SEC to Conduct Presence Exams for Never-Before Examined Investment Advisers in 2015

During the January 7th Practising Law Institute conference on Hedge Fund Compliance and Regulatory Challenges, the Director of the SEC Office of Compliance Inspections and Examinations (“OCIE”), Andrew Bowden, previewed some of the new priorities on which the SEC will focus in 2015. Some of the areas of focus include protecting investors, specifically those in or close to retirement, cyber security, and the use of data analytics to identify potential wrongdoers. One of the other priorities discussed was OCIE’s new initiative to use “presence exams” to examine certain investment advisers that have never been examined. Investment advisers who have been registered with the SEC for three or more years will potentially be selected for a presence exam.

Presence exams are less intensive, shorter exams, taking up about two-thirds the time of a regular SEC examination. These exams tend to be more narrow in scope and focus on specific areas of concern that the SEC may have. In October 2012, SEC staff created presence exams for investment advisers who were required to register with the SEC for the first time because of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). These newly required SEC registrants under Dodd-Frank included, for example, hedge fund advisers with more than $150 million in assets under management. Bowden stated that the SEC performed close to 400 of these exams and that OCIE’s goal to examine 25% of the investment advisers required to register with the SEC under Dodd-Frank by 2014 was met.

OCIE previously announced in February of last year its Never-Examined Advisor Initiative to strengthen efforts to examine firms that have been registered with the SEC for three or more years but never been examined. While at the conference, Bowden announced that the use of presence exams would be expanded to firms subject to the Never-Examined Advisor Initiative. Bowden also stated that presence exams have helped the SEC to examine concerns over the increasing number of alternative mutual funds, which was discussed in a previous post.

Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our attorneys can help assist financial service providers in complying with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.