Exams of investment advisers by the Securities and Exchange Commission (SEC) reportedly could increase by more than 30% this year, according to Pete Driscoll, Acting Director of the SEC’s Office of Compliance Inspections and Examinations (OCIE).
Speaking July 27 at FINRA’s National Compliance Outreach Program for Broker-Dealers, Driscoll suggested that the total share of SEC-registered advisers examined by OCIE could rise to 15% — up from 11% last year — largely attributed to a number of OCIE broker-dealer examiners moving into investment adviser oversight.
Whether the department will be able to increase its examination level is another matter, as the SEC may have to deal with budget cuts. The FY 2018 budget request for the OCIE calls for $5 million less in funding compared to existing levels, and it projects 25 fewer full-time employees.
Meanwhile, FINRA President/CEO Robert Cook and SEC Commissioner Michael Piwowar, who participated together on a panel with Driscoll as moderator, reportedly said that smaller broker-dealer firms may need customized policies to help ease the burden of compliance costs while upholding investor protection.
Driscoll noted that broker-dealer firms have decreased over the past several years and now stand at 4,000. Noting that compliance costs may be a leading cause of the consolidations, Cook said he’s concerned about the trend and the impact it is having on communities and jobs.
Strengthening OCIE Procedures
An inspector general audit released July 21 confirms that the OCIE plans to take steps to strengthen its policies and procedures over the completion of investment adviser examinations. The IG’s report includes three recommendations for corrective action that seek to improve OCIE’s internal controls over the examination completion process and enhance oversight of examination outcomes generally.
Acting Director Driscoll concurred with the recommendations in the report, which suggested that OCIE should:
- design control activities related to the review and approval of examination work products to require adequate segregation of duties;
- update the National Examination Program (NEP) policies and procedures to more clearly define the requirements for documenting examination meetings and interviews in the Tracking and Reporting Examination National Documentation System (TRENDS); and
- develop and disseminate to OCIE staff guidance for assigning final examination risk ratings before closing examinations.
