The SEC’s Office of Compliance Inspections and Examinations (OCIE) issued a risk alert addressing compliance oversight and controls of investment advisers that have employed or employ individuals with a history of disciplinary events, including individuals that have been disciplined or barred from a broker-dealer. In the alert, OCIE stated that it is undertaking an initiative, called the “Supervision Initiative”) to examine the supervision practices and compliance programs of investment advisers that employ individuals with a history of disciplinary events in the financial services sector.
OCIE stated that it will use its analytical capabilities to evaluate information from a variety of sources to identify registered advisers for examinations under the Supervision Initiative. These sources include SEC databases and filings as well as external sources. Examples of factors that the staff is using to identify exam candidates include: disciplinary information that is reported on an adviser’s Form ADV;5information about other legal actions (e.g., private civil actions) not required to be reported on Form ADV, but which are nonetheless relevant to the advisory services offered to clients; and information from SEC enforcement actions, which barred or suspended individuals from certain financial industries.
When OCIE examines an adviser under its Supervision Initiative, it will focus on:
• Rule 206(4)-7 compliance program;
• Disclosure in Form ADV;
• Conflicts of Interest; and
Click Examinations of Supervision Practices At Registered Investment Advisers, Volume 5, Issue 3 (September 12, 2016) to access the Risk Alert.