The National Examination Program, which is administered by the SEC’s Office of Compliance Inspections and Examinations (“OCIE”), recently published its Examination Priorities for 2015 (“2015 Exam Priorities”). At five pages, the 2015 Exam Priorities is less than half the length of the 2013 and 2014 examination priorities.
In the 2015 Exam Priorities, OCIE listed the following priorities that are of particular interest to asset managers:
- “Alternative” Funds. OCIE will continue to assess funds investing in alternative assets and using alternative investment strategies, with a particular focus on (i) leverage, liquidity, and valuation; (ii) the adequacy of the funds’ internal controls; and (iii) the manner in which the funds are marketed to investors.
- Bond Funds. With higher interest rates anticipated in the future, OCIE will review whether funds facing significant interest-rate-increase exposure have implemented compliance procedures and controls that are sufficient to ensure that their funds’ disclosures are not misleading and that their investments and liquidity profiles are consistent with those disclosures.
- Cybersecurity. OCIE will continue to examine broker-dealers’ and investment advisers’ compliance efforts and controls in connection with cybersecurity-related risks.
- Large Firm Monitoring. Along with the Division of Trading and Markets and the Division of Investment Management, OCIE will continue to monitor the largest U.S. broker-dealers and asset managers for the purpose of assessing systemic risks.
- Proxy Services. OCIE will examine select proxy advisory service firms, including how they make recommendations on proxy voting and how they disclose and mitigate potential conflicts of interest, as well as investment advisers’ compliance with their fiduciary duty in voting proxies on behalf of their clients.
- Potential Equity Order Routing Conflicts. OCIE will assess whether firms are prioritizing trading venues based on payments or credits for order flow in conflict with their best execution duties.
- Fees and Expenses in Private Equity. Noting that it has observed a high rate of deficiencies among advisers to private equity funds in connection with fees and expenses, OCIE will continue to conduct examinations in this area.
- Never-Before-Examined Investment Companies. OCIE will conduct focused, risk-based examinations of selected registered investment company complexes that have not yet been examined.