The Securities and Exchange Commission is “giving special attention” and devoting separate agency staff to crowdfunding-related initiatives set in motion by the JOBS Act, and is in full swing in implementing exams targeting retirement planning and ETFs.
The SEC’s enforcement division as well as other agency divisions, including the Division of Economic and Risk Analysis, is “taking a close look” at Rule 506(c) private as well as Reg A+ offerings under the JOBS Act, Vincente Martinez, chief of the SEC Enforcement Division’s Office of Market Intelligence, said at the IA Watch compliance summit in Washington Friday.
Martinez said that the industry will have a “learning curve” when getting up to speed with the capital raising measures under the JOBS Act, especially crowdfunding.
SEC Chairwoman Mary Jo White said during a recent discussion that in relation to the SEC’s lifting of the ban on general solicitation under Rule 506(c) private offerings, “on the fraud/misconduct front,” the SEC has “some open investigations in several categories.”
Renee Esfandiary, assistant director of the SEC’s National Exam Program, said at the conference that the agency’s examiners are continuing their multiyear initiative dubbed ReTIRE, launched last June, which focuses on SEC-registered investment advisors and broker-dealers and the services they offer to investors with retirement accounts.
The ReTIRE exams focus on the “reasonable basis” for recommendations made to investors, conflicts of interest, supervision and compliance controls, and marketing and disclosure practices.
Esfandiary said 160 exams—70% of which focused on advisors—have taken place so far, with deficiencies found in areas such as misleading marketing materials, particularly regarding rollovers; reasonableness of products; as well as mutual fund share class.
Esfandiary also said that the never before examined advisor initiative may “officially end” this year for investment advisors. “We’re just getting more and more advisors [registering] each year, so the percentage of advisors that have not been examined will continue to be an issue,” she said, adding that the agency has conducted more than 700 such exams, more than meeting the goal of examining at least 25% of never-examined advisors.
As to the SEC’s plan to require advisors to get a third-party audit, John Walsh, a former exec in the SEC’s Office of Compliance Inspections and Examinations who’s now with the law firm Sutherland, noted that the idea is “a way out of the box that regulation of advisors has gotten into,” but that “it’s really important” for such a plan to be done right.
A third-party advisor audit “should be open to anyone with expertise, but the relationship should be between the firm and the auditor,” Walsh said.
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