Bradley attorneys Jeffrey Blackwood and Brian O’Neill were quoted in Hedge Fund Legal & Compliance Digest about what considerations managers should take into account in determining if the new CAB designation is a viable alternative to broker-dealer registration. A modified broker-dealer status called Capital Acquisition Broker would allow private funds to register for a less burdensome broker-dealer designation that takes into account the limited activities they participate in.
In light of the substantial costs associated with registration and that hedge fund managers typically engage in only a select few of a traditional broker-dealer’s activities, there has been a push to either definitively exempt managers from the requirement or establish a new regulatory regime. In response to this issue, FINRA proposed CAB rules which were essentially a reworking of a prior proposal.
“This was, in some ways, a second attempt at trying to accomplish this, but this one was much more well-received by the industry,” Blackwood said.
While the CAB designation is recognition of the need for a less regulated type of broker-dealer, there are still hurdles to clear.
According to O’Neill, “Firms still have the AML requirements. They still have the regulation requirements. They still have to file FOCUS reports and conduct annual audits. A lot of the other requirements are still present. The only [obligation] really taken away is the annual compliance certification and the annual AML compliance review, which is every other year.”
The complete article, “FINRA’s New Capital Acquisition Broker Rules Provide Hedge Fund Managers with Alternative to Broker-Dealer Registration,” appeared in Hedge Fund Legal & Compliance Digest on November 10, 2016. (login required)