Priorities specific to hedge funds:
- Annual exams mandated by the Dodd-Frank Act;
- The NEP will continue its assessment of funds offering “alternative” investment strategies, with a particular focus on: leverage, liquidity and valuation policies and practices;
- the staffing, funding, and empowerment of boards, compliance personnel, and back-offices; and
- the manner in which such funds are marketed to investors. The staff will additionally review the representations and recommendations made regarding the suitability of such investments.
The priorities listed for 2014 were selected based on a variety of information and risk analytics, including tips, complaints and referrals, including from whistleblowers and investors.
Other priorities include:
- For investment advisers and investment companies — advisers who have never been previously examined, including new private fund advisers, wrap fee programs, quantitative trading models, and payments by advisers and funds to entities that distribute mutual funds
- For broker-dealers — sales practices and fraud, issues related to the fixed-income market, and trading issues, including compliance with the new market access rule
- For market oversight — risk-based examinations of securities exchanges and FINRA, perceived control weakness at exchanges, and pre-launch reviews of new exchange applicants
- For transfer agents — timely turnaround of items and transfers, accurate recordkeeping and safeguarding of assets
- For clearing agencies designated as systemically important — conduct annual examinations as required by the Dodd-Frank Act, and pre-launch reviews of new clearing agency applicants
“We are publishing these priorities to highlight areas that we perceive to have heightened risk,” said Andrew J. Bowden, Director of the SEC’s Office of Compliance Inspections and Examinations. “This document, along with our Risk Alerts and other public statements, help us to increase transparency, strengthen compliance, and inform the public and the financial services industry about key risks that we are monitoring and examining.”
The full text can be accessed here (11 pages).
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