Earlier this month, the Office of Compliance Inspections and Examinations (the "OCIE") of the Securities and Exchange Commission (the "SEC") sent letters to newly-registered investment advisers to introduce such advisers to the National Exam Program (the "NEP") and provide information regarding the SEC's new "Presence Exam" initiative. As the letter explains, the NEP is the arm of the OCIE that administers investment adviser examinations.
The SEC's Presence Exam initiative will be undertaken over the next two years. Newly-registered firms (that is, investment advisers who have registered with the SEC in connection with the rules adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act) may be subject to Presence Exams, which the SEC describes as "conduct focused, risk-based examinations of investment advisers to private funds." The Presence Exams are intended to have a narrower focus than a traditional exam undertaken by the SEC. In particular, the Presence Exams will focus on the following high-risk areas: (i) marketing; (ii) portfolio management; (iii) conflicts of interest; (iv) safety of client assets; and (v) valuation. Following the NEP's examination of an adviser, the NEP may send the subject investment adviser a letter noting any findings made during the Presence Exam, or should the NEP staff finds serious deficiencies, it may refer the adviser and its deficiencies to the SEC's Division of Enforcement or appropriate self-regulatory organization.
While not all newly-registered investment advisers received a copy of this letter, receipt of the letter does not necessarily mean that such investment adviser will undergo a Presence Exam. Firms will be contacted separately if they are going to be subject to a Presence Exam.
In addition to explaining the Presence Exam initiative, the SEC provided information regarding its outreach efforts to inform newly-registered investment advisers of their duties and obligations under the Investment Advisers Act of 1940, as amended, and the rules thereunder. The SEC has published, among other things, compliance outreach materials, letters, studies, speeches and no-action letters, which provide guidance to registered investment advisers. An attachment to the letter contains a list of resources and links to such resources.
A copy of the letter may be foud here.