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OCIE Issues Recommendations for Firms to Mitigate COVID-19-Related Compliance Risks

On August 12, 2020, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) issued a Risk Alert identifying COVID-19-related compliance issues, risks, and practices relevant to investment advisers and broker-dealers observed by OCIE through the Staff’s industry outreach amidst the pandemic.

In light of recent market volatility, remote working environments, and risks related to COVID-19, OCIE recommended that firms consider the following measures:

 Protection of Investors’ Assets.

Review practices for collecting and processing investor checks and transfer requests and, as appropriate, adjust compliance policies and procedures to reflect any modified practices; consider disclosing to investors that checks or other submissions to the firm’s office may be subject to delayed processing; consider changes to disbursement policies, procedures, and practices to implement additional validation steps; ensure that each investor has designated an authorized and trusted contact person.

Supervision of Personnel. 

Review and, where appropriate, modify practices and related compliance policies and procedures related to personnel supervision to address, among other things, supervisors not having the same level of oversight and interaction with supervised persons when working remotely; consider heightened supervision of persons making securities recommendations in market sectors that have experienced greater volatility or may have heightened risks for fraud; consider the sufficiency of processes for remote oversight of trading activity.

Fees, Expenses, and Financial Transactions. 

Review policies and procedures and consider implementing enhanced compliance monitoring to mitigate the potential for misconduct or errors, including as to financial conflicts of interest (e.g., making recommendations that result in higher costs to investors that generate greater compensation for supervised persons), fee and expense calculations (e.g., advisory fee overbilling), and investment valuations.

Investment Fraud. 

Recognize that times of crisis or uncertainty create a heighted risk of investment fraud and be cognizant of these risks when assessing investments; report suspected fraud to the SEC.

 Business Continuity. 

Assess the operation of critical business functions during emergency events; evaluate remote operating capabilities; consider modifications or enhancements to compliance policies and procedures and business continuity plans to address the unique risks and conflicts present in remote operating environments; consider whether additional protective measures are needed to secure critical servers, systems, and data; as appropriate, disclose to investors if operations are materially impacted by events and circumstances.

Protection of Sensitive Information.

Assess for vulnerabilities involving the protection of sensitive data, including personally identifiable information, from remote work environments and the use of videoconferencing and other electronic means of communication; implement enhanced monitoring to protect against unauthorized access to systems in light of increased phishing attempts; consider enhancements to identity protection practices; provide firm personnel with additional training and reminders; conduct heightened reviews of personnel access rights and controls; use validated encryption technologies to protect communications and data.

OCIE encouraged firms to remain informed regarding fraudulent activities that may affect investors’ assets and, when fraud is observed, to report such activities. The Risk Alert also included links to a number of SEC resources to assist and educate firms and investors.

© 2022 Vedder PriceNational Law Review, Volume X, Number 253

About this Author

John Marten Investment Attorney Vedder Price Law FIrm

John S. Marten, a Shareholder in the Chicago office of Vedder Price, has substantial experience representing clients in the investment management industry.

As a member of the firm’s Investment Services group, Mr. Marten counsels clients on a wide variety of matters involving the application of the federal securities laws to investment companies, investment advisers and broker-dealers. He has significant experience counseling investment company clients with respect to new products and was recently involved in the creation of two mutual funds...

(312) 609 7753
Nathaniel Segal Investment Attorney Vedder Price Law Firm

Nathaniel Segal is counsel at Vedder Price and a member of the Investment Services group. He focuses his practice on investment companies and investment advisers in connection with the organization and operation of investment products and services, including traditional mutual funds, closed-end investment companies (including interval funds and listed closed-end funds), variable insurance products and registered hedge funds, as well as mutual funds utilizing complex hedging and absolute return strategies. Mr. Segal has experience in conducting transactional due diligence...

(312) 609 7747
Jacob Tiedt,Vedder Price law firm investment services attorney

Jacob C. Tiedt is a Shareholder at Vedder Price and a member of the Investment Services group.

Mr. Tiedt’s practice includes the representation of registered mutual funds, closed-end funds and exchange-traded funds; private funds; investment advisers; and other financial institutions on a broad range of regulatory, governance and compliance matters. Mr. Tiedt regularly counsels clients on matters relating to SEC registration, disclosure and compliance; shareholder solicitation; NYSE, Nasdaq and FINRA regulation; corporate governance; and board administration. Mr....

Jake Wiesen Investment Attorney Vedder Price

Jake W. Wiesen is an Associate in the Chicago office of Vedder Price and a member of the firm’s Investment Services practice group.

While in law school, Mr. Wiesen served as Associate Editor of the University of Illinois Law Review, a student attorney for the Civil Litigation Clinic and a teaching assistant for Introduction to Advocacy. He was also the recipient of the CALI Excellence for the Future Award in Administrative Law and Employee Benefits.

Prior to joining Vedder Price, Mr. Wiesen worked as a legal intern for the Chicago Transit Authority and served as a...

312 609 7838