The SEC’s Office of Compliance Inspections and Examinations’ 2016 Examination Priorities included a focus on individuals with a history of disciplinary events. That priority has been put into action. The SEC issued a new Risk Alert on upcoming examination.
OCIE is undertaking an initiative to examine the supervision practices and compliance programs of registered investment advisers that employ individuals with a history of disciplinary events in the financial services sector. OCIE is calling the new initiative: the “Supervision Initiative.”
Okay so the name is a bit ambiguous. I suppose I may be the only one that it is looking for more interesting names:
- Downed Hawks
- Bad Boys
- Operation Tiger Pit
The Supervision Initiative likely means that firms with bad boys and women are more likely to be subject to examination.
The Supervision Initiative examinations will assess such advisers’ business and compliance practices related to the firms’ supervision of higher-risk individuals in four areas:
Compliance Program “An important component of the examinations is to evaluate whether the advisers foster robust compliance cultures and tone at the top. The tone at the top is critical to setting the ethical environment of the organization and preventing misconduct.”
Disclosures. “Examiners will likely review registered advisers’ practices regarding their disclosures of regulatory, disciplinary, or other actions with a focus on assessing the accuracy, adequacy, and effectiveness of such disclosures.”
Conflicts of Interest. “Particular attention will be given to conflicts that may exist with respect to financial arrangements (e.g. unique products, services, or discounts) initiated by supervised persons with disciplinary events.”
Marketing “Examiners will review a registered adviser’s advertisements including pitch-books, website postings, and public statements to identify any conflicts of interests or risks associated with supervised persons with a history of disciplinary events.”
I would guess that the SEC is looking for firms to have taken extra steps to ensure that those who have transgressed in the past are in better supervision and in a firm that stresses good behavior.
As the SEC insists in disclosures past performance is not indicative of future results. But I think the SEC believes that those who have violated the rules in the past are likely to do so again.
Sources: