The Securities and Exchange Commission recently delayed implementation of registration requirements for investment advisers to hedge and private equity funds. For those falling under the mandate for the first time, the reprieve will help them gear up for substantial compliance obligations.

Jason E. Brown, a partner at Ropes & Gray LLP, says firms that haven't been regulated by the SEC will not only have to register for the first time but will face a range of new imperatives to store information and create compliance procedures. They also could face auditing visits from the SEC.

The Dodd-Frank Act, in broadening federal oversight of the financial industry to additional sectors, required a wide variety of fund advisers to register for the first time with the SEC, most notably hedge fund and private equity fund advisers. Venture capital fund advisers were exempt from the registration requirement, and now the SEC is also struggling to define what exactly constitutes a VC fund.

Originally, registration was supposed to occur by July 21, and the need to comply with SEC requirements was to follow immediately.

The SEC said in April that it expected the final registration date would be pushed back until the first quarter of 2012, both for "midsized advisers" -- those managing from $25 million to $100 million in assets -- and for advisers to larger hedge and other private funds who manage at least $150 million in assets.

The main reason is that the SEC is still wrestling with exactly how to determine who needs to register, with the big issue being how to calculate the $150 million threshold. Among the questions, says Brown, is whether to count only funds that have actually been invested toward the $150 million threshold or whether capital committed by investors that a fund has not yet called will also count. The agency is also still examining what the threshold should be for registration of advisers to non-U.S. funds that invest in the U.S.

Whatever the agency comes up with -- and the SEC has said it expects that the final rule will be adopted by July 21 -- the registration will create a number of changes for advisers and their firms. "It's more of a back-office change," says Brown, who has written about the changes for legal publications. "There aren't really going to be material changes in the way firms do deals or raise capital, but there will be a number of compliance obligations."

One of the biggest, he says, is that firms will need to hire or designate a chief of compliance, and some for the first time must develop policies for complying with SEC rules. "Regulated firms will need a compliance manual," says Brown.

Facing regular SEC audits, advisers also are going to become diligent about retaining e-mail and other communications that auditors might demand.

Marketing materials will also have to meet SEC standards, he says. In addition, firms' holdings can't just be in a file somewhere -- they are now to be held by "a qualified custodian." Also, traders will have to start reporting personal securities trading, and their firms must keep track of it.

Finally, firms will have to make provisions for periodic SEC inspections. That means regulators will be coming to the office and going through compliance policies, e-mails and records, he adds. Brown warns that inspections could come with short notice and could last days or several months.

Brown also says SEC registration could bring advisers under SEC "pay to play" restrictions in dealing with a government entity; will force advisers to be careful that statements of past performance meet SEC standards; and may force advisers to report trades for their own accounts.

How much of a problem the changes will cause depends on who ultimately must register, says Brown.

"Until the SEC defines venture capital funds, there is a large class of advisers who don't know whether they will have to register," he says.

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Ira Teinowitz covers financial regulation for The Deal magazine.