SEC Office of Compliance Inspections and Examinations ("OCIE") Director Peter Driscoll highlighted key risks facing retail investors caused by bad actors and poor internal controls.
Mr. Driscoll emphasized the following bad behaviors:
- advisers overbilling or providing inaccurate information about client advisory fees and expenses by, among other things, inconsistently calculating the value of the client's assets;
- advisers failing to comply with the Custody Rule (IAA Rule 206(4)-2);
- broker-dealers, advisers and transfer agents misappropriating investor assets;
- advisers providing inadequate conflicts of interest disclosures; and
- firms or their personnel attempting to borrow from seniors without disclosing the risks or the firm's financial incentives.
OCIE examiners are addressing these risks by, among other things, examining (i) advisory fees and expenses, (ii) compliance with the Custody Rule, (iii) firms' handling of investor funds and assets, (iv) asset verification, (v) disclosure of conflicts of interest examinations, and (vi) potential senior financial abuse and exploitation.
In addition, Mr. Driscoll noted that while the OCIE has "very high expectations for [Chief Compliance Officers]," they do not bear ultimate responsibility for any failures of the firm's compliance program.
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