A unique conference took place in London today, with Mark Berman (pictured), the principal of CompliGlobe, offering advice to financial firms in London that are registered with the US Securities and Exchange Commission. The hottest topic on the agenda was the SEC’s reluctance to authorise new firms in the UK because of its trouble dealing with the European General Data Protection Regulation.

The SEC is not taking on new registrants in London at the moment because it is worried that the GDPR will stop them from sharing data with it that pertains to HNW clients. One delegate told Compliance Matters during a coffee break: “The implication is that the SEC can’t launch an investigation against a European investment manager that is SEC-regulated without going through a European data regulator. It’s all to do with changes to Part 3 of the ADV. That’s why the SEC is not registering anybody at the moment.”

Advisors to retail investors who want to receive services primarily for personal, family or household purposes are going to be obliged to fill in Form ADV Part 3.

Other delegates, however, said that the SEC was not disqualifying, and had not disqualified, any existing registrants. This struck many delegates as rather hypocritical because the regulator was obviously deciding who could and could not do authorised business purely on the basis of the date on which it first saw them, rather than on their merits as data protectors.

One SEC regulator piped up: “Even before GDPR we had issues with email, especially with insider trading issues. We want those emails from Europe. I’m amazed that some people are still doing insider trading because it’s so easy to get caught. Mind you, you have to get the smoking gun, that’s the difficult part!”

During a Q&A session, one English attendee asked the panel whether the SEC knew when it was going to be “open for business again.” Two US regulators answered evasively: “We have a registration group in OCIE [the SEC's Office of Compliance Inspections and Examinations]. We’ve tried to be pragmatic. We’ve done it by suspending new registrations till we feel comfortable. We don’t have a timeline.”

The British audience found this answer slightly frustrating and one delegate pressed the panel about whether US regulators were trying to strike a deal on the subject with the various organs of the European Union. The panel said that it was ‘officially OK’ for US and European regulators to swap personal information with each other and that a body called the European Protection Board had been active in this area. One panellist added: “I think there have been discussions.” Another said that the SEC had had “conversations with national authorities and the EU.” Compliance Matters asked the panel whether the various parties were waiting for the results of Schrems II, the follow-up to the epic European Court case. A regulator denied that anybody was waiting for the outcome of any court case.

Another delegate asked the Americans whether there was any news of US negotiations with Switzerland about that country’s version of the GDPR; the answer was a resounding ‘no.’

Despite all this, Robert Plaze, a partner at the firm of Proskauer Rose in Washington DC, had some words of comfort for the financial firms that the SEC is holding at arm’s length: “Any business that wants to become an investment advisor in the US can take advantage of ‘leakage,’ which comes in the form of (a) loopholes and (b) the existence of incumbents. One approach is to go into the secondary market by buying an advisor that is already registered.

“The second way to do it is to come into the US as an exempt reporting advisor or ERA. Businesses of this kind are not required to be registered, because of exemptions in the Dodd-Frank Act that allow you to manage a private fund and thereby enter the US with that. The SEC has no ability to do a moratorium on that. The SEC need not issue an order to allow you to do business in the US.

“In London, there are no limits on the size of fund portfolio or the number of US investors who can come into the pool. If you are an ERA, there are no limits on the amount of assets that you can manage, or the number of US investors in the pool, as long as you are managing the money outside the US.”

* Robert Plaze can be reached on +1 202 416 6692 or at rplaze@proskauer.com