SEC Releases 2014 Exam Priorities
The SEC’s National Examination Program of the Office of Compliance Inspections and Examinations released its 2014 Examination Priorities. The NEP identified several “New and Emerging Issues” for advisers: advisers at least three years old that have never been examined; continued presence exams for hedge and private equity managers; wrap fee programs; quantitative trading models; and disguised distribution payments. Ongoing “Core Risks” that will continue to garner OCIE attention include failure to comply with the custody rule, conflicts of interest including undisclosed compensation and allocation of investment opportunities, and performance marketing. The NEP will also focus on policy issues such as registered funds offering alternative investment strategies, money market fund stress testing, and securities lending. NEP also highlighted several program-wide initiatives: meeting with senior management about risk management; supervision of IT systems; examining dual registrants and suitability; private placement solicitations; and IRA rollovers. The Exam Priorities also addresses priorities for broker-dealers, clearing agencies, and transfer agents.
OUR TAKE: The OCIE staff has little patience for registrants claiming ignorance about issues specifically raised in the Exam Priorities Letter. Pay special attention to the “new and emerging” issues.