October 2014
Practice Group:
Investment
Management
Notification Requirement for Firms Claiming
Compliance with the Global Investment Performance
Standards (GIPS)
U.S. Investment Management Alert
By Michael S. Caccese, Douglas Y. Charton, and Matthew A. Rich
The GIPS Executive Committee has approved a new requirement, effective January 1, 2015,
that any firm claiming compliance with GIPS must annually notify the CFA Institute of such
claim by June 30.1 Each GIPS-compliant firm submitting such notice will have its name
listed on the CFA Institute’s website unless it declines to be publicly listed. Claims of
compliance will be submitted through an online form that is expected to contain basic
information on the firm, similar to the existing notification requirement for firms complying
with the CFA Institute’s Asset Management Code of Professional Conduct.2
On April 7, 2014, the CFA Institute released an exposure draft that sought comment on a
proposed firm compliance notification requirement.3 Despite a mixed reception from the
investment industry and in the comment letters received,4 the GIPS Executive Committee
adopted the requirement. As proposed, the form would require the firm’s name, a contact
person, verification information, whether the firm is a subsidiary of a larger parent, firm
assets, the asset classes managed, and the investment vehicles offered.5 However, the final
version of the form has not yet been released and may differ from the proposed version.
Each firm will have the choice to opt out of listing its name on the CFA Institute’s website as
a firm claiming compliance with GIPS. If a firm does not opt out in its notification form, the
firm’s name and website address will be publicly listed on the GIPS website.
Failure to notify the CFA Institute of a claim of GIPS compliance will be deemed a failure to
comply with GIPS and may call into question the validity of a firm’s claim of compliance,
including any claims made in a firm’s marketing materials. The United States Securities and
Exchange Commission (SEC) has taken a strong position that a firm that advertises its claim
of GIPS compliance in marketing materials but that does not comply with all of the GIPS
requirements is misleading under Section 206 of the Investment Advisers Act of 1940, as
amended (the general anti-fraud provision) and Rule 206(4)-1 thereunder (the advertisement
rule).6
1
Press release located at: http://www.gipsstandards.org/news/Pages/detail.aspx?ID=47.
The CFA Institute’s Asset Management Code of Professional Conduct claim of compliance form is available at:
http://www.cfainstitute.org/ethics/Documents/Codes%20Documents/amc_reg_form.pdf.
3
Exposure Draft of the Requirement for Firms that Claim Compliance with the GIPS Standards
to Notify CFA Institute of Their Claim of Compliance (the “Exposure Draft”), available at
http://www.gipsstandards.org/standards/guidance/Documents/Comments/firm_reg_req_exposure_draft.pdf.
4
Comments available at: http://www.gipsstandards.org/standards/guidance/Pages/ProposedRequirement.aspx.
5
The proposed notification form can be found in the Exposure Draft.
6
See ZPR Inv. Mgmt., Inc., SEC Initial Decision Release No. 602, Admin. Proceeding File No. 3-1526, at 3 (SEC May 27,
2014) (internal citation omitted) (“ZPR”). For a more detailed discussion of the ZPR case and its implications, see the
K&L Gates client alert SEC Administrative Law Judge Bars Investment Manager for Misrepresenting GIPS Compliance,
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Notification Requirement for Firms Claiming Compliance
with the Global Investment Performance Standards (GIPS)
While some firms may view a public listing on the CFA Institute’s website as a form of free
advertising, such a listing invites additional regulatory scrutiny of a firm’s claim of
compliance. Furthermore, the public listing of a firm that only manages privately placed
funds relying on Regulation D under the Securities Act of 1933 may raise questions about
whether such listing constitutes general advertising or solicitation to buy interests in such
funds. Rule 506(b) of Regulation D provides a safe harbor from the registration
requirements under the Securities Act for offerings that, among other things, do not involve
any general advertising or solicitation.7 Any public website advertisement for such an
offering would be deemed a general solicitation undermining a fund’s reliance on Rule 506(b)
of Regulation D. Similarly, firms that sponsor fund offerings relying on the safe harbor
provided by Regulation S under the Securities Act may also want to consider the implications
of a public listing on the CFA’s website. Offerings may rely on the Regulation S safe harbor
only if they do not involve any directed selling efforts or otherwise condition the United States
market for any offered security.8 To the extent that a firm’s listing on the CFA’s website
might be deemed a promotion of its managed fund in the United States or conditioning the
domestic market, such fund’s reliance on Regulation S may be put in jeopardy. Accordingly,
we recommend that firms carefully consider the benefits and risks of a public listing on the
CFA Institute’s website in completing and submitting their notification forms in the coming
year.
Compliance Dates
This requirement will become effective as of January 1, 2015. The annual deadline to notify
the CFA Institute of compliance is June 30. The final version of the online notification
submission form has not yet been released.
Authors:
Michael S. Caccese
michael.caccese@klgates.com
+1.617.261.3133
Douglas Y. Charton
douglas.charton@klgates.com
+1.617.951.9192
Matthew A. Rich
matthew.rich@klgates.com
+1.617.951.9285
available at http://www.klgates.com/sec-administrative-law-judge-bars-investment-manager-for-misrepresenting-gipscompliance-06-17-2014/.
7
Regulation D, 17 CFR § 230.501 et seq., available at http://www.ecfr.gov/cgi-bin/textidx?SID=647faaebe6bac0a7cf1d52b36095c133&node=sg17.3.230_1498.sg11&rgn=div7.
8
Regulation S, 17 CFR § 230.901 et seq., available at http://www.ecfr.gov/cgibin/retrieveECFR?gp=&SID=647faaebe6bac0a7cf1d52b36095c133&n=pt17.3.230&r=PART&ty=HTML#se17.3.230_1901.
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Notification Requirement for Firms Claiming Compliance
with the Global Investment Performance Standards (GIPS)
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