information about portfolio holdings or exposures.

Implementation timelines for the rules vary based on the size of the Fund’s portfolio. These rules are expected to be implemented within 12-18 months after being published in the Federal Register.

Furthermore, there will be changes to compliance rules impacting all registered advisers. These changes necessitate documenting the annual review of compliance policies and procedures in writing. This requirement will take effect 60 days after being published in the Federal Register.

While these changes aim to empower the SEC to address risky practices that could harm investors, they also place a significant compliance burden on private fund advisers. Akram Associates offers a solution by guiding advisers through these changes, helping them implement the new rules with confidence and ease. This assistance can be particularly valuable in navigating the complex landscape of regulatory requirements and ensuring that advisers meet their obligations effectively. Akram Team suggests you contact your compliance and legal team to update the compliance policies and procedures