SEC Will Focus on Compliance in New Exam Initiative
The SEC’s Office of Compliance Inspections and Examinations announced an initiative to conduct examinations of all advisers that have been in business for at least 3 years but have never been examined. These examinations will focus on compliance programs, disclosures, marketing materials, allocation of investment opportunities, and custody. Outcomes of the exam could include referrals to the Enforcement Division or other regulators for further action. The focus on compliance programs will include an evaluation of the “effectiveness of the compliance program” including a review of books and records to determine whether a firm has adequately identified and addressed conflicts of interest. Also, the staff will assess whether the firm has “empowered a competent Chief Compliance Officer (“CCO”) to administer the program.”
OUR TAKE: If you haven’t “empowered” a “competent” CCO to administer an effective compliance program, now may be a good time. It is noteworthy that OCIE identified the compliance program as the first and most prominent area of focus.