Senior SEC Officials Discuss Asset Management Examination and Enforcement Initiatives and Priorities for 2012


In several recent public appearances, senior members of the SEC staff have commented on their current examination and enforcement priorities for the asset management industry in 2012. Although each speaker qualified his comments as an expression of solely his own opinion, several common themes emerged from their remarks.

Compliance Concerns

The Office of Compliance, Inspections, and Examination (“OCIE”) is concerned that asset management firms are not committing sufficient resources to compliance. To address this concern, the SEC is consistently asking firms to identify the level of resources they devote to compliance and how they have determined the adequacy of those resources.

The Enforcement staff is looking to bring cases where a firm’s compliance policies and procedures do not satisfy the requirements of Rule 206(4)-7 under the Investment Advisers Act of 1940 and Rule 38a-1 under the Investment Company Act (the “Compliance Rules”). Under this initiative, weaknesses in compliance programs may constitute sufficient violations in and of themselves to justify enforcement action, rather than being treated simply as an add-on to violations of other substantive rules. For example, two recent enforcement actions were brought against “examination recidivists” who did not adequately correct compliance program deficiencies previously identified by the staff, and a third case involved a sloppy compliance program that was a proximate cause for other violations. More cases will continue to arise under the Compliance Rules and an informal “two strikes, you’re out” approach may be applied in the future. Under this approach, the failure to correct compliance deficiencies after a negative SEC comment could result in higher fines and time-out penalties.

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