On Oct. 26, 2022, the Securities and Exchange Commission (SEC) proposed a new rule under the Investment Advisers Act of 1940 (Advisers Act) in relation to registered investment advisers (adviser) outsourcing certain services or functions. Included in the proposed rule were related amendments to the investment advisor registration form to collect census-type information about the service providers as well as related amendments to the Advisers Act books and records rule. The rule aims to reduce any harm to the investing public that can arise from an adviser outsourcing services without proper oversight.
Prior to engaging a third-party service provider to perform a covered function, advisers will be required to determine through due diligence if it would be appropriate to outsource a function to that service provider by assessing six elements.
The proposed rule also requires the adviser to periodically monitor the service provider’s performance and reassess the selection of said service provider. The adviser would need to maintain books and records in relation to the oversight obligation and report census-type information under the rule. Comments on the proposal are due to the SEC by Dec. 27, 2022.
This new oversight requirement aims to add additional oversight to aid the investing public to ensure that proper due diligence and monitoring is completed when outsourced services are being used. The use of outsourced services does not change the obligation of the adviser to their clients, and these rules will aim to ensure sufficient assessment is completed.
Information included above was sourced from the SEC website.