Connecticut Department of Banking Responds to Dodd-Frank Provisions
with New Guidelines for Investment Advisers

Today, Connecticut Banking Commissioner Howard F. Pitkin announced he had issued three orders providing the securities industry with guidance on how Connecticut would treat certain investment advisers following passage of The Dodd-Frank Wall Street Reform and Consumer Protection Act.

The federal legislation permitted more investment advisers to pursue state registration by raising the regulatory cap on assets under management to $100 million.  As a result, advisers with up to $100 million in assets under management could register with the states rather than the Securities and Exchange Commission (SEC).  Before the law change, state registration responsibility was limited generally to advisers with less than $25 million in assets under management.

The Dodd-Frank legislation takes effect July 21, 2011.  At that time, states expect an influx of adviser registrants who had previously been SEC-registered, but whose assets under management no longer qualify them for federal registration.  To ensure a more seamless transition, the SEC issued final rules on June 22 that would delay the registration switch to 2012.

The first Connecticut order, issued on July 11, 2011, states that investment advisers switching from federal to state registration would have until June 28, 2012 to register in Connecticut.  This time frame is in step with the new SEC rules.  The first order also defers state notice filing and registration requirements to March 30, 2012 for advisers to private funds who had relied on Section 203(b) of the Investment Advisers Act of 1940 in not pursuing federal registration.  The Dodd-Frank legislation repealed the private fund exemption in Section 203(b) effective July 21, 2011.

The second Connecticut order takes effect on July 21, 2011, and provides a state exemption from registration for investment advisers to venture capital funds and small business investment companies.  Also included in the order are advisers to private funds having less than $150 million in assets under management as long as the adviser complies with federal reporting requirements and is not subject to an administrative, civil or criminal sanctions that would disqualify it from state registration in Connecticut.  Advisers registered with the Commodity Futures Trading Commission (CFTC) were also exempted from state registration.

The third Connecticut order updated the definition of “client” for purposes of the state de minimis exemption to reflect federal law changes.

“It is my hope that these new orders will allow for investment advisers to continue to provide quality services to their clients here in Connecticut,” commented Commissioner Pitkin.  “Any adviser with questions on these orders is urged to contact the department’s Securities Division for information on how to best work within these new parameters.”