SEC Publishes Risk-Based Examination Priorities for Registered Investment Companies

In an early November announcement, the Securities Exchange Commission (SEC) has publicized new exam initiatives that were announced in a recent risk alert by the Office of Compliance Inspections and Examinations (OCIE) concerning mutual funds and exchange-traded funds.


In this risk-based exam initiative, the OCIE hopes to assess industry practices and regulatory compliance possibly affecting retail investors, with the risk alert specifically highlighting the following areas of concern:

  • Index funds that track custom-built indexes
  • Smaller ETFs and/or ETFs with little secondary market trading volume
  • Mutual funds with higher allocations to certain securitized assets
  • Funds with aberrational underperformance relative to their peer groups
  • Advisers relatively new to managing mutual funds
  • Advisers who provide advice to both mutual funds and private funds that have similar strategies and/or are managed by the same portfolio managers

Are You Addressing Risks and Conflicts?

Examiners will evaluate:

  • Whether policies and procedures are able to address risks and conflicts
  • Whether Funds are providing proper disclosures to investors in prospectuses, filings and shareholders communications, and if advisers are providing proper disclosures to Funds’ boards regarding risks and conflicts
  • Whether proper deliberative processes are used by funds, their advisers, and their boards exercising oversight to assess internal practices and controls related to risks and conflicts, including disclosures, portfolio management compliance, and fund governance

The risk alert specifically states that the purpose of providing these exam initiatives is to, “encourage registrants to reflect upon their own practices, policies, and procedures, as applicable, and to consider improvements in their supervisory, oversight, and compliance programs, as may be appropriate.”

Read the full OCIE risk alert for more details on specific exam focus areas per initiative.

A Review of Policies and Procedures: Now Is the Time

Whether or not you or your firm falls within the scope of these risk-based exam initiatives, this is an excellent reminder of the need to review and possibly revise your risk assessments and revise your policies and procedures manuals to see that they meet all current regulatory conditions.

Core Compliance & Legal Services, Inc., can help RIAs (registered investment advisers) in the creation or review of compliance policies and procedures, utilizing decades of experience to help you stay up-to-date with the latest regulatory requirements.

Contact us here for assistance with these or any other compliance needs.

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