SEC Compliance Outreach Program for Investment Advisers and Investment Companies Subtitle

February 6, 2012

On January 31, 2012, the U.S. Securities and Exchange Commission (the “SEC”) held the Compliance Outreach Program for Investment Advisers and Investment Companies (the “Outreach Program”). The Outreach Program focused on issues relevant to the chief compliance officers and other senior personnel of investment advisers and investment companies. The seminar consisted of panel discussions on various topics including:

  • Compliance and Enterprise Risk Management. The panel on Compliance and Enterprise Risk Management discussed the process of crafting and implementing an appropriately tailored compliance and risk management program within an investment advisory firm. The panel emphasized the importance of involving senior management with the compliance program, so that the culture of compliance flows throughout the firm’s leadership structure.
  • Trading Practices. The panel on Trading Practices covered a variety of key trading issues, including: trade allocation, insider trading, best execution practices, soft dollars, high frequency trading, use of expert networks and cross trades. The panel also stressed the importance of coordination between compliance and risk management individuals and the senior persons on the trading floor. Additionally, the panel addressed the specialized risks and compliance challenges associated with high-tech trading.
  • Dodd-Frank Wall Street Reform and Consumer Protection Act. The panel on the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) summarized the new rules promulgated under Dodd-Frank and how these rules impact registration of investment advisory firms. Additionally, the panel discussed the revised Form ADV and the new Form PF. The panel also provided an overview of the recent no-action letter in response to a request from the American Bar Association’s Subcommittee on Hedge Funds, which provided relief from registration to certain entities affiliated with an SEC-registered adviser. The panel also discussed the “Family Office” exemption from SEC registration, including the exemption’s applicability to a family office adviser that is affiliated with another adviser, if the family office adviser is “separate” from the affiliate adviser in accordance with the criteria applied in the Richard Ellis, Inc. no-action letter. Finally, the panel explored how the new rules will affect the examination process for SEC-registered advisers.
  • Enforcement-Related Matters. The panel on Enforcement-Related Matters highlighted major deficiencies leading to enforcement actions, including: valuation issues, undisclosed conflicts of interest and compliance program failures. The panel also reviewed notable enforcement actions in which the SEC named and, ultimately, censured the chief compliance officer of an investment adviser.
  • Safety and Soundness of Client Assets/Custody. The panel on Safety and Soundness of Client Assets/Custody provided background on the custody rule. In addition, the panel discussed the centrality of custody-related matters in an SEC examination and the importance of compliance officers and other senior personnel understanding custody matters and effectively communicating the adviser’s custody arrangements to the SEC staff during an SEC examination.