The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert regarding the launch of its Multi-Branch Adviser Initiative (the “Initiative”). In recent years, the OCIE staff (the “Staff”) has observed an apparent increase in investment advisers with multiple branch offices and operations located outside of the adviser’s principal or main office. The Initiative will examine whether such advisers are in compliance with the federal securities laws given the additional and unique risks of a multi-office operating structure.
Specifically, the Staff will focus on advisers’ compliance programs, including their implementation of policies and procedures in the main and branch offices, supervisory structure, role and empowerment of compliance personnel who oversee branch offices and accuracy of information regarding branch offices in regulatory filings. Depending on an adviser’s particular business activities, the Staff may assess additional risk areas, including fees and expenses, advertising, implementation of the code of ethics and compliance with the Custody Rule.
Under the Initiative, the Staff will also inspect advisers’ oversight of advisory services, including the process by which investment advice is provided to clients by branch office personnel, and policies and procedures relating to the provision of advisory services, such as identification of potential conflicts of interest and the level of autonomy of supervised persons in providing advice. In addition, the Staff may examine the supervision and review of investment recommendations made to clients within and across the branch offices and the allocation of investment opportunities among client accounts.
Advisers with multiple branch offices should consider what additional practices, policies and procedures may be necessary to address the focus areas identified in the Risk Alert.
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If you have any questions regarding the matters covered in this memo, please contact any of the partners and counsel listed below or your primary attorney in Seward & Kissel’s Investment Management Group.
