The Securities and Exchange Commission's Examinations Division released Wednesday a new risk alert detailing the reasons why a firm may be the target of an SEC exam, and the list of documents that may be requested.
As the alert explains, reasons the division may select an advisor for examination include, but are not limited to:
- The firm's risk characteristics
- A tip, complaint or referral
- The SEC staff's interest in a particular compliance risk area.
When selecting advisors to examine, the Exam Division "considers factors such as which advisors provide services, recommend products, or otherwise meet criteria relevant to the focus areas described in the Division's priorities," the alert explains.
There are also firm-specific risk factors, such as those related to a particular advisor's business activities, conflicts of interest, and regulatory history.
The SEC-registered investment advisor population "is large and diverse, ranging from global asset managers to small firms, engaging in a variety of business activities (e.g., advisory, brokerage, and insurance), servicing a diverse client base (e.g., individuals, trusts, investment companies, private funds, and pension plans), and managing a wide spectrum of assets under management," the alert states.
"Given the size and variety of the advisor population, the Division utilizes a risk-based approach for both selecting advisors to examine and in determining the scope of risk areas to examine."
There are currently more than 15,000 SEC-registered advisors managing in excess of $115 trillion in assets. Advisors that manage at least $100 million in assets are required to register with the SEC, unless they can rely on an exemption.
