Category: Office of Compliance Inspections and Examinations (OCIE)
As the world is navigating through COVID-19 and as we are focused on our health and well-being as we self-quarantine and engage in social distancing to do our part to stop the spread, our markets remain open, active, and volatile, and the U.S. Securities and Exchange Commission (“SEC”) has recently made clear that they will continue to be an active overseer.
The SEC, through its Office of Compliance Inspections and Examinations (“OCIE”), recently issued its most detailed cyber guidance to date. OCIE had previously issued several cybersecurity risk alerts over the past few years. This most recent release, however, offers much more than a risk alert. OCIE’s “Cybersecurity and Resiliency Observations” goes into significantly more detail than OCIE’s prior risk alerts in this area and is fashioned in a vastly different and more user-friendly format. Thus, it is required reading for SEC regulated entities because, rest assured, it will be closely followed and applied by OCIE staff conducting cyber examinations, as well as by the Division of Enforcement’s “Cyber Unit.”
On August 29, 2019, the SEC filed a complaint against a registered investment adviser alleging failures to disclose four categories of conflicts of interest and seeking disgorgement of $10 million in undisclosed compensation. This litigated action was filed within a month of the SEC filing a litigated complaint against another firm alleging failing to disclose material conflicts of interest related to revenue sharing, despite that advisory firm having self-reported pursuant to the SEC’s Share Class Selection Disclosure Initiative (“SCSD Initiative”).
Based on these litigated actions (and despite the SCSD Initiative being over 18 months old), the SEC’s Division of Enforcement continues to focus its investigative and litigation resources on “Main Street” and to aggressively pursue registered investment advisory firms for disclosure violations involving actual or potential conflicts of interest.
In this most recent litigated action, not surprisingly, the SEC’s allegations with respect … Read More »
The SEC’s OCIE recently issued a Risk Alert focusing on compliance issues related to Regulation S-P, the primary SEC rule governing compliance practices for privacy notices and safeguard policies for investment advisers and broker-dealers. The Risk Alert summarizes the OCIE’s findings from two-year’s worth of issues identified in deficiency letters to assist investment advisers and broker-dealers in adopting and implementing effective policies and procedures for safeguarding customer records and information pursuant to Regulation S-P.
Pursuant to their fiduciary duties, investment advisers have certain obligations to seek out “best execution” for client transactions. The SEC’s Office of Compliance Inspections and Examinations (OCIE) recently issued a Risk Alert identifying deficiencies found during examinations of investment advisers’ compliance with their best execution obligations.
In this alert, partner Jim Lundy and associate Kellilyn Greco outline OCIE’s findings, including background on best execution, notable deficiencies, and recommended best practices.
Read the full alert.
Over the last two weeks, the SEC has put robo-advisers on notice that they are on the staff’s radar. First, on February 23, 2017, the SEC’s Division of Investment Management, along with the SEC’s Office of Compliance, Inspections, and Examinations, issued a Guidance Update for robo-advisers. The term “robo-adviser” refers to registered automated investment advisers that provide investment advice that uses computer algorithms. Robo-advisers generally collect information about a client’s financial goals, income, assets, investment horizon, and risk tolerance by way of an online or electronic questionnaire. With limited human interaction, robo-advisers use this information to create and manage investment portfolios for clients. Robo-advisers are often more economical than traditional investment advisers. Robo-advisers, which began as an appeal to millennials, are now widely becoming popular with all age groups and types of investors.
The Guidance Update focused on in three unique … Read More »
Last week, the Securities and Exchange Commission (SEC) Acting Chairman, senior leadership across Divisions and Offices, and former SEC Commissioners spoke at the “SEC Speaks” Conference 2017. Senior leadership from the SEC’s Office of Compliance Inspections and Examinations (OCIE) used its panel and workshop to provide guidance on the reshaping of its examination programs that it began in 2016. Below we outline the revamped OCIE.
OCIE’s Reorganization & Reallocation of Resources
The OCIE panel included OCIE’s Acting Director and its Deputy Director. The commentators for the panel were former SEC Chairman Hon. Harvey L. Pitt and former SEC Commissioners Hon. Paul S. Atkins and Hon. Daniel M. Gallagher. At the beginning of the presentation, OCIE’s Acting Director reminded the audience that OCIE’s mission is to protect investors, ensure market integrity, and support responsible capital formation through risk-focused strategies that: 1) improve compliance; … Read More »
On February 7, 2017, the Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert discussing the five most frequent compliance topics identified in OCIE examinations of investment advisors. The Alert was compiled based on deficiency letters from over 1,000 investment adviser examinations completed during the past two years. The top five topics are: (1) the Compliance Rule; (2) Regulatory Filings; (3) the Custody Rule; (4) the Code of Ethics Rule; and (5) the Books and Records Rule.
The Compliance Rule
The Compliance Rule requires: (1) written and policies and procedures reasonably designed to prevent violations of the Advisers Act; (2) annual review of the policies and their implementation; and (3) a chief compliance officer who monitors the policies and procedures. Examples of common Compliance Rule problems included:
Advisers did not follow their compliance policies and procedures;
Annual reviews were not performed or … Read More »
On January 12, 2017, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) announced its examination priorities for 2017. This year’s priorities are focused around three topics: (1) retail investors, (2) senior investors and retirement investments, and (3) market-wide risks. These priorities affect investment advisers, investment companies, broker-dealers, transfer agents, clearing agencies, private fund advisers, national securities exchanges, and municipal advisers.
Protecting retail investors remains a primary concern of OCIE. So it’s no surprise that its detailed areas of focus continue to include: risks related to electronic investment advice (i.e. “robo-advising”), “wrap fee” programs where investors are charged a single fee for bundled advisory and brokerage services, and “Never-Before Examined Investment Advisers,” an initiative started in 2014. OCIE will also continue to focus on its Exchange-Traded Funds (ETFs).
To protect senior investors, OCIE will continue its ReTIRE initiative with focuses on investment … Read More »
The Securities and Exchange Commission (SEC or Commission) Office of Compliance Inspections and Examination (OCIE) issued a Risk Alert on October 24, 2016, titled “Examining Whistleblower Rule Compliance.” This recent Risk Alert continues the SEC’s aggressive efforts to compel Rule 21F-17 compliance and puts the investment management and broker-dealer industries on formal notice that OCIE intends to scrutinize registrants’ compliance with the whistleblower provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank). By way of background, Dodd–Frank established a whistleblower protection program to encourage individuals to report possible violations of securities laws. Importantly, in addition to providing whistleblowers with financial incentives, Rule 21F-17 provides that no person may take action to impede a whistleblower from communicating directly with the SEC about potential securities law violations, including by enforcing or threatening to enforce a severance agreement or a … Read More »