AdvisersFundsSEC

FYI: OCIE Risk-Based Exam Initiatives for Investment Companies

FYI: OCIE has issued a Risk Alert announcing a series of exam initiatives focused on certain mutual funds and ETFs, their advisers and their boards, targeting circumstances in which retail investors could be disadvantaged and reviewing whether registrants have met their regulatory and other legal obligations.

Funds in one or more of the following categories will be the focus of the initiatives:
— Index funds that track custom-built indexes;
— Smaller ETFs and/or ETFs with little secondary market trading volume;
— Mutual funds with higher allocations to certain securitized assets (e.g., securitized auto loans, student loans, credit card receivables or mortgage-backed securities);
— Funds with aberrational underperformance relative to their peer groups;
— Advisers relatively new to managing mutual funds; and
— Advisers who provide advice to both mutual funds and private funds that have similar strategies and/or are managed by the same portfolio managers.

Exams will generally assess:
— Policies and procedures of the funds and/or their advisers, to validate that they are designed to address risks and conflicts, including board oversight of the compliance program;
— Disclosures by funds to investors, and by advisers to the funds’ boards, regarding risks and conflicts; and
— Deliberative processes utilized by funds, their advisers and their boards, in particular relating to risks and conflicts, including disclosures, portfolio management compliance and fund governance.

The Risk Alert provides additional detail about each of the initiatives listed above, including particular risks that could be posed by funds operating in these areas and measures the exam staff will seek to assess aimed at addressing, monitoring and/or mitigating those risks. The details are well worth a read by any fund or adviser involved in any of the listed areas.

OCIE Risk Alert on Registered Fund Exam Initiatives: https://www.sec.gov/files/OCIE%20Risk%20Alert%20-%20RIC%20Initiatives_0.pdf.

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