The SEC’s examination priorities for 2014

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The Securities and Exchange Commission’s (SEC’s) Office of Compliance Inspections and Examinations (OCIE) recently published the priorities of its National Exam Program (NEP) for 2014 (the ‘2014 Priorities’). The 2014 Priorities focus on areas perceived by the SEC staff to ‘have heightened risk’. The OCIE report addresses both market-wide priorities and priorities that are specific to each of the NEP’s four distinct programme areas: (i) investment advisers and investment companies; (ii) broker-dealers; (iii) clearing and transfer agents; and (iv) market oversight. This client update focuses on the examination priorities that are most relevant to investment advisers to private equity and hedge funds.

Certain of the 2014 Priorities are familiar. For example, over the last few years the SEC staff has repeatedly identified conflicts of interest and custody as examination priorities, and these will continue to be the priority areas of focus in 2014. Certain of the 2014 Priorities are driven by recent regulatory developments. For example, in 2014, OCIE will focus on issues arising from the 2013 adoption of Rule 506(c) under the Securities Act of 1933, which permits issuers to use general solicitations in connection with certain Regulation D offerings.

Private fund managers and other investment advisers, particularly those that have not yet been subject to an SEC examination, should consider the 2014 Priorities in planning their compliance programme objectives in the coming year and conducting the review of their compliance programmes as required by Rule 206(4)–7. Specifically, private fund sponsors should be proactive in identifying potential conflicts of interest, ensure that processes in place to identify potential conflicts are effective and review their disclosures to investors to be certain that the disclosures reflect potential conflicts and how they are addressed…

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