On November 20, 2015, the Director of the SEC’s Office of Compliance Inspections and Examinations (OCIE) stated in a speech that OCIE would begin conducting routine examinations of “exempt reporting advisers” that file with the SEC. These remarks were made in a speech to the ABA Hedge Fund Sub-Committee during the ABA’s Business Law Section Fall Meeting. In the 2011 release adopting the rules creating the exempt reporting adviser category of advisers, the SEC stated that it would only inspect such advisers for “cause,” such as in response to tips, referrals or other indications of wrongdoing. Thus, routine inspections by the SEC staff would be a significant departure from current practice and the SEC’s prior statements, and would affect all of the approximately 3,000 exempt reporting advisers filing with the SEC. The SEC has not commented on or otherwise endorsed the director’s statements.

“Exempt reporting advisers” are advisers that rely on the exemption from registration for (i) advisers solely to venture capital funds and (ii) advisers that manage only private funds and that have less than $150 million in assets under management. These advisers file certain publicly-available information with the SEC through the Investment Adviser Registration Depository (or IARD) system, but are not subject to most of the substantive and disclosure requirements applicable to registered advisers.