SEC EXAMS Division Releases Risk Alert on MNPI
The SEC Division of Examinations released a risk alert covering the disclosure of Material Non-Public Information as covered under the Investment Advisers Act. Section 204A requires all investment advisers, registered and unregistered, to establish, maintain, and enforce written policies and procedures that are reasonably designed, taking into consideration the nature of the adviser’s business, to prevent the misuse of MNPI by the adviser or any person associated with the adviser. Employees with access to MNPI such as client transactions or reportable fund holdings are considered “access persons” as are workers who make or have access to recommendations or are directors, partners or officers of advisory shops, like compliance chiefs. All “access persons” are required to report their personal securities transactions and holdings to the CCO or another designated person. The SEC staff found evidence of advisers that “did not have policies and procedures in place to assign the CCO’s reporting to another member of the adviser – effectively permitting the CCO to self-review his/her own holding and transaction reports.” The SEC sent deficiency letters to firms in violation and as a result, many of the advisors modified their codes of ethics and their written policies, procedures and practices.