On April 29, 2019, Securities and Exchange Commission ("SEC") Office of Compliance Inspections and Examinations ("OCIE") Director Peter Driscoll delivered a speech1 on the OCIE's 2019 priorities, in which he identified, among other priorities, the following:
- Fees, Expenses and Related Disclosures. Examiners are evaluating whether investors are receiving accurate information about fees and expenses. They closely review a firm's disclosures and compare these with actual practice. Examiners also check if the adviser's billing frequency and its application of fee rate, rebates, breakpoints and discounts are consistent with the advisory agreement.
- Safeguarding Client Assets. OCIE has been focusing on compliance with Rule 206(4)-2 under the Investment Advisers Act of 1940 (the "Custody Rule"), which requires that advisers that have custody of client assets (1) hold clients' funds and securities at a qualified custodian, using a separate account for each client under that client's name (or in the adviser's name as agent or trustee for the client); (2) notify clients about item (1) and whenever there are any changes made; (3) have a reasonable basis that the qualified custodian sends account statements to clients at least quarterly; and (4) undergo an annual surprise examination or use an approved alternate approach.
- Conflict of Interest Disclosure. Section 206 of the Advisers Act imposes on an adviser a fiduciary obligation. An adviser should fairly deal with present and prospective clients and fully disclose any material actual or potential conflict of interest that exists. Examiners review an adviser's disclosures in connection with its operations to evaluate whether the adviser has appropriately identified and disclosed conflicts.
- Senior Investors. OCIE reviews advisers with a significant senior client base to check if appropriate policies and procedures that address senior investor protections are in place.
While a number of these are more focused on advisers, the underlying themes are applicable to broker-dealers.
Originally published in REVERSEInquiries Volume 2, Issue 5.
1. Available at http://bit.ly/2JXyYrE.
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