SEC Office of Compliance Inspections and Examinations 2019 Inspections Recap

The SEC’s Office of Compliance Inspections and Examinations (OCIE) recently released its “2020 Examination Priorities”.

Included in this update is a recap of FY 2019 examination results. Topics relating to Registered Investment Advisers (RIAs) are discussed below.

  • Overall, OCIE completed 3,089 examinations in 2019, which is down (due in part to a 35 day appropriations lapse) 2.7% from the prior year.
  • Of this total, 2,180 exams (just over 70%) related to RIAs; this is estimated to have covered approximately 15% of the RIA population.
  • In the course of their exams, OCIE verified over 3.1 million investor accounts with aggregate value exceeding $1.5 trillion.
  • OCIE continues to prioritize Custody Rule-related compliance (i.e. Rule 206 (4)-2 of the Investment Advisers Act of 1940) in situations where RIAs have access to client funds or securities.
  • Examinations closed in 2019 resulted in firms returning more than $70 million to investors relating to improperly charged fees.
  • The recap included updated demographic information of RIAs:
    • The population of RIAs has grown over the last five years from approximately 11,500 to 13,475; related assets under management increased from approximately $62 trillion to approximately $84 trillion.
    • 27% of RIAs manage assets in excess of $1 billion, 36% manage a private fund, 55% have custody of client accounts, 60% are affiliated with other financial industry firms, and 12% provide advisory services to a mutual fund, exchange-traded fund or other registered investment company.
    • Close to 1,000 RIAs that manage over $10 trillion in assets are off-shore.
    • OCIE has increased its exam coverage of RIAs from 10% in 2014 to 15% in 2019, although they are concerned that resource constraints may prevent this number from increasing further.
  • OCIE is experiencing challenges in obtaining information from non-US registrants who may be subject to cross-border data protection and privacy restrictions.
For more information or questions on how you should comply, please
contact a member of Withum’s Financial Services and Investment Group.

A regulatory body’s concern over resource constraints and the continued globalization of RIAs are certainly not new topics, and neither one is likely to be a “front burner” issue in the current election cycle. However, it’s certainly possible that both matters could receive heightened “behind the scenes” discussion over the 2020 year and beyond. RIAs will want to keep in touch with their advisors to stay abreast of emerging developments. Stay tuned for further details.

Financial Services and Investment

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