Family Matters: The Family Office Exemption from SEC Registration Could Change

WHAT HAPPENED?

Recently, U.S. Congresswoman, Alexandria Ocasio-Cortez introduced The Family Office Regulation Act of 2021 (4620) to amend the Investment Advisers Act of 1940 to require regulatory oversight of family offices. The proposal aims to limit the exemption to family offices with less than $750 million in assets under management. Family offices exceeding this threshold would be required to file as an exempt reporting adviser (ERA) with the SEC.

WHY DOES THIS MATTER?

As it stands now, generally all family offices, regardless of asset size, are exempt from the requirement to fully register with the SEC as investment advisers. Family offices, which manage assets owned by family members are generally characterized as having only family members as clients, being wholly owned by family members, controlled exclusively by family members or entities, and does not hold itself out as an investment adviser to the public. Further, Section 409 of the Dodd-Frank Wall Street Reform and Consumer Protection Act permitted certain “grandfathered” family offices from SEC registration.  H.R. 4620 would repeal that clause as well.

WHAT DOES THIS MEAN?

Family offices would need to review:

  • the level of assets under management
  • identify any affiliated persons to the family office who are subject to an SEC order conduct comprising fraud, manipulation, or deceit
  • whether the family office has been relying on the Dodd-Frank Act exemption
  • highly-leveraged assets or engagement in high-risk activities (Note: “highly leveraged” and “high-risk activities” are not defined within H.R. 4620)

The U.S. House of Representatives will be back in session soon, meaning family offices should remain aware of the progression of H.R. 4620. Should this pass as it currently stands, many family offices will have to provide new data to the SEC and the exemptions available will significantly narrow.

By | 2021-09-28T22:25:56+05:00 Sep 27th, 2021|Fairview® Flash Reports|

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