SEC's Gallagher weighs exemptions from Dodd-Frank law

Thu Mar 8, 2012 8:44am EST

* Gallagher: Dodd-Frank imposed broad registration for advisers

* Gallagher: SEC can use its authority to exempt some of those advisers

* Gallagher: Registration creates enormous burdens for private funds

By Suzanne Barlyn

ARLINGTON, Va., March 8 (Reuters) - The U.S. Securities and Exchange Commission can use its authority to exempt certain investment advisers, such as those to private funds, from registering with the agency even if the Dodd Frank Financial reform law directed them to do so, Commissioner Daniel Gallagher said on Thursday.

Gallagher, the agency's newest commissioner, told a group of compliance professionals that new regulations required by the law do not distinguish between the many types of people it is intended to protect, from traditional retail investors to more sophisticated investors who sometimes must meet income and net worth requirements to buy certain products.

That can lead to overly broad and costly regulatory requirements, he said in prepared remarks.

Many higher-end and institutional investors look to private equity and hedge funds to maximize their returns. Under the Dodd-Frank financial reform law, advisers who manage at least $150 million for such funds must now, for the first time, register with the SEC.

Many advisers must also file Form PF with the SEC. The agency will share this disclosure document with the Financial Stability Oversight Council, which will use the information to monitor risks to the U.S. financial system.

But despite the Dodd Frank requirements, the SEC still has authority under other laws to exempt advisers from registration if the exemption is "necessary or appropriate in the public interest," among other things, Gallagher said. Mandatory registration for private fund advisers may be one such circumstance, Gallagher said.

His concerns about drawing clearer distinctions between different classes of investors is playing out as private fund advisers face new compliance responsibilities set in motion by Dodd Frank. They are "alarmed at the looming costs and unintended consequences expected to flow" from the registration requirements, Gallagher said.

The requirements will not protect ordinary retail investors who cannot afford to invest in private equity and hedge funds, Gallagher said, but rather sophisticated investors who can take care of themselves. Keeping up with the mandates will also impose significant burdens on the commission, Gallagher said.

Using the Commission's authority to exempt certain advisers from registration "should not become an effort to undercut or frustrate Congressional intent," Gallagher said. But while the SEC must pay attention to language from the U.S. Congress, there will be circumstances in which the agency should grant relief from registration requirements, he said.

Gallagher was addressing a conference hosted by the Investment Adviser Association. (Editing by Lisa Von Ahn)

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