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SEC proposes reforms to modernize oversight of internet advisors

On Behalf of | Aug 9, 2023 | Financial News

The Securities and Exchange Commission said it is proposing reforms regarding investment advisers who operate exclusively through the internet.

Firms can register with the SEC by claiming that they provide investment advice exclusively through an interactive website, but the commission noted that many of the firms misuse the registration process by claiming they meet the qualifications allowing them to register.

The SEC said it is now proposing rule amendments that would require an investment adviser relying on the internet adviser registration rule to have an operational interactive website through which the adviser provides ongoing digital advisory services to more than one client.

Currently, Rule 203A-2(e) under the Advisers Act provides a de minimis exception to allow an adviser relying on the rule to provide advisory services outside of its interactive website to up to 14 clients in a 12-month period. The proposed amendments would eliminate this exception by requiring that an internet adviser provide advice to all of its clients exclusively through an operational interactive website, and make corresponding changes to Form ADV.

“In 2002, the SEC granted what was intended to be a narrow exception allowing internet-based advisers to register with the Commission instead of with the states,” said SEC Chair Gary Gensler. “A lot has changed in the 21 years since, and I believe an exemption written in 2002 allows gaps in 2023. Thus, today’s proposal would modernize the internet advisers exemption to better align registration requirements with modern technology and help the Commission in the efficient and effective oversight of registered investment advisers.”

The proposed amendments will be published in the Federal Register, and a public comment period will be open until 60 days after the publication date.

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