In a risk alert issued March 27, 2023 (the Alert), the U.S. Securities and Exchange Commission (SEC) Division of Examinations (EXAMS) summarizes the staff’s observations from examinations of newly-registered investment advisers. The Alert discusses the scope of a typical newly-registered adviser examination and commonly observed examination deficiencies for newly-registered advisers: compliance policies and procedures; disclosure documents and filings; and marketing practices.
While EXAMS uses a risk-based approach for determining which advisers to examine, the Alert highlights that newly-registered investment advisers have been a priority for EXAMS since 2013 and remain a focus. All newly-registered advisers should expect a visit from EXAMS within a “reasonable period of time” after registration effectiveness. A significant number of newly-registered adviser examinations occur within 12 to 18 months after registration with the SEC. Stated goals of this early engagement are to introduce advisers to the examination program and to confirm the adviser risk-based compliance program framework. The observations by EXAMS cover issues that have been the subject of many past risk alerts and are perennial focus areas for examination, including conflicts of interest, disclosures and filings, written compliance policies and procedures, and marketing materials.
The highlights for newly-registered advisers also provide helpful reminders of primary focus areas for all advisers and the typical scope of examinations. All registered advisers should remember that demonstrating a culture of compliance from the top down and making a positive first impression during a visit from EXAMS directly affect not only the outcome of the exam but also the potential timing and frequency of future exams. The Alert contains an appendix with a number of helpful compliance program and exam resources for advisers.
Advisers that are newly registered, and those planning to register in the immediate future, should carefully review the Alert and take the opportunity to review current compliance policies, practices, and disclosures and consider appropriate enhancements in areas the staff identified.
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