United States: Updating – and Limiting – the Internet Advisers Exemption

By Keri Riemer and Matthew Rogers

On 26 July 2023, the U.S. Securities and Exchange Commission (SEC) proposed amendments (Proposal) to the “internet adviser exemption” set forth in Rule 203A-2(e) under the Investment Advisers Act of 1940, which permits registration with the SEC of certain investment advisers that would not otherwise be eligible for such registration. The proposed reforms would impose new limitations on advisers seeking to rely on the exemption by precluding them from providing advice through a means other than an “operational interactive website” (i.e., a website or mobile application through which the adviser provides “digital investment advisory services” (as defined in the Proposal) on an ongoing basis to more than one client (except during temporary technological outages)).

Currently, in order to rely on the exemption, an internet adviser must, among other things, provide advice to clients exclusively through an interactive website, except that it may provide investment advice to up to up to 14 clients through other means during the preceding 12 months. Under the Proposal, internet advisers could no longer provide advisory services to a client other than through an operational interactive website.

Accordingly, an internet adviser wishing to continue relying on Rule 203A-2(e) to maintain its SEC registration will need to modify its services to comply with the amended rule if the Proposal is adopted without modification. Such an adviser may need to discontinue an advisory relationship with a client if the services are provided outside of an interactive internet website.  Alternatively, an adviser that can no longer rely on the exemption (and does not meet other criteria for SEC registration) would be required to withdraw its SEC registration and instead may be required to register in each applicable U.S. state. Comments on the Proposal should be submitted within 60 days after the Proposal is published in the Federal Register.

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