Summary of OCIE's Priority List for Upcoming Examinations of Investment Companies and Investment Advisers
At a November 17 meeting of the American Bar Association Committee on Federal Regulation of Securities, Gene Gohlke, Associate
Director, Office of Compliance Inspections and Examinations ("OCIE"), together with Doug Scheidt, Associate Director and Chief
Counsel, Division of Investment Management, provided a brief overview of OCIE's priority list for upcoming examinations of
investment companies and investment advisers. A summary follows:
Investment Companies
- Privacy Policies and Procedures. OCIE will review Board presentations and forms of Notices, as part of general compliance with Regulation S-P.
- Fair Value Pricing Procedures. OCIE understands that funds may not have completed an overhaul of pricing procedures, but it clearly expects to see a record
of at least a work-in-progress. Of particular interest is the existence of procedures to monitor and react to significant
events that occur after a primary market closes and before a fund is priced. OCIE emphasized that it will be looking for these
procedures for all funds, including any fund that has any authority to purchase "even a single foreign security." The ICI
reported that their White Paper should be finalized "in the next few weeks."
- NAV Error Correction Policies. OCIE has apparently found wide variations among fund families and has decided to make this a priority.
- Fund Governance Rules. OCIE also expects compliance with these new rules to be at least a work-in-progress for now.
- Fund Names Rule. The SEC FAQs should be finalized and issued "in the next week or two."
- Disaster Recovery and Contingency Planning. In the wake of September 11, OCIE will review funds' planning and readiness.
Investment Advisers
- Privacy Policies and Procedures. See above for investment companies.
- New Form ADV Compliance. OCIE will review compliance with the new form, including Part II when issued.
- Best Execution. OCIE intends to focus in detail on policies and procedures used by advisers to ensure best execution and also on related
reports to clients (including mutual fund Boards of Directors). In recent exams, OCIE has found a "surprising" lack of documentation
regarding issues such as quantitative comparisons among brokers, specific reporting to fund Boards, and justifications for
particular commission levels. OCIE also intends to explore related issues, such as the use of portfolio brokerage to support
fund distribution activities. This topic seems as though it will be a very significant area of focus.
- Portfolio Manager Conflicts of Interest. OCIE will focus on all conflicts of interest, with particular attention to situations where a single manager is advising
both registered mutual funds and private accounts or hedge funds.
- Disaster Recovery and Contingency Planning.
In addition to these topics, OCIE expects to begin to focus on policies of transfer agents (and, where appropriate, policies
of mutual funds or other service providers) designed to comply with new money laundering laws and regulations.
