SEC to Conduct ‘Presence Exams’ on Never-Examined Advisors

Exam chief Bowden expects SEC exam priorities list to be released next week

The Securities and Exchange Commission will conduct “presence” exams of never-examined advisors this year, and will also focus its exam efforts in three areas: protecting investors, particularly those in or near retirement; market structure issues like cybersecurity; and using data analytics to identify those engaged in illegal activity, the agency’s exam chief, Andrew Bowden, said Wednesday.

Speaking Wednesday at the Practising Law Institute’s Hedge Fund Compliance & Regulatory Challenges 2015 conference in New York, Bowden said that he expects the SEC’s exam priorities list to be released next week, and that the SEC’s Office of Compliance, Inspections and Examinations will “expand” the presence exams it used to examine newly registered private fund advisors to never-examined advisors.

The Financial Industry Regulatory Authority released its exam priorities letter Tuesday.

OCIE announced last February that it would zero in on advisors who have never been examined and conducted an exam sweep of such advisors through its Never-Examined Advisor Initiative. The initiative was directed at never-examined advisors registered with the SEC for three or more years.

Bowden said in September that advisors in the never-examined advisor category total about 1,000, and that 225 firms have been examined thus far, with “more [exams] underway.”

The Dodd-Frank Act, passed in 2010, required advisors to many private funds to register with the SEC by March 30, 2012. OCIE announced in October 2012 that it would be conducting “presence” exams of private fund advisors.

Excluded from the never-examined advisor initiative, however, was advisors to private funds, which are being examined pursuant to the “Presence Exam” initiative launched in October 2012.

Under the presence exams for private fund advisors, which are more narrowly focused than a traditional exam, Bowden said Wednesday that examiners performed close to 400 exams, “the number we wanted,” which satisfied OCIE’s goal of examining 25% of the new private fund registrants by the end of 2014.

“We will expand that [presence exam] process to other segments,” Bowden said Wednesday. “We have a similar initiative for never-examined advisors in 2015; we are going to try and get out to a number of those advisors” in 2015.

Bowden said the presence exams, which typically take two-thirds of the time of a typical exam and zero in on specific issues, helped to “inform future initiatives,” which includes the agency focusing heightened scrutiny on alternative mutual funds.

Alternative mutual funds, Bowden said, are “where the money is going,” and of the more than 500 funds that now exist, “nearly half of them have been around for three years or less.” The “newness” of the funds as well as the fact that some of the funds have been launched by those who are in the private fund arena, and “may not have experience with alternative strategies,” warrants heightened scrutiny of this area, he said.

--- Check out FINRA’s Top Exam Priorities for 2015 on ThinkAdvisor.

Reprints Discuss this story

Most Recent Videos

Video Library ››