In a previous blog post relating to the licensing of private equity firms in Hong Kong, I had explained that the Hong Kong securities regulator (i.e., the Securities and Futures Commission (“SFC“)) looks at whether a company is ‘carrying on a business’ in Hong Kong as one of the key factors to determine whether a company’s activities trigger an SFC licensing requirement. In fact, this is an approach adopted by many global regulators, including the those in Asia (such as the Monetary Authority of Singapore (“MAS“) in Singapore).

This approach is not, however, fully adopted by the financial regulators in the United States of America (“US“).

As a general rule of thumb, companies that have a physical presence in the US and engage in business activities which are considered as ‘regulated activities’ are required to hold a license (or a ‘registration’) with the relevant regulator in the US (which is the same case for companies in Hong Kong and Singapore).

Companies that are not incorporated in the US and do not have a presence in the US (i.e., do not have an office, employee staff, maintain a bank account in the US etc.) (hereinafter referred to as ‘non-US fund managers’), however, may be required to hold a quasi-license with the US regulator. This is an approach which is generally different to the one adopted in Hong Kong and Singapore.

More specifically, non-US fund managers (e.g., Hong Kong or Singapore fund managers) who provide / are attempting to provide (e.g., engaging in solicitation / marketing activities) certain regulated services to US investors may well be required to register with the securities regulator in the US (i.e., the Securities and Exchange Commission (“SEC“)). This registration is commonly known as an Exempt Reporting Advisor (“ERA“) and effectively allows non-US fund managers (or advisors as they’re commonly referred to in the US) to manage the capital of US investors through a fund vehicle. It is important to note that should a non-US fund manager wish to manage US investors’ capital through a segregated managed account (i.e., not through a fund), they are required to apply to become a Registered Investment Advisor with the SEC which is a registration that has far more stringent compliance requirements compared to that of an ERA.

In addition to applying to become an ERA, non-US fund managers are also required to make filings to the SEC and potentially State regulatory bodies should they wish to market a fund under their management to US investors. These filings are called Regulation D and Blue-Sky filings.

As is generally the case with financial licensing, there are various permutations with regards to registrations in the US for non-US companies however the key take-away from this blog is that non-US fund managers who are looking to provide services to US investors should carefully consider whether a registration is needed and if so, which one.

Should you wish to find out more about financial licensing in the US, please feel free to reach out to us directly on info@pcc-compliance.com.