SEC Outlines Compliance Exam Focus
May 15, 2000
The SEC's office of compliance, inspections and examinations, in a letter May 1 to investment advisers, has identified 12 areas of potentially troubling practices that the SEC expects to review during exams. The letter, which largely tracks speeches top compliance office officials have made this year, outlines advisers' duties regarding advertising, personal trading, soft dollar disclosure and other issues. It also offers examples of instances of violations the office has found.
The letter is an attempt to educate investment advisers on the laws that govern their business and to encourage compliance and internal control measures, Lori Richards, director of the compliance office, said in the letter.
"We hope that this letter will assist investment advisory personnel in reviewing their firm's compliance, supervisory and internal control procedures, and foster compliance" with the Investment Advisers Act, Richards said in the letter. The Advisers Act is the key federal law that governs investment advisers.
The SEC has posted the letter on its website, www.sec.gov.
Mutual fund lawyers said the letter did not appear to disclose any new SEC initiatives. The letter does, however, identify key points that SEC officials have been discussing in recent months and provides a guideline for investment advisers who want to prepare for SEC inspections.
The letter "is a road map of what not to do," said Pamela Wilson, a partner at Hale & Dorr LLP of Boston. "It's just extremely helpful."
In addition to providing an outline of potentially troubling practices, Richards warned that investment advisers should fix problems that the SEC identified in previous exams. SEC examiners will review closely actions that investment advisers have taken to remedy past problems, Richards said. Examiners have found in some instances that past problems have not been fixed, despite advisers' promises to do so, she said.