Federal Covered Adviser

The National Securities Markets Improvement Act (NSMIA) divided regulatory authority between:

1. A.FINRA and the statesFINRA regulates broker-dealers, and it plays no role in the adviser split NSMIA created. The federal side of that division is the SEC, which is the body whose jurisdiction preempts state registration for covered advisers and covered securities.
2. B.Only the SECNSMIA preempted the states in defined areas, which is why exclusive federal authority feels close. It did not eliminate state jurisdiction, though: smaller advisers still register with the states, and the states retain antifraud authority even over federal covered advisers.
3. C.Only the statesThis ignores the federal half of the arrangement. NSMIA's central move was to carve out a category of advisers and securities for federal oversight, so state-only authority is the arrangement the statute changed.
4. D.Federal (SEC) and state regulatorsCorrect - NSMIA created the federal/state split.

Why: NSMIA split oversight between the SEC (federal covered advisers) and the states.

A federal covered investment adviser interacting with a state generally:

1. A.Registers with FINRAFINRA is the self-regulatory organization for broker-dealers and their registered people. Investment advisers do not join it, and a federal covered adviser's registration is with the SEC, with at most a notice filing at the state level.
2. B.May need to make a notice filing rather than registerCorrect - notice filing, not registration.
3. C.Is completely unregulated by the stateThis reads preemption too broadly. What the state gives up is the power to require registration of the adviser, not its authority over fraud, and states may also require a notice filing with fees and consent to service of process, so real state involvement remains.
4. D.Must fully register in the stateThis ignores the division of labor that federal covered status creates. Once an adviser falls on the federal side of the line, the state may not impose its own registration on top; the notice filing exists precisely as the lighter substitute for full state registration.

Why: Federal covered advisers register with the SEC and are not state-registered, but a state may require a notice filing.

A federal covered investment adviser registers with:

1. A.The SECCorrect - federal covered advisers register federally.
2. B.The Federal ReserveThe Federal Reserve maintains no adviser registry and accepts no Form ADV. Its jurisdiction covers monetary policy and the banking system, which does not extend to investment advisory firms.
3. C.Each individual stateStates retain a role, which is what makes this the closest wrong answer, but it is a notice filing rather than registration. The state may collect a fee and a copy of the ADV; what it may not do is impose its own registration on a federal covered adviser.
4. D.FINRAFINRA registers broker-dealers and their representatives. No self-regulatory organization registers investment advisers, which is why federal covered advisers deal directly with the SEC.

Why: Federal covered advisers (generally 100M+ in AUM or advising registered funds) register with the SEC; states may require only a notice filing.

A federal covered adviser is still subject to state:

1. A.Antifraud provisionsCorrect - states keep antifraud jurisdiction.
2. B.Net capital rulesFinancial-responsibility requirements are among the areas NSMIA took away from the states for federal covered advisers. A state cannot impose its own net capital or bonding requirements on an adviser the SEC regulates.
3. C.No state authority at allPreemption is substantial but not total, and this answer takes it too far. States keep their antifraud authority, so an Administrator can investigate and bring an action against a federal covered adviser for fraudulent conduct within the state.
4. D.Registration in every stateMulti-state registration is the burden NSMIA was written to eliminate. States may require a notice filing where the adviser does business, but registration in each state is exactly what federal covered status displaces.

Why: Even federal covered advisers remain subject to state antifraud authority.