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OCIE for Never-Before Examined Advisers--Office of Compliance and Examination

The Office of Compliance and Examinations (OCIE) announced a new "Never-Before Examined Initiative" focusing on conducting examinations of investment advisers that have been SEC-registered for at least three years and that have never been subject to an SEC examination. As we reported in our January update, OCIE previously announced that examining these advisers is a priority in 2014. Firms subject to examination under this initiative are likely to have received a notification letter.

The initiative includes two approaches: risk-assessment and focused review. The risk-assessment approach intends to better understand the registrant by conducting a high-level review of the adviser’s business while also focusing on the adviser’s compliance program. The focused review approach uses a risk-based process to focus exams on the following areas:

  • Compliance Program. National Exam Program (NEP) staff will review the adviser’s compliance program to evaluate whether the adviser has adequately identified conflicts and compliance-related risks, adopted policies and procedures to address such conflicts and risks, and appointed and empowered a Chief Compliance Officer to administer the program.

  • Filings and Disclosure. NEP staff will review the adviser’s filings and disclosure documents to evaluate whether the documents contain all material facts regarding conflicts or potential conflicts necessary for clients to make informed decisions regarding the advisory relationship.

  • Marketing. NEP staff will analyze marketing materials to determine whether the adviser has made any false or misleading statements about its business or performance record, has made any untrue statement of material fact, has omitted material facts, has made any misleading statements, or has engaged in any manipulative, fraudulent, or deceptive activities.

  • Portfolio Management. NEP staff will review how the adviser manages its clients’ portfolios and determine whether those practices are consistent with its disclosures.

  • Safety of Client Assets. NEP staff will assess whether the adviser complies with the custody rule that requires advisers with "custody" of client assets to take specific measures to prevent loss or theft of those client assets.

In preparation for an exam, SEC-registered advisers should review their compliance programs, books and records, disclosure documents, marketing materials, and regulatory filings to ensure that they are consistent and in good order.

Copyright © 2020 Godfrey & Kahn S.C.National Law Review, Volume IV, Number 107



About this Author

Chris Cahlamer Investment Management Attorney

Chris Cahlamer is the team leader of the firm’s Investment Management Practice Group, where he practices in investment management and securities law, focusing on investment companies, investment advisers, regulatory examinations, new product development, SEC compliance and reporting obligations, CCO support, private fund formation and operation, investment company reorganizations, investment advisor mergers and acquisitions, and general corporate and board fiduciary issues.

Chris earned his law degree, summa cum laude, at Marquette University Law School. While there, he...

Susan Hoaglund, Investment Management Attorney, Godfrey Kahn law firm

Susan Hoaglund is a member of the Investment Management Practice Group. Susan provides advice to investment advisers, investment companies, broker-dealers and banks regarding legal, regulatory and compliance matters.