The Securities and Exchange Commission is taking steps to modernize its Internet Adviser Exemption that was adopted in 2002. The exemption allowed firms that operated primarily online to register with the SEC.
The SEC announced that it has now adopted amendments to rule 203A-2(e) under the Advisers Act that involves investment advisers who operate exclusively through the internet. The commission said these amendments are designed to reform the rule to reflect the broader evolution in technology and the marketplace since its adoption.
Under the reforms, an investment adviser relying on the internet adviser exemption will be required to have at all times an operational interactive website through which the adviser provides digital investment advisory services on an ongoing basis to more than one client. The SEC said that in recent years, staff have observed compliance deficiencies by advisers relying on this exemption. According to a 2021 risk alert, nearly half of the examined advisers that claimed the exemption were found to be ineligible and the SEC has cancelled registration in such instances of non-compliance.
The new rule also eliminates the current rule’s de minimis exception by requiring an internet investment adviser to provide advice to all of its clients exclusively through an operational interactive website and to make certain corresponding changes to Form ADV. An adviser relying on the internet adviser exemption will be required to represent on Schedule D of its Form ADV that it has an operational interactive website.
“These amendments modernize a 22-year-old rule to better protect investors in a digital age,” said SEC Chair Gary Gensler. “These changes better reflect what it means in 2024 truly to provide an exclusively internet-based service. This will better align registration requirements with modern technology and help the Commission in the efficient and effective oversight of registered investment advisers.”
The amendments will become effective 90 days after publication in the Federal Register.
Advisors relying on the internet adviser exemption must comply with the rule by March 31, 2025, including the requirement to amend their Form ADV to include a representation that the RIA is eligible to register under the internet adviser exemption.
An adviser that is no longer eligible to rely on the amended exemption and does not otherwise have a basis for registration with the SEC must register in one or more states and withdraw its registration with the commission by filing a Form ADV-W by June 29, 2025.
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