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OCIE Head Says Expect Harder Exams for Risky Practices

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Carlo Di Florio, the new head of the Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE), says investment advisors can expect “harder and deeper” exams if they are dealing in risky practices, but SEC examiners will also “shorten exams where appropriate.”

Speaking at the IA Watch compliance conference in Washington March 25, Di Florio–who’s been on the job for two months–said that OCIE is embracing SEC Chairman Mary Schapiro’s call for collaboration among all SEC divisions, and that OCIE is “taking a fresh look” at its strategy, structure, and exam process. OCIE, Di Florio said, also continues to hire people with varying skills sets and is taking a “strategic approach to exams” by better understanding the firms it examines. He said that conflicts of interest and insider trading continue to be a “big focus” for OCIE, adding that another big focus is the retailization of complex products like leveraged ETFs, hedge funds, and products to seniors.

Meanwhile, Andrew “Buddy” Donohue, director of the SEC’s Office of Investment Management, said at the conference that the harmonization of the rules for investment advisors and broker/dealers is an “important area” to resolve. However, he noted that finding a solution is challenging because “there isn’t a collective view” among Schapiro and the SEC commissioners “on how to handle this issue.” The House and Senate financial reform bills make the task even harder because while the House bill proposes that brokers adhere to a fiduciary duty, the Senate bill “kicks the can down the road,” Donohue said, by asking the SEC to perform another study of broker and advisor obligations.

Donohue also questioned whether provisions in the House and Senate bills that raise the assets threshold for federal regulation of investment advisors from $25 million to $100 million is a good idea. Raising the assets threshold would shift “well over 4,000 advisors from SEC to state regulation,” he said, adding that he questioned whether there are “adequate resources at the state level” to handle this.