The best approach for an investment adviser firm to prepare for a regulatory examination begins with ongoing compliance training. A report released by the U.S. Securities and Exchange Commission (“SEC) on February 2011, stated “In most cases, the staff considers the quality of the [investment adviser’s] compliance systems and its internal control environment when determining the scope of the examination and the areas to be reviewed.” Investment advisers with a vigorous compliance program, including training and preparing for regulatory examinations, will find that regulatory audits are more likely to progress smoothly. Investment adviser firms that fail to demonstrate a solid understanding of their investment adviser’s compliance program will likely leave the securities regulator with concerns that the investment adviser is failing to protect the safety of its client’s assets. The examiners may deem it necessary to seek further information and request additional documentation from the investment adviser. Failure to provide requested documentation and a display of an inadequate compliance program will likely be the result of a deficiency letter, and/or remedial or enforcement action against your investment adviser firm. In the same report discussed above, the SEC has stated that unfortunately, “most examinations conclude with a deficiency letter.”
Category Archives: SEC Inspection
With the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), mid-sized investment adviser firms (firms with assets under management between $25 million and $100 million in assets under management) will now be required to switch from federal to state regulation. One of the anticipated outcomes resulting from this change that should be notice by all registered investment advisers is more frequent regulatory examinations. As stated by the North American Securities Administration 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 had experienced before. Most advisers should find that thorough inspections and strong internal compliance benefit customer and firm alike.” Additionally, in a study conducted by the staff of the U.S. Securities and Exchange Commission (“SEC”) under the requirements of Section 914 of the Dodd-Frank Act, released January, 2011, it was indicated that, “The Staff expects that the frequency of examinations of registered investment advisers could increase following the effective date of Title IV as a result of a substantial decrease in the number of registered investment advisers, many of whom will transition from federal to state registration.”
New Areas of Focus by SEC Staff during Investment Adviser Examinations
November 07, 2008
During a recent speech to the National Society of Compliance Professionals, an official of the U.S. Securities and Exchange Commission (“SEC”) identified certain new areas of focus by the SEC examination staff due to these volatile markets.
