SEC Launches Targeted Exams of Mutual Funds, ETFs

Pete Driscoll, head of OCIE, said at the American Law Institute Continuing Legal Education life insurance products conference in Washington on Friday that the alert highlights issues that are among priority areas the exam division will focus on next year.

Driscoll said that OCIE “finds value” in releasing Risk Alerts because they give firms “a heads up” on compliance issues.

The exams, the alert states, will target circumstances in which retail investors could be disadvantaged and review whether registrants have met their regulatory and other legal obligations, OCIE states.

SEC examiners intend to focus on certain mutual funds and exchange-traded funds, the activities of their advisors and boards of directors’ oversight.

Other exam priorities for next year, Driscoll said, include a “Cyber 3 Initiative,” which will assess, in part, how firms that have merged have combined their cybersecurity processes.

OCIE will also look at the cryptocurrency space, Driscoll said. OCIE has identified “over 100 private fund advisors that are invested in crypto. We’re going to spend some time in that space next year.”

Advisors’ borrowing from clients will also be a 2019 focus. “People get over their skis” and they may borrow from clients, Driscoll stated. OCIE will be “doing some loan initiatives where [OCIE will look at] principals that have a lot of liens and filed for bankruptcy,” which may indicate that they need to borrow from clients. “Often times there’s misrepresentation” involved, he said.

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