{"id":13152,"date":"2023-11-20T18:09:27","date_gmt":"2023-11-20T18:09:27","guid":{"rendered":"https:\/\/iqeq.com\/?p=13152"},"modified":"2023-11-20T18:16:49","modified_gmt":"2023-11-20T18:16:49","slug":"u-s-private-fund-reforms-impact-on-the-cfo-cco-role","status":"publish","type":"post","link":"https:\/\/iqeq.com\/insights\/u-s-private-fund-reforms-impact-on-the-cfo-cco-role\/","title":{"rendered":"U.S. private fund reforms: impact on the CFO\/CCO role"},"content":{"rendered":"
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By Jennifer Dickinson, Senior Managing Director, U.S.<\/em><\/p>\n

The U.S. SEC\u2019s recently-adopted private fund reforms<\/a> have staggered compliance dates intended to allow smaller firms (defined as those with under $1.5 billion in assets under management (AUM)) more time to comply. However, time and AUM are not the only important factors in preparing to comply with the new rules. Just as critical is the fact that many firms\u2019 chief compliance officers (CCOs) have another role \u2013 usually that of chief financial officer (CFO).<\/p>\n

Even now, there is regulatory risk associated with multi-hatted CCOs, as the SEC expects firms to fully resource the compliance function, empower their CCOs with complete authority to manage the compliance program, and give visibility into all aspects of the firm\u2019s business.<\/p>\n

There have been several enforcement cases where a lack of time, resources or other issues have led to violations of applicable laws and rules. The private fund reforms add significant workload not just for firms overall, but specifically for the person who holds the CFO and CCO titles.<\/p>\n

In this article, I\u2019ll highlight the key areas in which the CFO\/CCO role will be impacted once the reforms take effect.<\/p>\n

1. Audit requirement<\/h2>\n

Many firms elect to have their special purpose vehicles (SPVs) undergo a surprise examination of their assets. Effective March 14, 2025, that alternative is no longer available.<\/p>\n

The CFO\/CCO will have to contend with a much larger audit season workload, in a climate where fewer people are going into public accounting and the downside risk of not having audits done on time is substantial (see, for example, September 2023<\/a> and September 2022<\/a> enforcement cases).<\/p>\n

If the proposed Safeguarding Rule<\/a> is adopted, the CFO\/CCO\u2019s audit and custody obligations will expand even more.<\/p>\n

2. Quarterly statements<\/h2>\n

The new rule on quarterly statements specifies the timing, format and content of statements that must be provided to all investors in each fund and SPV. Implementation will involve a significant amount of work because all fund and portfolio company fees and expenses need to be reported in specific categories; firms cannot bundle any into overly-broad categories or omit de minimis expenses.<\/p>\n

While a firm should have all the required information, it may be scattered among different teams or live on different systems, which will require a data-mapping exercise.<\/p>\n

If a firm does not use a third-party fund administrator, it will have to develop its own template for the statements as well.<\/p>\n

In many cases, SPVs do not receive reporting on anything more than an annual basis, which will add to both the preparation and ongoing workload.<\/p>\n

Lastly, the deadlines are possibly tighter than what a firm is used to, so CFO\/CCOs should conduct dry runs to ensure they can prepare and deliver the statements in a timely manner.<\/p>\n

3. Restricted activities<\/h2>\n

Compliance with the restricted activities rule will require a data-gathering exercise as well.\u00a0 The CFO\/CCO should review the expense provisions in the offering documents for all of its funds.<\/p>\n

While the consent requirements (passing through costs of investigations and obtaining loans or extensions of credit from a fund) have the Legacy Status mechanism, the disclosure requirements do not. Thus, the CFO\/CCO should know:<\/p>\n