A new initiative with the Office of Compliance Inspections and Examinations (“OCIE”) at the Securities and Exchange Commission (“SEC”) is aimed at registered investment advisers who have never undergone examination by the SEC. According to a February 20, 2014 press release, this demographic of advisers primarily includes those who have been registered with the SEC for “three or more years” and who have not been examined since their initial registration. The so-called Never-Before Examined Initiative (the “Initiative”) seeks to conduct examinations on “a significant percentage” of these advisers, with the goal of providing both examination experience and education in the process.
In a letter to newly-registered RIAs, also dated February 20, 2014, OCIE outlined its guidance for the National Exam Program (NEP) designed for such never-examined advisers. The letter explains the Commission’s “two distinct approaches” to examinations: risks assessment and focused reviews. The “risk assessment approach” is “designed to obtain a better understanding of the registrant,” while the “focused review approach” aims to conduct “comprehensive, risk-based examinations” on certain high-risk business areas, including the adviser’s compliance program, filings and disclosures, marketing, portfolio management, and the safety of client assets.
OCIE also plans to hold regional meetings later in 2014 that will provide more in-depth information on the examination process. This may provide a meaningful exchange so that Never-Before Examined advisers are prepared before the SEC staff’s arrival.
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