SEC Should Consider Third Party Compliance Exams 

The Chairman of the U.S. House Committee on Financial Services, Jeb Hensarling, co-authored a letter to SEC Chair Mary Jo White, advocating for independent, third-party exams, rather than user fees, to increase the number of investment adviser exams.  The letter cites Commissioner Gallagher and quotes the Association of Institutional Investors arguing that using third party exams would provide a “cost effective tool for regulators to efficiently support their oversight role without expending additional funds.”  The letter requests Chair White to provide a written response (by today) that would include a timeline for the SEC to either consider a voluntary program or an order or rule permitting third-parties to conduct RIA exams.

OUR TAKE: We believe that the SEC will ultimately encourage independent reviews as part of any robust compliance program, even if it won’t specifically require them.   In fact, the SEC already tacitly does show its support in the way it very often requires the appointment of an Independent Compliance Consultant as part of enforcement settlements.  Additionally, an independent review has already become a best practice for the largest firms seeking to attract institutional assets.  Regardless, all firms should note that even Mr. Hensarling, an active small-government Republican, agrees that we need to increase RIA exams.

https://www.investmentadviser.org/eWeb/docs/Public/141124_lttr.pdf