May 9, 2014CORDIUM POWERPOINT MASTER 1
The webinar will begin shortly…
You can join either by VoIP or dial in
by telephone
Follow call in details if you select
t...
Never-Before-Examined
Initiative
May 8, 2014
Presented By:
Amelia Stoj, Partner & VP, Cordium
Jillian Timmermans, Partner ...
Questions
4
You can submit your questions
using the Questions area in the
GoToWebinar console
You can submit your question...
Agenda
o Regulatory Landscape
o OCIE National Exam Program
o Common Types of Exams
o Examinations by the Numbers
o The Nev...
Regulatory Landscape
o As of February 2014:
o There were over 4,000 private fund advisers registered with the
SEC.
o Close...
OCIE National Exam Program (“NEP”)
o Andrew J. Bowden - Director of the agency's Office of Compliance
Inspections and Exam...
OCIE National Exam Program (“NEP”)
o In her formal statement for a Congressional hearing on the SEC’s
proposed FY 2015 bud...
Common Types of Exams
o Routine Exams
o May be based on the passage of time since last exam
o Presence Exams
o Risk-based,...
Common Types of Exams
oCorrespondence Exams
o Certain regional offices have been asking firms to submit documents for
revi...
Examinations by the Numbers
o RIA Exams
o FY 2012: The SEC was able to examine only about 8% of
registered investment advi...
The Never-Before-Examined Initiative
o SEC announced on February 20, 2014 that they will be
commencing their Never-Before-...
Two Different Approaches
o Risk-Assessments
o Involves a high-level review of an adviser’s business activities
o Will focu...
Two Different Approaches
o Focused Reviews
o “Comprehensive, risk-based” exams of one or more of the areas described as hi...
Areas of Review (continued)
o Marketing: a review of marketing materials will assess whether the RIA has (i) has
presented...
What to Expect from a SEC Exam
o How Does it Start?
o Notification – usually by phone/email
o Request Letter
o What Does L...
What am I Required to Produce?
o Document Production
o Usually 15 to 25 requests in the initial request (normal exam could...
What am I Required to Produce?
o Below is guidance on what to expect from a typical SEC examination, in
large part based o...
How Far Back Will They Look?
o Will they request information that pre-dates registration?
o YES!
o How should you respond ...
Notice and Duration
o How much notice are advisers given?
o Likely 4 to 7 days – but production may be rolling
o How long ...
Onsite Visit & Follow-Up Requests
o Typical Exam onsite time ranges from 2-3 days
o Helpful Tips:
o Do not try to delay th...
Onsite Visit & Follow-Up Requests
o After the Onsite
o Exit Interview
o Clarify questions/correct any perceived inaccuraci...
Onsite Visit & Follow-Up Requests
o Potential for Deficiency/”Findings” Letter
o Generally received within 120 days of the...
What can Your Firm do Now?
o Things to Start Doing NOW:
o Create a “First Day” presentation
o Proactively identify conflic...
What is Cordium seeing?
o As a firm we have recently supported over 25 of audits. Below are a
few real life examples of is...
Questions?
26
Presenter Biographies
27
Jillian Timmermans, Partner | Vice President
Jillian is Co-Manager of Cordium US’s Compliance Con...
Upcoming SlideShare
Loading in...5
×

The 'Never before examined initiative': Navigating the SEC Examination Process

345

Published on

On February 20, 2014, the U.S. Securities and Exchange Commission (“SEC”) announced that they will be commencing their “Never-Before-Examined” Initiative. As part of this Initiative, they anticipate examining a “significant percentage” of registered investment advisers (“RIAs”) that have never been examined, focusing on those that have been registered three or more years. In response, This presentation will covers key aspects of this new initiative as well as practical advice for navigating the SEC examination process as applicable to all RIAs

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
345
On Slideshare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
7
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

The 'Never before examined initiative': Navigating the SEC Examination Process

  1. 1. May 9, 2014CORDIUM POWERPOINT MASTER 1
  2. 2. The webinar will begin shortly… You can join either by VoIP or dial in by telephone Follow call in details if you select to use Telephone audio
  3. 3. Never-Before-Examined Initiative May 8, 2014 Presented By: Amelia Stoj, Partner & VP, Cordium Jillian Timmermans, Partner & VP, Cordium
  4. 4. Questions 4 You can submit your questions using the Questions area in the GoToWebinar console You can submit your questions using the Questions area in the GoToWebinar console © Copyright APRIL 2, 2014
  5. 5. Agenda o Regulatory Landscape o OCIE National Exam Program o Common Types of Exams o Examinations by the Numbers o The Never-Before-Examined Initiative o Overview o Approaches o Areas of Review o What to Expect from a SEC Exam o Document Production o Notice/Duration o Onsite Visit o After the Onsite o What Can Your Firm Do Now? 5
  6. 6. Regulatory Landscape o As of February 2014: o There were over 4,000 private fund advisers registered with the SEC. o Close to 40% of all RIAs manage one or more private funds. o Of these 4,000 private fund advisers: o Over 2,000 registered with the SEC since July 21, 2010, when the President signed the Dodd-Frank Act into law. o Of these private fund advisers, 352 (8%) are domiciled in a foreign country. o Most of these are domiciled in the United Kingdom. 6
  7. 7. OCIE National Exam Program (“NEP”) o Andrew J. Bowden - Director of the agency's Office of Compliance Inspections and Examinations (“OCIE”) o Mission o Improve Industry Compliance o Local and national outreach seminars, risk alerts, recruitment of industry experts, etc. o Identify and Prevent Fraud o Focused, risk-based examinations of registered advisers, specialized working groups, coordination across SEC offices and Divisions of Risk, Strategy and Financial Innovation and Enforcement o Monitor Risk o Specialized units (Office of Risk Analysis and Surveillance, Office of Large Firm Monitoring and Quantitative Analytics Unit, etc.) o Inform Policy o Utilize results/findings to inform future rulemaking and provide guidance to the industry 7
  8. 8. OCIE National Exam Program (“NEP”) o In her formal statement for a Congressional hearing on the SEC’s proposed FY 2015 budget, SEC Chair Mary Jo White includes “[b]olstering examination coverage for investment advisers” at the top of her list of four “key and pressing” priorities o "A top SEC priority under the FY 2015 request is to add 316 additional staff to the examination program in its Office of Compliance Inspections and Examinations (OCIE). This would allow the agency to examine more registered firms, particularly in the investment management industry” 8
  9. 9. Common Types of Exams o Routine Exams o May be based on the passage of time since last exam o Presence Exams o Risk-based, focused examinations of newly registered advisers o Common areas of focus include: (a) marketing, (b) portfolio management, (c) conflicts of interest, (d) safety of client assets, and (e) valuation procedures o Usually average 3-6 months from announcement to resolution, ½ as long as typical exam o Onsite time is limited o Industry Sweeps/Special Purpose Exams o Focus on a narrow issue and seek to determine how the industry is handling that issue o Recent examples include firm use of social media and disaster recovery preparedness 9
  10. 10. Common Types of Exams oCorrespondence Exams o Certain regional offices have been asking firms to submit documents for review (e.g., trade blotters, marketing materials) o Review may determine whether the firm merits an onsite examination oCause Exams o May be based on a tip or investor complaint o Typically unannounced 10
  11. 11. Examinations by the Numbers o RIA Exams o FY 2012: The SEC was able to examine only about 8% of registered investment advisers. o As of April, 2013, over 40 percent of advisers (including relatively recently registered advisers) have never been examined. o As of April, 2013, an estimated 20% of all advisers that have been registered for more than three years have never been examined. o Focus throughout 2013 was on conducting Presence Exams. o New Focus on Never-Before-Examined advisers!! 11
  12. 12. The Never-Before-Examined Initiative o SEC announced on February 20, 2014 that they will be commencing their Never-Before-Examined Initiative o Introductory Letter directed to senior officers at advisers that have been registered for at least three years, have never been examined, and are not subject to the Presence Examination Initiative o Two-year project o Goal is to examine 25-40% of this Never-Before-Examined population 12
  13. 13. Two Different Approaches o Risk-Assessments o Involves a high-level review of an adviser’s business activities o Will focus on adviser’s compliance program and any other documents that will enable examiners to determine the accuracy of representations in disclosure documents o GOAL: Improved understanding o Will likely include: o Request for documents to help examiners determine the adviser’s risk rating o Would generally include policies and procedures, trading information and a handful of other information o May include interviews 13
  14. 14. Two Different Approaches o Focused Reviews o “Comprehensive, risk-based” exams of one or more of the areas described as higher- risk. o Similar to the Presence Exam approach. The SEC noted that its new Never-Before- Examined Initiative will bear similarities with OCIE’s recent Presence Exam Initiative. o Areas of Review include o Compliance Program: an evaluation of the program’s effectiveness will include reviewing books and records to determine if the adviser has (i) adequately identified conflicts of interest and compliance-related risks; (ii) adopted policies and procedures to mitigate and manage these; and (iii) put in place a Chief Compliance Officer who has the necessary degree of knowledge and competence to fill that role and empowered that person to administer the program. o Filings/Disclosure: this review will focus on whether the RIA has disclosed “all material facts regarding conflicts or potential conflicts of interest,” covering all areas of the RIA’s business, investment activities and conflicts of interest. 14
  15. 15. Areas of Review (continued) o Marketing: a review of marketing materials will assess whether the RIA has (i) has presented its business and performance records without false or misleading statements; (ii) made any untrue statements of material facts; (iii) omitted any material facts; (iv) made any other misleading statements; or (v) engaged in any manipulative, fraudulent or deceptive activities. o Portfolio Management: a review of the RIA’s portfolio decision-making practices to evaluate issues such as allocation of investment opportunities, and consistency with disclosures to clients. o Safety of Client Assets: a review of the RIA’s compliance with the Investment Advisers Act of 1940 (“Advisers Act”) custody rule and other laws aimed at prevent loss or theft of client assets. 15
  16. 16. What to Expect from a SEC Exam o How Does it Start? o Notification – usually by phone/email o Request Letter o What Does Life of an Exam Look Like? o Document Production – often on a rolling basis o Timing/Duration o Onsite Visit o After the Onsite 16
  17. 17. What am I Required to Produce? o Document Production o Usually 15 to 25 requests in the initial request (normal exam could be from 40 to 50 requests in initial request) o Examples of Information Requested: o Org charts – including ownership % and list of affiliates o List clients, type, AUM, name of custodian, type of strategy, types of fees (in EXCEL) o List of private funds, number of investors, domicile, master/feeder, nature of lock-up, amount of leverage, etc. (in EXCEL) o QTRs and all other personal trading records (in EXCEL if you use software to track) o Trade blotter/ ten most and least profitable trades o List of JVs (this should include outside business activities of key employees) o Written policies and procedures o Violations of Policies o Investor complaints o Committee minutes (if any) o ADV Part 2Bs, marketing materials, Pitchbooks, etc. 17
  18. 18. What am I Required to Produce? o Below is guidance on what to expect from a typical SEC examination, in large part based on Cordium’s experience assisting numerous advisers through recent Presence Exams o Document Production o Could be 5 to 10 additional requests (could be another 20 to 30 in a normal exam) o If you don’t understand something on a request list - call and ask o Prepare a written response to each requested item o If an Examiner asks for something orally – ask to get the request in writing and formally respond to the request o Should Consider: o Attorney Client Privilege o Freedom of Information Act o Bates Stamping and other Logistics 18
  19. 19. How Far Back Will They Look? o Will they request information that pre-dates registration? o YES! o How should you respond to those inquiries? o Rule of thumb – produce the documents o Discuss with counsel if there are problem areas o Key is to get the exam off on the right foot 19
  20. 20. Notice and Duration o How much notice are advisers given? o Likely 4 to 7 days – but production may be rolling o How long should advisers expect the exam to last? o Onsite o Typically 2 to 3 days o Additional requests o Our experience has been that additional requests have stretched out months from last onsite day. o Conclusion o Exit interview – Be proactive with what you learn 20
  21. 21. Onsite Visit & Follow-Up Requests o Typical Exam onsite time ranges from 2-3 days o Helpful Tips: o Do not try to delay the visit o Present your “story” to the SEC on day 1 o Prepare your partners and key people – the SEC will want to talk with certain people (CCO, CFO, IR, Head Trader, etc.) o Keep the office clean, file cabinets locked, no papers out o Set up a room for the examiners o Make yourself available o Discuss potential issues with counsel/compliance consultants in advance! o It’s ok to say “let me get back to you on that” o Ask for it in writing if they have follow-up document requests 21
  22. 22. Onsite Visit & Follow-Up Requests o After the Onsite o Exit Interview o Clarify questions/correct any perceived inaccuracies during the call o Be proactive – if an issue is identified– work to remedy it ASAP o Consider responding with the manner in which you have corrected or are in the process of correcting any issues identified o A proactive written response to the Exit Interview may affect the content/substance of your firm’s Deficiency Letter o Could be additional requests for information weeks after 22
  23. 23. Onsite Visit & Follow-Up Requests o Potential for Deficiency/”Findings” Letter o Generally received within 120 days of the exam (although not required) o Generally have 30 days to respond o Next examination will likely address issues raised by examiners – Need to follow-through on corrections! o Should include manner in which any deficiencies were corrected as part of firm’s annual review o Referral to Enforcement o If an exam reveals serious deficiencies, the SEC staff may refer the problems to the SEC’s Division of Enforcement, state regulatory agency, or other regulator for possible action 23
  24. 24. What can Your Firm do Now? o Things to Start Doing NOW: o Create a “First Day” presentation o Proactively identify conflicts o Proactively identify gaps and possible problems o Critically Review Compliance Manual – are policies in line with practices? o Review Marketing Materials o Test P&P throughout the year o Beef up Annual Reviews – SEC is concerned that firms may only be doing cursory annual reviews of policies and procedures o Consider conducting Audit Prep or Mock Audit exercise o Conduct periodic trainings 24
  25. 25. What is Cordium seeing? o As a firm we have recently supported over 25 of audits. Below are a few real life examples of issues that have appeared in request letters and/deficiency letters: o Marketing Deficiencies – exact adherence to the manual o Expense Allocation – what is being charged to the funds o Focus on Insider Trading – Expert Networks and Research o Adherence to fund documents – monitoring investment and risk parameters o SEC continues to ask for emails to be produced – as such email review is an important part of being prepared for an SEC exam o Recent Cyber Security Sweep – request letter has been circulated o Review the letter o Reach out to admin and IT personnel to confirm adequate policies and procedures are in place o Revise policies as needed o Implement a testing protocol if there is not one already 25
  26. 26. Questions? 26
  27. 27. Presenter Biographies 27 Jillian Timmermans, Partner | Vice President Jillian is Co-Manager of Cordium US’s Compliance Consulting Team and a Partner at the firm. In addition to supporting clients with meeting their regulatory needs, Jillian assists in overseeing the consulting department, which includes resource management, training, and product development. Jillian has worked as an analyst in the Public Finance Department at Bear Stearns where she focused on fixed-income issuance for city and state housing agencies. Jillian received a B.S., magna cum laude, in Applied Economics and Management from Cornell University and a JD, magna cum laude, from New York Law School. Jillian is also certified as an Investment Adviser Certified Compliance Professional (IACCP) by National Regulatory Service's Center for Compliance Professionals. Amelia Stoj, Partner | Vice President Amelia is a Vice President of Cordium’s compliance consulting division and a Partner of the firm. She currently runs the San Francisco office. Amelia helps investment managers successfully implement and maintain a comprehensive compliance program. Her clients utilize a broad range of investment strategies including but not limited to private equity, venture capital, real-estate related and fund of fund strategies. Prior to Amelia joining Cordium as a compliance associate in 2010, she was an associate in the Private Investment Fund practice group at Proskauer Rose LLP. While at Proskauer she represented general partners and limited partners of private equity funds in connection with the structuring, formation, offering and on- going operations of a variety of domestic and offshore private equity funds. Amelia received a J.D., with honors, from the University of Connecticut School of Law in 2008 and a B.A. from Wesleyan University in 2002. Amelia is certified as an Investment Adviser Certified Compliance Professional (IACCP) by National Regulatory Service’s Center for Compliance Professionals.
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×