SEC Announces Plan to Tighten Supervision of Asset Managers

By Oyster Consulting LLC

Securities and Exchange Commission Chair Mary Jo White recently announced a three-pronged Commission reform plan to tighten supervision risks of asset managers. While the plan is still in the developmental stages, asset managers should expect new regulatory control requirements for portfolio composition and operational risks to be rolled out.

White defines portfolio composition risks as “the risk related to the mix of a fund’s investments and the impact that mix…can have on a fund. Portfolio composition risks can include risks associated with the liquidity and leverage of a fund’s holdings.” Operational risk is “risk from inadequate or failed internal processes and systems.”

Under White’s direction, SEC staff have been developing recommendations for three core initiatives:

  1. Improve the data used to draw conclusions about the risks of the asset management industry.
  2. Ensure registered funds enhance controls so they are able to identify and address risks related to portfolio composition, including liquidity levels and the use of derivatives.
  3. Ensure firms have a plan for transitioning their clients’ assets when necessary.

To see a complete transcript of Mary Jo White’s speech, click here:

What You Should Do to Protect Your Clients and Your Firm:

A strong compliance program is vital to any investment advisor. Firms can and should be proactive, anticipating increasing regulatory scrutiny. With White’s comments in mind, Oyster Consulting will be providing a series of blogs on ways firms can mitigate risks, evaluate their services, and ensure policies and procedures are in place to protect their clients and themselves.

Annual Reviews

Registered Investment Advisors are required, at least annually, to review the adequacy of their compliance policies and procedures and assess their effectiveness. An overall review can help identify problem areas, including areas mentioned in the developing SEC plans for asset managers. As part of an RIA Annual Review, firms should expect to assess their:

  • Books and Records
  • Business Continuity Plan/Disaster Recovery
  • Code of Ethics – Employee Personal Trading
  • Compliance Program
  • Gap Analysis of Policies and Procedures
  • Information Security and Customer Privacy
  • Investment Management Process
  • Marketing and Advertising
  • Regulatory Filings and Disclosures, including Form ADV 1 and 2 filings
  • Safeguarding Client Assets
  • Custody
  • Sales Practices – Use of Solicitors
  • Trading Practices
  • Valuation
  • Supervisory Practices

How Oyster Can Help:

Oyster Consulting has the depth of knowledge and experience to provide your firm with a review of your compliance program, so that your firm will remain ahead regulatory curve. Oyster will not only provide a written report of problem areas, but will also identify best practices. Should your firm need any improvements, Oyster can help you facilitate those changes.