SEC Narrows State Registration Exemption for Internet Investment Advisers

The SEC adopted final amendments to exemptions permitting certain internet investment advisers to register with the SEC, rather than to register with the States.

In the final amendments to Rule 203A-2(e) ("Exemptions from prohibition on Commission registration"), the SEC explained: the SEC intended the original Internet Adviser Exemption to be a "narrow exemption for certain investment advisers that did not fall neatly within the framework established by Congress" to divide regulatory authority between state regulators and the SEC. The SEC stated that the final amendments will "better align current practices in the investment adviser industry with this narrow exemption" and were designed to reflect the "broader evolution in technology and the marketplace that has occurred since the rule [was] adopted."

The amendments:

• require an investment adviser relying on the exemption to at all times have an operational interactive website through which the adviser provides investment advisory services on an ongoing basis to more than one client;
• eliminate the current rule’s de minimis exception for non-internet clients, thus requiring an internet investment adviser to provide advice to all of its clients exclusively through an operational interactive website; and
• amend Form ADV to require an adviser relying on the internet adviser exemption as a basis for registration, to represent on Schedule D of its Form ADV that, among other things, it has an operational interactive website.

SEC Chair Gary Gensler said that, in 2021, staff observed that half of the examined advisers that claimed the exemption were ineligible. Chair Gensler stated that the amendments "better reflect what it means in 2024 truly to provide an exclusively internet-based service."

The amendments will become effective 90 days after publication in the Federal Register.