I didn’t manage to get down to Washington DC to be there in person, but I’ve been watching the webcast of the Compliance Outreach Program National Seminar 2018 For Investment Adviser and Investment Company Senior Officers this morning.
This is the agenda and my notes so far.
Introductory Remarks from SEC Directors
Speakers:
- Dalia Blass, Director, Division of Investment Management
- Peter Driscoll, Director, Office of Compliance Inspections and Examinations (National Exam Program)
- Stephanie Avakian, Co-Director, Division of Enforcement
Good policy starts with good information. To get the information you need to interact with others. The SEC wants to engage with compliance professionals to get better information to be able to make better policies.
They wanted to avoid CCO liability, but it was one of the most asked question.
One category are cases where the CCO was actively involved in the malfeasance or engaged in misleading regulators. This is the biggest category.
The second is where the CCO had a clear responsibility to implement a procedure and failed to.
There is a new alert coming out later today on fees and expenses. (Here it is: Most Frequent Advisory Fee and Expense Compliance Issues Identified in Examinations of Investment Advisers (PDF))
Insights from SEC Leadership Regarding Program Priorities
Speakers:
- Paul Cellupica, Deputy Director, Division of Investment Management
- C. Dabney O’Riordan, Co-Chief, Division of Enforcement, Asset Management Unit, Los Angeles Regional Office
- Kristin Snyder, Co-National Associate Director, National Exam Program, San Francisco Regional Office
Update on certain National Exam Initiatives
Fiscal year 2018 priorities
Update on certain fiscal year 2017 priorities
A sunshine act notice went out for a meeting on April 18. There is a continuing effort to avoid investor confusion between the different type of financial firms. The subject matters of the Open Meeting will be the Commission’s consideration of:
- whether to propose new and amended rules and forms to require registered investment advisers and registered broker-dealers to provide a brief relationship summary to retail investors.
- whether to propose a rule to establish a standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.
- whether to propose a Commission interpretation of the standard of conduct for investment advisers.
The SEC will focus on ETFs. All of them are operating on exemptive orders. It makes sense to standarize the platforms instead of ad hoc rulings.
The Volker Rule is still alive and the SEC is going to keep working on it. But it sounds like the SEC wants to simplify it and remove some of the compliance burdens. Given the number of agencies involved, the SEC is just one player.
Fair Act is being considered regarding reports on various companies and wants to extend it to investment companies.
The SEC is considering a revamp of the marketing rules for investment advisers. There will be a particular focus on the anti-testimonial rule and its interaction with social media.
The share class initiative is continuing for enforcement. There was an emphasis to fix the problem before the SEC finds out if this has been an issue at your firm.
For exams, there is a focus on retail investors and in particular those saving for retirement. This includes a focus on how firms deal with older clients. The ReTIRE Initiative is still going strong. (They took great stride to point out that private fund investors are often retail investors.)
Exams are still focused on visiting firms that have never been examined. They are continuing the new registrant program.
The SEC has been learning how to use Form PF. It has been helping the SEC to inform its rule-making efforts. The experience with Form PF led to the separately-managed accounts questions on Form ADV.
Question & Answer Session 1
Speakers:
- Ahmed Abdul-Jaleel, Assistant Regional Director, National Exam Program, Chicago Regional Office (Moderator)
- Brian Blaha, Staff Accountant, National Exam Program, Denver Regional Office
- Sara Cortes, Assistant Director, Division of Investment Management, Investment Adviser Regulation Office
- Louis Gracia, Deputy Associate Regional Director, National Exam Program, Chicago Regional Office
- Barbara Gunn, Assistant Director, Division of Enforcement, Asset Management Unit, Fort Worth Regional Office
- Michael Spratt, Assistant Director, Division of Investment Management, Disclosure Review Office
When you get a document request list, ask questions if you are unsure what it’s asking for. If it’s going to take longer to produce the documents, let them know.
As for thoughts on the private equity fund exams and enforcement cases, does the SEC think the industry has changed? Yes. Limited partners are more informed. It’s not just fund managers, but gatekeepers who have failed to do their job of being a check on fund managers.
There was a fair amount of the liquidity rule. But since it does not apply to private funds, I’ve not been paying much attention to it or the questions about it.
One question was on anti-money laundering. It’s not the SEC who would be issuing the rules. It’s up to FinCEN. The SEC merely provides technical support.
Fees and Expenses Impacting Retail Investors
Speakers:
- Louis Gracia, Deputy Associate Regional Director, National Exam Program, Chicago Regional Office (Moderator)
- Adam Aderton, Assistant Director, Division of Enforcement, Asset Management Unit
- Jennifer Porter, Branch Chief, Division of Investment Management, Investment Adviser Regulation Office
- Nicole Tremblay, Senior Vice President and Chief Compliance Officer, Weston Financial
Lots of this panel’s material is in the new National Exam Program Risk Alert that came out today: Most Frequent Advisory Fee and Expense Compliance Issues Identified in Examinations of Investment Advisers.
One panelist pointed out that “fees are negotiable” is generally not a good fee disclosure. Advisers should have a fee schedule. If you let one client negotiated fees, you should state that lower fees can be negotiated.
The Sessions continue this afternoon, but I had to step away.
