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OCIE Chief Highlights Exam Areas; Peirce Assails Share Class Initiative

In a recent speech Peter Driscoll, director of the SEC’s Office of Compliance Inspections and Examinations, focused on the agency’s efforts to protect retail investors. Driscoll pointed to OCIE’s recent exam priorities, including whether investors are receiving accurate information about fees and expenses; proper custody and safeguarding of client assets; and firms that borrow from client accounts. Driscoll also clarified how OCIE seeks out possible conflicts of interest and disclosure failures. “Almost all of our examinations review an adviser’s disclosures in connection with its operations to evaluate whether the adviser has appropriately identified and disclosed conflicts. OCIE believes that full disclosure of conflicts of interest puts clients in the best position to be able to make judgments for themselves about whether to engage, or continue with, the services of an adviser.” He also discussed the role of the CCO and appropriate compliance budgets. “We are concerned when we hear directly from industry participants and read press reports that compliance resources and budgets are being cut or are not keeping up with firms’ risk profiles,” Driscoll said. He added that while the role of the CCO is vitally important, concerns that CCOs bear the ultimate responsibility for the success or failures of any compliance program are not warranted. “I believe that compliance obligations and opportunities lie with personnel firm-wide, including importantly senior management and ownership, “ Driscoll said. He highlighted the success of the SEC’s recent share class initiative, which ended in settlements with 79 investment advisers. At a separate event, however, Commissioner Hester Peirce criticized the program, saying: “We spotted a problem and let it fester without a definitive reaction from the Commission for five plus years. The delay meant that investors went years without the necessary disclosure to appreciate that they were not being put in the cheapest share classes available.”

 
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