2020 SEC OCIE EXAMINATION PRIORITIES—HIGHLIGHTS
On January 7, 2020, the SEC’s Office of Compliance Inspections and Examinations (OCIE) released its 2020 examination priorities. The annual publication outlines the practices, products, and services that the SEC believes present potential risks to investors and the U.S. markets. The report highlights 8 focus areas for fiscal year 2020: (1) retail investors, including seniors and individuals saving for retirement; (2) information security; (3) financial technology (fintech) and innovations, including digital assets and electronic investment advice; (4) additional focus areas involving registered investment advisers (RIAs) and investment companies; (5) broker-dealers and municipal advisors; (6) anti-money laundering programs (AML); (7) market infrastructure; and (8) FINRA and MSRB.
KEY TAKEAWAYS FOR PRIVATE FUNDS
Ira Kustin, Paul Hastings investment management group partner, explains the key takeaways for private funds.
In 2020, compliance remains a top priority. The OCIE will continue to monitor private funds’ compliance programs, assessing whether such programs are specifically tailored to a firm’s operations, investments, and investors and adhered to across all levels. A vital component of compliance is policies, procedures, and controls to prevent insider trading and the misuse of material, non-public information, a concern for private funds that use expert networks. Expert networks are companies that connect clients to subject matter experts from various industries whose consultations are offered in exchange for a fee. Policies and procedures governing the use of expert networks should comprehensively address all stages of interaction with experts to ensure that the fund is not provided material, non-public information that would restrict trading activity. The OCIE will also continue to monitor the accuracy and adequacy of disclosures of fees and expenses, conflicts of interest, and the use of affiliate services. Finally, the SEC continues to focus on information security and data privacy, particularly with respect to clients’ personal information.
The OCIE has been steadily expanding its examinations of RIAs and expects to prioritize examinations of RIAs that have never been examined or have not been examined in the past several years. In fiscal year 2019, the OCIE completed 3,089 total examinations, of which 2,180 were RIAs (15% of all RIAs). In light of the above, private funds are well advised to keep these takeaways top of mind as they evaluate their compliance programs, policies, and procedures to ensure they are sufficiently prepared for an OCIE examination and to avoid being found deficient.
Link to the 2020 SEC Examination Priorities Report