Ascendent Compliance put together a presentation on Preparation for SEC Examinations.
Last year the SEC examined 9% of advisers which represent 25% of the RAUM. Of those exams, 87% had deficiencies, 25% had significant findings, and 14% were referred to enforcement.
The SEC has implemented a new telephone assessment for offsite remote exams. The examiners do not end up in your office. Unless they find something that catches their attention.
The Never Before Examined Initiative is continuing for advisers registered before 2012.
The Presence Exam Initiative may be winding down. The SEC is still continuing its lengthy routine exams.
“Enhancing Risk Monitoring and Regulatory Safeguards for the Asset Management Industry” speech by SEC Chair Mary Jo White on December 11, 2014 talks about new rule makings and possible wide reaching changes.
In the SEC Report on Objectives 2015 from the Office of Investor Advocate recommends investment advisers being examined every three years and longer than five years without a comprehensive exam.
OCIE is continuing to develop technology to help them with exams to identify fraud, manipulation, and compliance failures. If they have new tools, it’s likely that they will be using them in the exam process.
Based on the 2015 initiatives, the SEC will focus on issues affecting investors’ retirement accounts, including marketing practices and recommendations. There will likely be a focus on placing assets in a firm’s sponsored investment vehicle.
What’s New with the OCIE Document Request Lists?
- Longer exam period for information – 2 years
- New questions
- Slide deck presentation on the firm, affiliated entities and services
- List of all committees, including description, meeting frequency, membership, and keeping of written minutes
- Summary of valuation process
- All emails form particular individuals over a period of time
2015 Examination Initiatives
Based on the 2015 initiatives, the SEC will focus on issues affecting investors’ retirement accounts, including marketing practices and recommendations. There will likely be a focus on placing assets in a firm’s sponsored investment vehicle. OCIE announced three broad areas of priority for 2015:
Retail Investors – Retail investors are being offered products and services that were formerly characterized as alternative or institutional, including private funds, illiquid investments, and structured products. Additionally, financial services firms are offering a broad array of information, advice, products, and services to help retail investors plan for and live in retirement. OCIE will assess risks to retail investors that can arise from these trends.
Market-Wide Risks – OCIE will examine for structural risks and trends that involve multiple firms or entire industries, including: monitoring large broker-dealers and asset managers in coordination with the SEC’s policy divisions, conducting annual examinations of clearing agencies as required by the Dodd-Frank Act, assessing cybersecurity controls across a range of industry participants, and examining broker-dealers’ compliance with best execution duties in routing equity order flow.
Data Analytics – Over the last several years, OCIE has made significant enhancements that enable exam staff to analyze large amounts of data efficiently and effectively. OCIE will use these capabilities to focus on registrants and registered representatives that appear to be potentially engaged in illegal activity.
First Impressions
- Set a tone of cooperativeness
- Set a tone of compliance
- Let them know that you thought about the issues ahead of time
Exam Plan
- What do you do after you get the call from the examiner
- Organization of materials
- FOIA Protection
- Role of consultant
- Role of counsel
- Prepare key personnel for interviews
Improving Your Next Exam
- Fix deficiencies from prior exam
- Respond to deficiencies from current exam
- Set up a training plan to fix problems
- Implement testing and documentation
