Reality Check: Observations from Exams in the RIC Initiatives

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Assess your policies and procedures and improve your RIA and fund compliance programs based on recent SEC observations from exams in the RIC initiatives.

The SEC recently issued a risk alert that summarizes observations from examinations in the Registered Investment Company (RIC) initiatives. The SEC announced these initiatives in a 2018 risk alert and included them in its 2019 examination priorities. The latest risk alert prompts firms that manage RICs (including mutual funds and ETFs) and fund chief compliance officers to examine their policies and procedures with an eye toward improving their compliance programs and disclosure practices. Here, we recap the major findings from the examinations, including compliance and disclosure deficiencies as well as best practices.

Compliance Program Deficiencies

The SEC observed compliance oversight deficiencies related to funds’ and their advisers’ compliance programs in these categories:

    • Investments and portfolios
    • Valuation
    • Trading practices
    • Conflicts of interest
    • Fees and expenses
    • Fund advertisements and sales literature
    • Reporting information to boards

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Disclosure Deficiencies

The SEC also observed issues with disclosures in fund filings, advertisements, and other shareholder communications. Here are some examples:

    • Omitted disclosures regarding strategies, risks, and changes in broad-based indexes
    • Inconsistent and/or inaccurate disclosures regarding assets and expense information
    • Omitted or inaccurate disclosures regarding committees of a fund’s board

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Compliance and Disclosure Best Practices

The SEC also observed effective compliance oversight practices, including these examples:

1. Periodic testing and reviews of

    • compliance policies and procedures for alignment with practices,
    • compliance with disclosure requirements,
    • fees and expenses as stated in disclosures, and
    • performance advertising for accuracy, appropriateness, and adequate disclosures

2. Adoption and implementation of policies and procedures concerning disclosure, such as updating website disclosures to match new or amended disclosures as stated in a range of client communications

3. Adoption of policies to address oversight of key vendors, such as pricing vendors

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These observations are a reminder to periodically revisit—and revamp—your compliance program and make the necessary changes. If you need help assessing and improving your RIA or fund compliance program, please get in touch.

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