The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) announced that it is launching an initiative, as part of its existing National Exam Program, to examine investment advisers who have never-before been examined and who have been registered for three or more years (the Target Firms). The SEC press release on this initiative stated, “[a]s part of the initiative, OCIE will conduct examinations of a significant percentage of advisers that have not been examined since they registered with the SEC.” A letter directed at the target firms of this new initiative (Initiative Letter) outlines two distinct approaches that the SEC may take with respect to an exam of a Target Firm. The first approach is a “risk-assessment” approach, which is designed to allow OCIE to obtain a better understanding of the Target Firm. An exam under this approach may include a high-level overview of a Target Firm’s overall business activities with particular focus on the Target Firm’s compliance program and other documents essential to assess the representations in the Target Firm’s disclosure documents. The second approach is a “focused review.” Under this approach, the OCIE may conduct a comprehensive, risk-based examination of one or more of the following higher-risk areas of a Target Firm’s business and operations: compliance program, filings/disclosure, marketing, portfolio management and safety of client assets.
This initiative does not cover investment advisers to private funds, as such advisers are subject to the “Presence Exam” initiative that was launched in October 2012. Additionally, OCIE notes in the Initiative Letter that the fact that an adviser receives the letter from OCIE does not necessarily mean that it will be examined.
The Initiative Letter is available here.