UK and other non-US firms encounter US securities regulation more often than they expect. Advising US clients, marketing a fund to US investors, or dealing with US counterparties can bring a firm within the scope of registration requirements that apply by reference to activity and connection rather than to place of establishment.
This article sets out the principal questions a non-US firm should consider, and the obligations that follow where registration applies. It is an outline rather than a substitute for US legal advice, which firms in this position should obtain.
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The threshold questions
Is the firm acting as an investment adviser? The definition captures those who, for compensation, engage in the business of advising others on securities. It is broad, and advice provided as part of a wider service may fall within it.
Does the firm have US clients or US investors? Advisory clients resident in the US, and US investors in a fund the firm manages, are the most common route into US requirements.
Is the firm using US jurisdictional means? Use of US mails, US interstate commerce, or US-based communications infrastructure can establish the necessary connection.
Is the activity broker-dealer activity? Effecting transactions in securities for the account of others, or dealing for one's own account as part of a regular business, raises separate registration questions.
Does an exemption apply? Several exemptions may be available depending on the number and type of US clients, the assets under management attributable to US clients, and whether the firm has a US place of business.
The analysis is fact-specific and the consequences of getting it wrong are significant, including the potential for rescission rights and enforcement action.
Registration categories for investment advisers
Registered investment adviser. Full registration with the SEC, bringing the complete compliance framework including written policies, a chief compliance officer, books and records requirements, custody rules where applicable, advertising and marketing rules, and examination by SEC staff.
Exempt reporting adviser. Advisers relying on certain exemptions must nonetheless file portions of Form ADV and are subject to certain provisions including the antifraud rules and, in some cases, examination.
Exempt with no filing obligation. Certain advisers fall outside registration and reporting entirely, though the antifraud provisions continue to apply.
The category determines the obligations, and firms should establish which applies before assuming a light-touch outcome.
Obligations for registered advisers
Compliance programme. Written policies and procedures reasonably designed to prevent violation, reviewed at least annually for adequacy and effectiveness.
Chief compliance officer. A designated individual responsible for administering the policies, with the competence and authority to do so.
Form ADV. Disclosure filed at registration, updated annually, and amended promptly where specified information becomes materially inaccurate.
Books and records. Specified records maintained for prescribed periods and available for examination.
Custody. Where the adviser has custody of client assets, requirements including use of a qualified custodian and, in many cases, a surprise examination.
Marketing. Rules governing advertisements and compensated testimonials and endorsements, including requirements on performance presentation.
Code of ethics. Standards of conduct, personal trading reporting, and provisions addressing material non-public information.
Fiduciary duty. A duty of care and loyalty owed to clients, which the SEC has articulated in interpretive guidance and which underpins the substantive obligations.
Cross-border considerations
Non-US firms face additional complexity.
Which entity registers. Where a group has multiple entities, determining which conducts the US-facing activity and whether affiliated advisers may be treated together.
Application of US rules to non-US clients. The SEC has provided relief in certain circumstances allowing non-US advisers to apply US requirements only to their US clients, but the scope of that relief is specific and should not be assumed.
Interaction with home-state regulation. A UK firm may hold FCA permissions covering the same activity, and the two frameworks apply in parallel rather than one displacing the other. See our guide to FCA permissions review.
Record keeping and data. US books and records requirements must be satisfied notwithstanding data protection or localisation constraints in the home jurisdiction.
Examination. SEC examination of a non-US registered adviser is conducted on the same basis as for a domestic firm.
About Regulatory Counsel
Regulatory Counsel advises UK and international financial services firms on authorisation, prudential and conduct requirements, governance, financial crime and regulator engagement.
Our cross-border work covers assessment of US regulatory exposure for UK and international firms, registration category analysis, compliance programme design for registered advisers, Form ADV preparation and ongoing amendment, books and records frameworks, marketing rule compliance, coordination between UK and US compliance frameworks, and examination preparation. We work alongside US counsel where US legal advice is required.
Contact our regulatory team at info@regulatorycounsel.co.uk.
This article is provided for general information and does not constitute legal or regulatory advice, including US legal advice. US securities regulation changes and its application is fact-specific; firms should verify the current position against SEC publications and obtain US legal advice on their circumstances.
Frequently Asked Questions
It depends on the firm's activity and its connection to the US. A UK investment adviser with US clients, or managing a fund with US investors, may be required to register, may qualify for an exemption, or may fall within the exempt reporting adviser category. The analysis is fact-specific and requires US legal advice.
An adviser relying on certain exemptions from full registration that is nonetheless required to file portions of Form ADV and remains subject to certain provisions including the antifraud rules.
Written policies and procedures reasonably designed to prevent violation of the Advisers Act and rules, administered by a designated chief compliance officer and reviewed at least annually for adequacy and effectiveness.
The disclosure form filed by investment advisers on registration, updated annually and amended promptly where specified information becomes materially inaccurate. Parts are provided to clients.
No. Authorisation in the UK does not displace US registration requirements where they apply. The two frameworks operate in parallel.
The SEC has provided relief in certain circumstances, but its scope is specific and should not be assumed. Firms should obtain US advice on the position applicable to them.