SEC to take 'swipe' at RIAs that have never been examined

Compliance chief Bowden says no game of 'gotcha;' but lapse prevention

Oct 31, 2013 @ 7:25 pm

By Trevor Hunnicutt

compliance, rias, registered investment advisers, SEC, securities and exchange commission
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(Bloomberg News)

Registered investment advisers who haven't seen much of their regulator may get a knock on the door in 2014.

The Securities and Exchange Commission plans to make examining the estimated 4,000 advisers who have never been visited by regulators an enforcement priority next year, according to Andrew J. Bowden, director of the SEC's Office of Compliance Inspections and Examinations.

Speaking in Manhattan on Thursday, Mr. Bowden said the commission will zero in on about half of the firms that have never been examined, a group that includes those that have been registered for more than three years and are based in the United States.

“We're going to take a swipe at that population next year,” Mr. Bowden said. Addressing an audience of compliance professionals for private funds at a meeting of the Regulatory Compliance Association Inc., Mr. Bowden spoke directly to firms he called the “never-been-examined population.”

“The probability that you will be examined next year probably is greater than it was this year or in prior years,” he said.

The commission has aegis over nearly 11,000 advisers, about 40% of which have never been examined. But Mr. Bowden said Thursday that about half of that number, 2,180, comprises firms that have been registered for under three years and about 600 that are not domiciled in the United States.

But some of reaction to Mr. Bowden's remarks was skeptical.

“Next year I'm going to lose 40 pounds, too,” said Brian S. Hamburger, president and chief executive officer of MarketCounsel, a regulatory consulting firm. “It's aspirational.”

Mr. Hamburger said it is an open question whether Mr. Bowden's office has the proper management and resources to fulfill its ambition, given that the office also devotes considerable resources to examining broker-dealers, who are also regulated by the Financial Industry Regulatory Authority Inc.

Mr. Bowden, who was named to his post in May, also has led the commission's focus on “presence” examinations of private funds, such as hedge funds, which are newly registered with the SEC as a part of the Dodd-Frank law.

And SEC Chairman Mary Jo White has promised to focus on more minor lapses as a part of the commission's enforcement agenda.

But Thursday, Mr. Bowden emphasized that the commission's approach is geared toward preventing lapses rather than surprising advisers with enforcement actions.

“Part of our mission is to promote compliance — we're not engaged in a game of gotcha,” said Mr. Bowden, who used to be a compliance lawyer for Legg Mason Inc. “Coming from the industry, I think the overwhelming majority of the people are trying to do the right thing. They're trying to help their clients and grow their businesses and provide for their employees.”

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