OCIE Urges Vigilance on Oversight of Pandemic-Related Risks
In a recent risk alert, the SEC’s Office of Compliance Inspections and Examinations detailed its observations of COVID-19-related issues, risks, and practices relevant to registered investment advisers and broker-dealers. “[M]arket volatility related to COVID-19 may have heightened the risks of misconduct in various areas that the staff believe merit additional attention,” OCIE wrote. OCIE’s observations and recommendations fell into several categories: (1) protection of investors’ assets; (2) supervision of personnel; (3) practices relating to fees, expenses, and financial transactions; (4) investment fraud; (5) business continuity; and (6) the protection of investor and other sensitive information. OCIE made several recommendations in the above categories. It encouraged firms to review their fees and expenses policies and procedures and to consider enhancing their compliance monitoring; identify transactions that resulted in high fees and expenses to investors, monitor for such trends, and evaluate whether these transactions were in the best interest of investors; and evaluate the risks associated with borrowing or taking loans from investors, clients, and other parties that create conflicts of interest. Firms were also urged to look out for a heightened risk of investment fraud, to review their business continuity plans in light of current events, make changes to compliance policies and procedures, and to provide disclosures to investors if their operations were materially impacted, as appropriate. OCIE also urged firms to pay particular attention to the risks regarding access to systems, investor data protection, and cybersecurity.