In a recent letter sent to newly-registered RIAs, the U.S. Securities and Exchange Commission (SEC) has announced the roll out of its new National Exam Program ("NEP"). The NEP is a new two-year initiative to conduct "focused", "risk-based" examinations of newly registered advisory firms that manage private funds (e.g. hedge funds, private equity funds).
A copy of the SEC letter can be found here.
These examinations may cover any area of your firm's compliance obligations but will initially focus on the following topics that are deemed to be high risk:
- Portfolio Management
- Conflicts of Interest
- Safety of Client Assets
- Engagement Phase. The NEP will inform registered firms about their obligations, provide outreach resources that are geared towards educating advisors of these responsibilities.
- Examination Phase. NEP staff will notify those firms that will be subject to examination and perform these examinations.
- Reporting Phase. The NEP will report its observations to the SEC and the public.
- Review their compliance policies and procedures to ensure that they adequately prevent, detect and correct any violations of federal and state securities laws.
- Review their Form ADV 1, 2A and 2B's to confirm that each is consistent with their advisory business and their investment adviser representatives.