The Securities and Exchange Commission (SEC)’s Division of Investment Management released a detailed guidance this month responding to compliance oversight findings issued in a report by the SEC’s Office of the Inspector General (OIG). The original OIG report, released on June 29, 2011, served as an investigative report on the Commission’s oversight of compliance with the conditions and representations of exemptive orders and no-action letters.
The SEC guidance is firm in tone, offering a strict warning to companies who choose not to comply with representations and conditions of exemptive orders. A particular focus is placed in the guidance on Rule 206(4)-7 of the Investment Advisers Act of 1940 (Advisers Act), and Rule 38a-1 of the Investment Company Act of 1940 (1940 Act), two rules which require investment advisers and funds to (a) “adopt and implement written policies and procedures” to avoid violation of the Acts and federal laws, and to (b) “annually review the adequacy of those policies and procedures” to ensure timely action on internal revisions and approval of such exemptive orders. Without consideration of these Rules with conditions and representations of exemptive orders, the SEC’s Division cautions, “the consequences of non-compliance may be severe.”
The 2013 Examination Priorities of the SEC are also addressed in a footnote of this guidance, wherein “exemptive order compliance” is represented as a specific area of focus for 2013 investment adviser/investment company examinations. As the SEC gives greater attention to this topic this year, it becomes even more imperative that companies evaluate their current and past exemptive order reliefs to make sure that compliance is met for all established conditions and representations.
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