More On Legal & Compliancefrom The Advisor's Professional Library
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Carlo DiFlorio, the new head of the Securities and Exchange Commission's (SEC) Office of Compliance Inspections and Examinations (OCIE), told attendees at the Insured Retirement Institute's (IRI) annual government, regulatory, and compliance conference in Washington on Thursday, April 29, that of the 800 exams that the SEC had performed in the last year, 80 had been focused on the variable products area, with some of those cases being referred to the SEC's enforcement division.
Indeed, Amy Lynch, president of FrontLine Compliance, and a former SEC examiner, who also spoke at the IRI conference, says that the SEC is actually performing more variable product exams than FINRA.
DiFlorio noted at the conference that the SEC is currently working with FINRA to update the two agencies' 2008 joint report on effective practices for variable annuities. An updated report, he said, will be forthcoming.
Lynch told attendees at the conference that the SEC's exam schedule is far different than the regimented one she followed, as OCIE's exam policy now is one of just "showing up." The SEC examiners, too, she said, are no longer "rookies." Rather, they are experienced and will ask "tough questions." Indeed, DiFlorio said that OCIE's key objective is to focus on having a "stronger, more risk-based exam program." OCIE now supports "joint exams," he said, and OCIE's new structure includes a dedicated team for credit ratings agencies. DiFlorio says that he and his team are also having more discussions with industry associations to get a handle on industry practices and trends.
One cautionary note that Lynch gave to attendees is that if someone shows up unannounced on your firm's doorstep claiming to be an SEC examiner, make sure to ask for their identification, as "there have been imposters."