New York partner Kay Gordon was quoted in Compliance Intelligence in an article on the SEC’s Office of Compliance Inspections and Examinations’ (OCIE) 2014 priorities memo, which offers a detailed look at what issues are likely to be affecting firms this year.
With regard to OCIE’s new never-before-examined adviser initiative, under which staffers will expand the use of presence exam-style inspections to IAs that have been registered for more than three years and never been examined, Kay told CI it will behoove other IAs to ensure they are making greater preparations for an inspection than they may have in the past.
“Just because you aren't a high risk adviser, you shouldn't feel that you can just relax—you still need to be focused on your compliance program,” she said. “It's a warning sign for such advisers to keep their compliance programs updated and current.”
Another new facet is a focus on quantitative trading models, with OCIE planning to examine IAs that rely heavily on quantitative portfolio management and assess whether they have appropriately tailored compliance policies.
“Quantitative models haven't necessarily been a focus for compliance officers in the past—this indicates they should be,” said Kay. “If the SEC is going to come and visit these advisers, some of them may feel unprepared if they haven't specifically analyzed how their models may affect the market,” she said, adding that OCIE had laid out specific policies and procedures that firms may need to consider adopting.
Kay also commented on OCIE's new focus on risks associated with a changing interest rate environment, saying, “For fixed income funds in the current interest rate environment, managers have to make sure they have appropriate disclosures.”
“It would make sense for a lot of funds to update their documents,” she said. “The SEC wants to make sure that you keep all your investors informed and that you're continuously watching how the economic environment changes.”