SEC explores ways to strengthen compliance of independent advisers

The regulator sees difference in compliance levels between W-2 and affiliated advisers, says Peter Driscoll, acting director of the SEC's Office of Compliance Inspections and Examinations

Apr 6, 2017 @ 2:36 pm

By Mark Schoeff Jr.

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Financial advisers who are on the staff of an advisory firm are more likely to adhere to securities regulations than independent advisers, a Securities and Exchange Commission official said on Thursday.

Peter Driscoll, acting director of the SEC's Office of Compliance Inspections and Examinations, said that the increased movement of advisers to the independent space is putting pressure on compliance professionals.

"I'm looking at ways that OCIE can help the compliance industry as a whole get more leverage on independent representatives," Mr. Driscoll said at an IA Watch compliance conference in Washington. He indicated that the agency might issue a risk alert.

Mr. Driscoll made a distinction between "W-2" advisers, who are on staff at a firm, and independent advisers who remain affiliated with the firm but strike out on their own. He said that compliance has a "tougher relationship" with the independents. The SEC has seen problems in areas such as books and records and custody of client funds.

"We notice differences in the compliance level of employee representatives and independents," Mr. Driscoll told reporters on the sidelines of the conference. "Compliance folks should ensure that the independent representatives are complying with the federal laws, and I see challenges there."

Mr. Driscoll said that his concern involves both independent investment advisers as well as independent broker-dealers.

He was elevated to acting director when the former OCIE director, Marc Wyatt, stepped down in January. It's not clear who the nominee for SEC chairman, securities lawyer Jay Clayton, will name as OCIE chief if he is confirmed by the Senate to head the agency.

Regardless of who takes over the agency's examination arm, Mr. Driscoll said that he hopes it will remain focused on independent advisers. "As a former risk officer, I see this as a risk," Mr. Driscoll said.

As he has in other recent public appearances, Mr. Driscoll reiterated that OCIE has stepped up its examinations of registered investment advisers. They are running 25% higher than last year at this time.

He attributes the increase to the transfer of about 100 examiners from the broker-examination side of OCIE to the investment adviser side, a shift of about a quarter of the division's staff, as well as an emphasis on risk-based exams.

The SEC examines annually about 11% of the more than 12,000 registered investment advisers, a coverage rate that draws criticism. Even though the numbers are trending up, Mr. Driscoll said OCIE doesn't have the capacity to examine all advisers on a regular timetable.

"We want to increase our coverage without sacrificing quality," Mr. Driscoll said. "In the near future, we will not see OCIE move to any sort of cyclical type of exam. We just don't have the resources."

The top risk for advisers is cybersecurity, according to Mr. Driscoll.

"We're hoping to put out more guidance," he said. "Our goal there is to help the industry deal with something that is a very difficult issue."

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