SEC Comments on Risk-Based Approach to Examining Advisers

Friday, 11 April 2008 22:21 Director of the Division of Investment Management for the SEC, Andrew J. Donohue, recently commented upon those various amendments and developments the SEC was considering in the near future. Speaking at the 2008 Investment Advisors Best Practice Summit, Director Donohue focused his comments to three initiatives currently being entertained by the SEC. First, Director Donahue spoke about those improving Form ADV Part 2 by having more meaningful, more effective, and more simplistic client disclosure. Secondly, Director Donohue suggested that the SEC may reinstate several Commission interpretive provisions concerning the application of the Advisers Act to those broker-dealer activities that were vacated by the FPA decision. Finally, Director Donahue fore-grounded that the SEC may review the conditions in rule 3a-4 to consider whether such conditions provide an appropriate level of individualized treatment to support an exception from the definition of investment company. Speaking at the same summit was the Lori A. Richards, SEC Director of the Office of Compliance Inspections and Examinations (OCIE). Director Richards spoke on those variables which resulted in her office’s risk-based approach to examining large investment advisers. As Director Richards explained, the number of investment advisers has grown by 40% since 2001, while the number of OCIE staff has remained unchanged. This failure to match staffing with industry growth resulted in the OCIE being forced to adopt a risk-based approach that could only focus upon those large investment advisers whose compliance failures would be most detrimental to their clients and the market.