SEC Publishes Examinations Risk Alert

The Securities and Exchange Commission (SEC) recently published a Risk Alert for investment advisers highlighting how the Exams staff selects what firms to examine, how staff select examination focus areas, and how they select documents to request. The Risk Alert notes there are more than 15,000 registered investment advisers managing over US$115 trillion in assets, and the SEC is able to examine approximately 15% of these advisers annually. Therefore, the SEC staff employs a risk-based approach to select advisers for examination. In determining whom to examine, the SEC staff is more likely to select firms with:

• Deficiencies identified in prior examinations
• Supervisory concerns
• Complex business models
• Long period of time since last exam
• Newly registered
• Recently identified issues in compliance programs, disclosure documents, and/or marketing materials
• Material changes in leadership or ownership
• Access to client assets
• Third party complaints, tips, or referrals

In an appendix to the Alert, the SEC staff discloses the types of documents they typically request which include those that provide staff with a general understanding of the adviser’s overall operations, client base, investment products, and conflicts of interest.

Click here to read the SEC’s Risk Alert for investment advisers.
Click here to read a K&L Gates client alert covering the release.