Private Equity Groups: Don’t Get Caught in a Tangled Web of Regulations

Thoughtware Article Published: Nov 01, 2014
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The complexity and rate of change of compliance requirements for financial services entities have dramatically increased since the financial crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has greatly expanded regulatory scope to include many private equity (PE) groups and added new reporting, record-keeping and inspection requirements. These changes have greatly increased the complexity of the regulatory framework for PE funds, which previously enjoyed many exemptions from oversight.

PE groups frequently use multiple public accounting firms to audit individual portfolio companies and provide nonaudit services to address business needs. How funds are structured and how management uses and distributes audited financial statements may affect regulatory compliance. While using various holding companies for acquisitions may be beneficial for tax or legal purposes, the presence of minority interests in these structures can affect compliance with custody and auditor independence rules. These relationships must be regularly and carefully reviewed.


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