The New Jersey Bureau of Securities requires state registered investment advisers to complete and return an annual written examination. Each New Jersey state registered investment adviser is required to answer online the 2013 Annual Examination by May 9, 2013.
Category Archives: Examination
Risk Alert Issued by SEC Identifies Significant Deficiencies Involving Failure of Investment Advisers to Comply with the Custody Rule
March 19, 2013
In a Risk Alert issued March 4, 2013 by the U.S. Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”), it was revealed that “the SEC’s National Examination Program (“NEP”) has observed widespread and varied non-compliance with elements of the custody rule.” Rule 206(4)-2 under the Investment Advisers Act of 1940 (“Investment Advisers Act”), states that an investment adviser has custody of client assets if it or its related person holds, directly or indirectly, client funds or securities or has any authority to obtain possession of them. The Risk Alert indicated that approximately one-third (over 140) of the recent examinations reviewed by the SEC’s National Examination Program staff included custody related issues. The Risk Alert was issued by the SEC’s Office of Compliance Inspections and Examinations to encourage registered investment advisers to review their policies and procedures and examine their practices related to the deficiencies noted in the Risk Alert to ensure that investment advisers are aware of “…their responsibilities under the custody rule to protect client assets.”
Common Investment Advisor Exam Deficiencies
March 12, 2013
With the implementation last year of some of the new laws resulting from the required changes mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), investment advisors should make sure that they are ready for a regulatory examination. Many investment advisors had to change their registration status, most changes were from registration with the U.S. Securities and Exchange Commission (“SEC”) to registration with one or more state securities regulator, and some private fund managers that were previously exempt from investment advisor registration were required to become registered with the SEC. One anticipated outcome from all of these changes is that investment advisors will receive more frequent regulatory examinations. For some investment advisors this may mean that the investment advisor will be audited by a securities regulator for the first time.
In a release issued by the SEC on October 9, 2012, the U.S. Securities and Exchange Commission (“SEC”) announced “Presence Exams” for certain newly-registered investment advisers (investment advisers registered after July 21, 2011). The presence exams are to be conducted by SEC’s Office of Compliance Inspections and Examinations (“OCIE”) through the new National Exam Program (“NEP”) initiative. These “focused, risk-based examinations” will be conducted of investment advisers to private funds registered with the SEC. These Presence Exams will take place over a two-year period and have three primary phases:
On February 21, 2013, the U.S. Securities and Exchange Commission (“SEC”) released its examination priorities for 2013 for the National Examination Program (“NEP”) of the Office of Compliance Inspections and Examinations. The release states that the NEP published these examination priorities to communicate with investors and SEC registered investment advisers about areas that are perceived by NEP staff to have heightened risk, and to support the SEC’s mission “…to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” The 2013 examination priorities “…are aligned with the SEC’s mission by seeking to improve compliance, prevent fraud, inform policy, and monitor firm-wide and systemic risk.”
Many states have unique requirements for their investment advisers. The New Jersey Bureau of Securities, the securities regulator in the state, requires that state registered investment advisers fill out a written examination. These written examinations must be completed annually by the investment adviser firm. The New Jersey Bureau of Securities’ written examination form states that “written examinations do not take the place of on-site examinations, but may alleviate the need to conduct on-site examinations.” Alternatively, information in the written examination questionnaire may raise red flags for theNew Jersey Bureau of Securities and lead to an on-site examination by regulators.
State Registered Investment Advisers Should Expect Increase in Examinations After the Switch
June 21, 2012
As we have discussed in a previous newsletter article, investment advisers switching registration from the U.S. Securities and Exchange Commission (“SEC”) to state securities regulators are likely to see an increase in examinations. According to the North American Securities Administrators Association (“NASAA“), “firms switching to state regulation for the first time can expect thorough inspections generally on a more frequent basis than they may have experienced before.”
