The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) has published its list and discussion of examination priorities for the investment management industry in 2013, which includes both market-wide initiatives and those relevant to specific industry areas. This Alert focuses on elements of the announcement that are of particular relevance to investment managers, where themes of conflicts of interest, risk management, and disclosure appear to take center stage.
Market-Wide Initiatives -
OCIE, through its National Examination Program (the “NEP”), has identified four market-wide examination priorities. These initiatives include (i) enhanced use of quantitative and qualitative tools, tips, and investor complaints to identify fraudulent or unethical behavior; (ii) continued engagement with the senior management and boards of registered entities to assess a firm’s “tone from the top” regarding regulatory compliance and risk management; (iii) conflicts of interest, with a focus on a firm’s overall conflict mitigation framework and the adequacy of its related disclosures; and (iv) a new focus on information technology controls, particularly operational capability, market access, information security, outage risks, and compromises to data integrity. These four general initiatives are expected to guide the NEP’s sector-specific priorities.
Investment Adviser and Investment Company Priorities -
The NEP’s Investment Adviser-Investment Company Program (the “IA-IC Program”) detailed a number of examination priorities specific to registered investment advisers and registered investment companies. The NEP categorized each priority as an ongoing risk, new and emerging risk or policy topic. “Ongoing risks” have existed for a sustained period and are likely to continue for the foreseeable future. “New and emerging risks” represent issues and business practices that present an increased risk due to changes and developments in the industry. “Policy Topics” are areas in which the NEP has an interest in gaining a better understanding of particular practices or the practical impact of specific rules and guidance. While each examination will be tailored to the issues and practices specific to the registrant, the staff perceives the following as the highest risks to investors and the integrity of the markets.
Please see full alert below for more information.
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Topics: AML, Broker-Dealer, CFTC, Compliance, Conflicts of Interest, Fund Managers, Investment Adviser, JOBS Act, Marketing, Money Market Funds, NEP, OCIE, Pay-To-Play, Private Equity Funds, Risk Assessment, SEC
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