RIA Compliance Blog
On May 16, 2018, SEC Co-Directors Stephanie Avakian and Stephen Piekin appeared before the Subcommittee on Capital Markets, Securities, and Investment, a subcommittee of the House of Representatives’ Committee on Financial Services. At this meeting, Avakian and Peikin emphasized the importance of the budget increases requested by the SEC in February of this year. The Commission’s Fiscal Year 2019 Congressional Budget Justification; Annual Performance Plan and Fiscal Year 2017 Annual Performance Report includes budget requests for each SEC division, including the Office of Compliance Inspections and Examinations. As part of OCIE’s budget request, the SEC requested funding for “13 restored positions to focus on examinations of investment advisers and investment companies.”
According to the SEC, the number of registered investment advisers, as well as the amount of assets that they manage, has significantly increased in the last few years. The SEC also anticipates that the number of registered investment advisers and the complexity of these investment advisers will continue to grow throughout 2018 and 2019. Moreover, a hiring freeze, which began at the beginning of 2017, has caused the number of compliance staff to decrease. The SEC anticipates that it will need funding to restore 100 positions that were lost because of the hiring freeze. Therefore, the SEC believes that without the requested funding, SEC staff will be unable to address its growing responsibilities adequately.
If OCIE receives the funding it is requesting to restore the 13 examiner positions, it plans to make efforts to better its examinations of investment advisers, including an estimated 35 percent of advisers who have never been evaluated before. OCIE also intends to place particular emphasis on the safeguarding of retail investors and investors saving for retirement by allocating resources toward evaluating practices that present risks to retail investors and those saving for retirement, including churning, unsuitable recommendations, fraud, and financial exploitation of seniors.
The Fiscal Year 2017 Annual Performance Report also highlights the SEC’s goal of prioritizing examinations of investment advisers. For example, the Report provides that the SEC set a goal to examine at least 13 percent of all SEC-registered investment advisers in the 2017 fiscal year. According to the Report, the SEC managed to examine more than 15 percent of all SEC-registered investment advisers. The SEC anticipates that the number of examinations for 2018 and 2019 should stay at about 15 percent of all SEC-registered investment advisers.
The Report also provides statistics regarding the number of SEC examinations that pinpointed deficiencies. According to the Report, 72 percent of SEC adviser examinations identified compliance deficiencies. The Report also noted that 20 percent of these deficiencies involved significant findings and another seven percent warranted referrals to the Division of Enforcement.
The Report also provides statistics on the number of examinations that begin with a complaint or a tip. Tips and complaints to the SEC can provide the impetus for further investigation. In 2017, the SEC commenced 307 enforcement investigations as the result of a tip or complaint.
If you require assistance with reviewing, updating, or drafting the policies and procedures required to help ensure the protection of retail investors, or are preparing to be examined by a regulator, please contact Parker MacIntyre or our affiliated compliance consulting firm, Century Compliance, LLC, at (678) 902-4060.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including compliance with federal and state laws and rules. Please visit our website for more information.