More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations has hired 130 new examiners over the last 18 months with expertise in areas including hedge funds and derivatives, said OCIE Director Carlo di Florio at a recent conference.
Di Florio (left) also warned chief compliance officers that the SEC is focusing on three “priority” areas when it comes to advisory firms: fiduciary responsibility in the retail sale of complex structured products; due diligence practices; and custody arrangements that may signal fraud.
As the SEC takes on oversight of hedge fund and private fund advisors, both must register with the agency by March 30, di Florio told CCOs at the Investment Adviser Association’s recent compliance conference that in overseeing these new registrants, the SEC will first share regulatory guidance with them.
After that, di Florio said, the OCIE will conduct coordinated exams and look at target areas, then OCIE will issue follow-up guidance after the exams to alert private fund advisors to the “challenges we are seeing and provide guidance to help them strengthen their compliance.”
Registration of hedge fund and private fund advisors has drawn criticism from inside and outside of the agency. SEC Commissioner Daniel Gallagher told CCOs at the same conference that he sees cases where the securities regulator can grant exemptive relief for private fund advisors that must register with the agency as mandated by Dodd-Frank.
“I believe that there will be cases moving forward when an individual advisor or a particular class of advisors ought to be granted some measure of relief from the full panoply of requirements that come with registration under the Advisers Act,” Gallagher said.
He added that he’s alarmed at the looming costs of registration for private fund advisors. “The rationale of having them register is questionable,” he said, adding that expansion of registration for private fund advisors “will not protect investors.”
But Robert Plaze, deputy director of the SEC’s Division of Investment Management, said at the conference the same day that he does “not anticipate broad exemptive relief at this point.” Any changes, he said, “would have to be done in Congress.”
Plaze said that the filing deadline for private fund and hedge fund advisors was on Feb. 14. So far, 1,250 private funds have registered, 300 more than anticipated.