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SEC Study on Enhancing Adviser Examinations

The SEC has released a report detailing the conclusions of a study conducted by its staff on the Commission's investment adviser examination and enforcement efforts.  The report entitled, "Study on Enhancing Investment Adviser Examinations," mandated by section 914 of the Dodd-Frank Act, reviews and analyzes the need for enhanced examination and enforcement resources for investment advisers, considering factors like: 

  • whether the Commission’s efforts would be augmented and the frequency of examinations would be improved if Congress provided the Commission authority to designate a self-regulatory organization (“SRO”) to oversee investment advisers; and
  • current and potential approaches to examining the investment advisory activities of dually registered broker-dealers and investment advisers or affiliated broker-dealers and investment advisers.

Chief among the report's conclusions is that the staff believes that the SEC likely will not have sufficient capacity in the near or long term to conduct effective examinations of registered investment advisers with adequate frequency.  The report also concludes that the agency's examination program currently is not funded sufficiently to permit the SEC to meet the increasing numbers of examinations and enforcement actions that will be required.  Further, the report recommends that sufficiently stable and scalable funding is required to prevent adviser examination resources from periodically being outstripped by increases in the number of registered investment advisers.

In order to meet the regulatory the agency's regulatory and oversight challenges with regard to investment advisers, the study recommends to Congress three approaches to strengthen the SEC's investment adviser examination and enforcement regime:

(1) Authorize the SEC to impose user fees on SEC-registered investment advisers to fund their examinations by the SEC;

(2) Authorize one or more self-regulatory organizations to examine, subject to SEC oversight, all SEC-registered investment advisers; or

(3) Authorize FINRA to examine dual registrants for compliance with the Investment Advisers Act of 1940.

The full text of the Commission's report is available at:  http://www.sec.gov/news/studies/2011/914studyfinal.pdf