One area that often poses challenges for compliance professionals is the complex world of Blue Sky filings. As compliance becomes an increasingly critical aspect of fund operations, understanding the nuances of Blue Sky filings becomes paramount. Let’s delve into the intricacies of Blue Sky filings and how you can help your fund navigate this regulatory landscape with confidence.
What are Blue Sky filings?
Blue Sky filings are in response to Blue Sky Laws which are state regulations established as safeguards to “protect investors against fraudulent sales practices and activities.” Blue Sky laws vary from state to state and typically require sellers to register their securities offering and provide financial details of the deal and the entities involved before their offering can be sold in a particular state, unless a specific state exemption is available. Firms must comply with federal regulations and state securities laws and regulations in the states where securities are offered and sold. As a result of this registration, investors have verifiable information on which to base their judgement and investment decisions.
Why are Blue Sky Filings Important?
Issuers who fail to comply with blue sky filings requirements can damage a firm’s reputation and erode investor trust. Non-compliance with Blue Sky filing requirements can also result in severe consequences, including hefty fines and even criminal charges. Altogether these consequences can impact a firm’s ability to operate and grow.
How do I submit my private fund’s Blue Sky filing?
Since Blue Sky filings have to be submitted to each individual state, submission rules and details vary. While some states accept Blue Sky filings electronically through the North American Securities Administrators Association (NASAA) Electronic Filing Depository System (EFD), other states require paper filings.
Note: Some RIA firms that advise private funds are required to file a Form D via the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system or blue sky filings with each state from which funds are raised and investors reside.
The order of process is:
- Set up an EDGAR account.
- Set up an account for the fund Form D.
- Submit the filing to the SEC Blue Sky Filings.
- Submit a state filing for each state where an investor is domiciled.
Regulation D and Form D filings
Firms must file their Form D within 15 days after the first sale of securities in the offering. Because of that, the date of first sale is the date on which the first investor is committed to invest. The SEC does not charge filing fees for Form D filing notices or amendments.
Note: Determining which, if any, registration exemption applies should be done via a legal opinion from a competent securities attorney.
How can compliance teams ensure compliance with Blue Sky filing requirements?
Here are some key steps your compliance team can take to ensure your firm is in compliance with Blue Sky filing requirements:
1. Stay informed about Blue Sky requirements.
Regularly monitor updates and changes to blue sky requirements in relevant states. Resources like the NASAA website and state securities regulators’ websites provide valuable information. Your compliance team can also consider subscribing to industry publications and newsletters to stay informed about emerging trends and best practices in blue sky compliance.
Because blue sky filing requirements vary from state to state, the annual amendment requirements vary as well. While some states may not require an annual amendment, other states may require blue sky amendments to be submitted annually. Your firm’s Chief Compliance Officer (CCO) should review your state’s requirements annually, as updates may have been made to the previous year’s rules and regulations.
2. Develop a comprehensive compliance program that addresses Blue Sky requirements.
Blue Sky state filings must also be submitted within 15 calendar days of capital being received. That said, it’s important that your firm establishes a well-defined Blue Sky compliance program with clear policies and procedures. Additionally, your compliance program should include processes for tracking and managing Blue Sky filing deadlines and requirements for the respective state wherein your firm issues securities. Your compliance team should also conduct regular internal audits to identify and address any potential compliance gaps.
3. Invest in technology that streamlines your firm’s Blue Sky filing processes.
Consider implementing compliance software solutions designed to automate and streamline Blue Sky filing processes. While many firms might be relying on manual processes to manage its compliance with Blue Sky requirements, technology can help your firm avoid the risks of relying on manual processes, like human error. Not only that, but compliance technology can enable your firm to leverage data analytics tools to gain insights into filing patterns and identify potential risks.
4. Leverage compliance expertise to help your firm navigate Blue Sky requirements.
Consider seeking assistance from compliance consultants and legal experts who specialize in securities laws. While your compliance team can manage your firm’s program on its own, outside counsel can offer a different perspective and efficient solutions your firm might not have considered. Additionally, a competent securities attorney could determine which, if any, registration exemption applies.
Note: COMPLY does not offer legal services of any kind.
5. Foster a culture of compliance surrounding Blue Sky requirements.
Educate your employees about how they can do their part to ensure compliance with Blue Sky requirements. Additionally, your compliance team should regularly review and update training programs to ensure employees are up to date on the latest regulatory requirements.
Blue Sky compliance with Confidence
COMPLY offers tailored consulting and technology services to help you ensure adherence to Blue Sky requirements, effectively manage risk and stay up-to-date on the latest regulatory developments.
COMPLY’s Private Fund Platform provides tools to manage and automate compliance processes and streamline regulatory filings such as Blue Sky filings, all in a centralized location saving firms time and money and providing them reassurance they are meeting all compliance requirements.
As the year comes to a close and the regulatory landscape continues to evolve, you cannot afford to fall behind. By choosing COMPLY, you gain a trusted and reliable partner and guide.
Ready to elevate your firm’s Blue Sky filing processes? Let’s talk!