The Securities and Exchange Commission has sent a letter dated October 9, 2012 (Letter), to investment advisers that registered with the SEC on or after the July 21, 2011 effective date in which the rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act became effective (Newly Registered Advisers). The Letter introduces Newly Registered Advisers to the SEC’s National Exam Program (NEP) administered by the Office of Compliance Inspections and Examinations (OCIE) and provides information about upcoming examinations of certain Newly Registered Advisers and the topical areas that may be examined.
In the Letter, the SEC states that the NEP is launching an initiative to conduct focused, risk-based examinations of Newly Registered Advisers that will take place over the next two years (Presence Exam Initiative) in three phases—the engagement phase, the examination phase and the reporting phase.
The Letter alerts recipients to the fact that during the current engagement phase of the Presence Exam Initiative, the NEP staff is reaching out to Newly Registered Advisers and informing them of their obligations under the Investment Advisers Act of 1940 and the rules thereunder, the Presence Exam Initiative and OCIE’s practice of engaging directly with firms’ senior management. The Letter provides resource references for Newly Registered Advisers to review.
The Letter informs Newly Registered Advisers that during the examination phase of the Presence Exam Initiative the NEP staff will review higher-risk areas of the business and operations of selected Newly Registered Advisers, including marketing, portfolio management, conflicts of interest, safety of client assets (i.e., custody) and valuation procedures. After the examination phase, the NEP intends to report its observations to the SEC and the public.
Click here to read the SEC’s October 9, 2012 letter to Newly Registered Investment Advisers.