{"id":580,"date":"2023-09-21T01:59:51","date_gmt":"2023-09-21T01:59:51","guid":{"rendered":"http:\/\/ics-compliance.com\/?p=580"},"modified":"2023-12-17T20:08:02","modified_gmt":"2023-12-17T20:08:02","slug":"sec-risk-alert-to-investment-advisers-assessing-risks-scoping-examinations-and-requesting-documents","status":"publish","type":"post","link":"https:\/\/ics-compliance.com\/es\/2023\/09\/21\/sec-risk-alert-to-investment-advisers-assessing-risks-scoping-examinations-and-requesting-documents\/","title":{"rendered":"SEC Risk Alert to Investment Advisers: Assessing Risks, Scoping Examinations, and Requesting Documents"},"content":{"rendered":"<p>[et_pb_section bb_built=&#8221;1&#8243; fullwidth=&#8221;on&#8221; specialty=&#8221;off&#8221; next_background_color=&#8221;#000000&#8243; _builder_version=&#8221;4.21.2&#8243; background_pattern_color=&#8221;rgba(0,0,0,0.2)&#8221; background_mask_color=&#8221;#ffffff&#8221; box_shadow_horizontal_tablet=&#8221;0px&#8221; box_shadow_vertical_tablet=&#8221;0px&#8221; 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header_5_text_shadow_vertical_length=&#8221;header_5_text_shadow_style,%91object Object%93&#8243; header_5_text_shadow_vertical_length_tablet=&#8221;0px&#8221; header_5_text_shadow_blur_strength=&#8221;header_5_text_shadow_style,%91object Object%93&#8243; header_5_text_shadow_blur_strength_tablet=&#8221;1px&#8221; header_6_text_shadow_horizontal_length=&#8221;header_6_text_shadow_style,%91object Object%93&#8243; header_6_text_shadow_horizontal_length_tablet=&#8221;0px&#8221; header_6_text_shadow_vertical_length=&#8221;header_6_text_shadow_style,%91object Object%93&#8243; header_6_text_shadow_vertical_length_tablet=&#8221;0px&#8221; header_6_text_shadow_blur_strength=&#8221;header_6_text_shadow_style,%91object Object%93&#8243; header_6_text_shadow_blur_strength_tablet=&#8221;1px&#8221; box_shadow_horizontal_tablet=&#8221;0px&#8221; box_shadow_vertical_tablet=&#8221;0px&#8221; box_shadow_blur_tablet=&#8221;40px&#8221; box_shadow_spread_tablet=&#8221;0px&#8221; vertical_offset_tablet=&#8221;0&#8243; horizontal_offset_tablet=&#8221;0&#8243; z_index_tablet=&#8221;0&#8243; disabled=&#8221;on&#8221; disabled_on=&#8221;on|on|on&#8221;]<\/p>\n<div><span style=\"color: #000000; font-size: small;\">Yesterday, the SEC finally approved the proposed changes to the Private Funds regulations.\u00a0<\/span><span style=\"color: #000000;\">Below you will find the official news release and an attachment with the Key Changes.\u00a0<\/span><\/div>\n<div>\u00a0<\/div>\n<div><span style=\"color: #000000;\">Most of the changes\/updates will become effective in 12 to 18 months; however, the SEC is providing &#8220;legacy status&#8221; for existing funds solely for the prohibitions aspect of the Preferential Treatment Rule and the aspects of the Restricted Activities Rule that require\u00a0<\/span><span style=\"color: #000000;\">investor consent.<\/span><\/div>\n<div><span style=\"color: #000000; font-size: small;\">\u00a0<\/span><\/div>\n<div><span style=\"color: #000000;\">We will be providing updates and guidance on how to comply with the new rule shortly.<\/span><\/div>\n<div><span style=\"color: #000000;\">\u00a0<\/span><\/div>\n<div><span style=\"color: #000000;\">Thanks, JC<\/span><\/div>\n<p>[\/et_pb_text][et_pb_button admin_label=&#8221;Button Fact Sheet Download&#8221; 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header_5_text_shadow_vertical_length=&#8221;header_5_text_shadow_style,%91object Object%93&#8243; header_5_text_shadow_vertical_length_tablet=&#8221;0px&#8221; header_5_text_shadow_blur_strength=&#8221;header_5_text_shadow_style,%91object Object%93&#8243; header_5_text_shadow_blur_strength_tablet=&#8221;1px&#8221; header_6_text_shadow_horizontal_length=&#8221;header_6_text_shadow_style,%91object Object%93&#8243; header_6_text_shadow_horizontal_length_tablet=&#8221;0px&#8221; header_6_text_shadow_vertical_length=&#8221;header_6_text_shadow_style,%91object Object%93&#8243; header_6_text_shadow_vertical_length_tablet=&#8221;0px&#8221; header_6_text_shadow_blur_strength=&#8221;header_6_text_shadow_style,%91object Object%93&#8243; header_6_text_shadow_blur_strength_tablet=&#8221;1px&#8221; box_shadow_horizontal_tablet=&#8221;0px&#8221; box_shadow_vertical_tablet=&#8221;0px&#8221; box_shadow_blur_tablet=&#8221;40px&#8221; box_shadow_spread_tablet=&#8221;0px&#8221; vertical_offset_tablet=&#8221;0&#8243; horizontal_offset_tablet=&#8221;0&#8243; z_index_tablet=&#8221;0&#8243;]<\/p>\n<p>On Sept. 6, 2023, the Securities and Exchange Commission\u2019s Division of Examinations issued a\u00a0<a href=\"https:\/\/www.sec.gov\/files\/risk-alert-ia-risk-and-requesting-documents-090623.pdf\" target=\"_blank\" rel=\"noopener noreferrer\">Risk Alert<\/a>\u00a0detailing the Division\u2019s examination selection process for SEC-registered investment advisers (Advisers). The Risk Alert highlights the Division\u2019s risk-based approach for both (A) selecting Advisers to examine and (B) determining examination focus areas and documents. The Division heavily uses technology to analyze industry- and firm-level data to identify risks and better understand an Adviser\u2019s business, and also reviews disclosure documents (such as the Form ADV) and other regulatory filings. The Risk Alert also attaches a list of typical initial information requested in examinations, identifying 69 specific items organized in four broad areas.<\/p>\n<p>Below is a substantive overview of the Division\u2019s examination selection process and risk factors for Advisers to help prepare for examination<\/p>\n<h2><strong>A. Selecting Firms to Examine<\/strong><\/h2>\n<p>Some of the reasons the Division may select an Adviser for examination include:<\/p>\n<ul>\n<li>The evaluation of risks present at a particular firm or risks to investors and the markets more broadly.<\/li>\n<li>The review of how registrants are adapting to new regulatory requirements.<\/li>\n<li>The Division\u2019s interest in a particular compliance risk area highlighted in the Division\u2019s publication of its\u00a0<a href=\"https:\/\/www.gtlaw.com\/en\/insights\/2023\/2\/sec-announces-2023-examination-priorities\" target=\"_blank\" rel=\"noopener noreferrer\">annual priorities<\/a>.<\/li>\n<li>Firm-specific risk factors such as:\n<ul>\n<li>Prior examination observations and conduct;<\/li>\n<li>Supervisory concerns, such as disciplinary history;<\/li>\n<li>Tips, complaints, or referrals involving the firm;<\/li>\n<li>Business activities that may create conflicts of interest;<\/li>\n<li>The length of time since the firm\u2019s registration or last examination;<\/li>\n<li>Material changes in a firm\u2019s leadership or personnel;<\/li>\n<li>Indications that the firm might be vulnerable to financial or market stresses;<\/li>\n<li>News and media reports involving the firm;<\/li>\n<li>Data provided to the Division by third-party data services;<\/li>\n<li>The firm\u2019s disclosure history; and<\/li>\n<li>Whether the firm has access to client and investor assets that present a compliance risk.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><strong>B. Selecting Examination Focus Areas and Documents<\/strong><\/h2>\n<p>Once the Division selects a firm for examination, the Division conducts an additional risk assessment of the Adviser\u2019s business to determine the scope of the examination. This involves requesting documents with respect to the firm\u2019s operations, disclosures, conflicts of interest, and compliance practices related to core areas, including custody and safekeeping of client assets, valuation, portfolio management, fees, expenses, brokerage, and best execution.<\/p>\n<p>The Risk Alert contains as an attachment the typical initial information requested of Advisers, organized in four broad areas: (1) general information about the Adviser\u2019s business and investment activities, (2) information about the assessment of risks and the implementation of a written compliance program and internal controls, (3) information with respect to advisory trading activities, and (4) information for compliance testing in particular areas.<\/p>\n<h2>Conclusion<\/h2>\n<p>Advisers should be aware that the Division\u2019s risk-based approach to the examination selection process is dynamic and adapts to changes in market conditions, industry practices, and investor preferences. The Division expressly noted that the information in the Risk Alert, and particularly the list of topics in the attachment, were provided in part so Advisers may prepare for examinations.<\/p>\n<p>Credits: <a href=\"https:\/\/www.gtlaw.com\/en\/insights\/2023\/9\/sec-risk-alert-to-investment-advisers-assessing-risks-scoping-examinations-and-requesting-documents\" target=\"_blank\" rel=\"noopener\">Link<\/a><\/p>\n<div>\u00a0<\/div>\n<p>[\/et_pb_text][et_pb_button admin_label=&#8221;Button Fact Sheet Download&#8221; _builder_version=&#8221;4.22.2&#8243; button_text=&#8221;Download The Fact-Sheet&#8221; button_url=&#8221;http:\/\/ics-compliance.com\/wp-content\/uploads\/08\/ia-6383-fact-sheet.pdf&#8221; url_new_window=&#8221;on&#8221; button_alignment=&#8221;left&#8221; button_text_shadow_horizontal_length=&#8221;button_text_shadow_style,%91object Object%93&#8243; button_text_shadow_horizontal_length_tablet=&#8221;0px&#8221; 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header_4_text_shadow_blur_strength=\"header_4_text_shadow_style,%91object Object%93\" header_4_text_shadow_blur_strength_tablet=\"1px\" header_5_text_shadow_horizontal_length=\"header_5_text_shadow_style,%91object Object%93\" header_5_text_shadow_horizontal_length_tablet=\"0px\" header_5_text_shadow_vertical_length=\"header_5_text_shadow_style,%91object Object%93\" header_5_text_shadow_vertical_length_tablet=\"0px\" header_5_text_shadow_blur_strength=\"header_5_text_shadow_style,%91object Object%93\" header_5_text_shadow_blur_strength_tablet=\"1px\" header_6_text_shadow_horizontal_length=\"header_6_text_shadow_style,%91object Object%93\" header_6_text_shadow_horizontal_length_tablet=\"0px\" header_6_text_shadow_vertical_length=\"header_6_text_shadow_style,%91object Object%93\" header_6_text_shadow_vertical_length_tablet=\"0px\" header_6_text_shadow_blur_strength=\"header_6_text_shadow_style,%91object Object%93\" header_6_text_shadow_blur_strength_tablet=\"1px\" 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small;\">\u00a0<\/span><\/div><div><span style=\"color: #000000;\">We will be providing updates and guidance on how to comply with the new rule shortly.<\/span><\/div><div><span style=\"color: #000000;\">\u00a0<\/span><\/div><div><span style=\"color: #000000;\">Thanks, JC<\/span><\/div><p>[\/et_pb_text][et_pb_button admin_label=\"Button Fact Sheet Download\" _builder_version=\"4.22.1\" button_text=\"Download The Fact-Sheet\" button_url=\"http:\/\/ics-compliance.com\/wp-content\/uploads\/08\/ia-6383-fact-sheet.pdf\" url_new_window=\"on\" button_alignment=\"left\" button_text_shadow_horizontal_length=\"button_text_shadow_style,%91object Object%93\" button_text_shadow_horizontal_length_tablet=\"0px\" button_text_shadow_vertical_length=\"button_text_shadow_style,%91object Object%93\" button_text_shadow_vertical_length_tablet=\"0px\" button_text_shadow_blur_strength=\"button_text_shadow_style,%91object Object%93\" button_text_shadow_blur_strength_tablet=\"1px\" 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header_text_shadow_blur_strength_tablet=\"1px\" header_2_font=\"DM Serif Display||||||||\" header_2_text_color=\"#293d93\" header_2_font_size=\"50px\" header_2_text_shadow_horizontal_length=\"header_2_text_shadow_style,%91object Object%93\" header_2_text_shadow_horizontal_length_tablet=\"0px\" header_2_text_shadow_vertical_length=\"header_2_text_shadow_style,%91object Object%93\" header_2_text_shadow_vertical_length_tablet=\"0px\" header_2_text_shadow_blur_strength=\"header_2_text_shadow_style,%91object Object%93\" header_2_text_shadow_blur_strength_tablet=\"1px\" header_3_font=\"DM Serif Display||||||||\" header_3_text_color=\"#02c39a\" header_3_font_size=\"19px\" header_3_text_shadow_horizontal_length=\"header_3_text_shadow_style,%91object Object%93\" header_3_text_shadow_horizontal_length_tablet=\"0px\" header_3_text_shadow_vertical_length=\"header_3_text_shadow_style,%91object Object%93\" header_3_text_shadow_vertical_length_tablet=\"0px\" header_3_text_shadow_blur_strength=\"header_3_text_shadow_style,%91object Object%93\" header_3_text_shadow_blur_strength_tablet=\"1px\" header_4_text_shadow_horizontal_length=\"header_4_text_shadow_style,%91object Object%93\" header_4_text_shadow_horizontal_length_tablet=\"0px\" header_4_text_shadow_vertical_length=\"header_4_text_shadow_style,%91object Object%93\" header_4_text_shadow_vertical_length_tablet=\"0px\" header_4_text_shadow_blur_strength=\"header_4_text_shadow_style,%91object Object%93\" header_4_text_shadow_blur_strength_tablet=\"1px\" header_5_text_shadow_horizontal_length=\"header_5_text_shadow_style,%91object Object%93\" header_5_text_shadow_horizontal_length_tablet=\"0px\" header_5_text_shadow_vertical_length=\"header_5_text_shadow_style,%91object Object%93\" header_5_text_shadow_vertical_length_tablet=\"0px\" header_5_text_shadow_blur_strength=\"header_5_text_shadow_style,%91object Object%93\" header_5_text_shadow_blur_strength_tablet=\"1px\" header_6_text_shadow_horizontal_length=\"header_6_text_shadow_style,%91object Object%93\" header_6_text_shadow_horizontal_length_tablet=\"0px\" header_6_text_shadow_vertical_length=\"header_6_text_shadow_style,%91object Object%93\" header_6_text_shadow_vertical_length_tablet=\"0px\" header_6_text_shadow_blur_strength=\"header_6_text_shadow_style,%91object Object%93\" header_6_text_shadow_blur_strength_tablet=\"1px\" box_shadow_horizontal_tablet=\"0px\" box_shadow_vertical_tablet=\"0px\" box_shadow_blur_tablet=\"40px\" box_shadow_spread_tablet=\"0px\" vertical_offset_tablet=\"0\" horizontal_offset_tablet=\"0\" z_index_tablet=\"0\"]<\/p><div><h2>SEC Enhances the Regulation of Private Fund Advisers<\/h2><p>FOR IMMEDIATE RELEASE<br \/>2023-155<\/p><p>Washington D.C., Aug. 23, 2023 \u2014<\/p><div><p>The Securities and Exchange Commission today adopted new rules and rule amendments to enhance the regulation of private fund advisers and update the existing compliance rule that applies to all investment advisers. The new rules and amendments are designed to protect private fund investors by increasing transparency, competition, and efficiency in the private funds market.<\/p><p>\u201cPrivate funds and their advisers play an important role in nearly every sector of the capital markets,\u201d said SEC Chair Gary Gensler. \u201cBy enhancing advisers\u2019 transparency and integrity, we will help promote greater competition and thereby efficiency. Consistent with our mission and Congressional mandate, we advance today\u2019s rules on behalf of all investors \u2014 big or small, institutional or retail, sophisticated or not.\u201d<\/p><p>To enhance transparency, the final rules will require private fund advisers registered with the Commission to provide investors with quarterly statements detailing certain information regarding fund fees, expenses, and performance. In addition, the final rules will require a private fund adviser registered with the Commission to obtain and distribute to investors an annual financial statement audit of each private fund it advises and, in connection with an adviser-led secondary transaction, a fairness opinion or valuation opinion.<\/p><p>To better protect investors, the final rules will prohibit all private fund advisers from providing investors with preferential treatment regarding redemptions and information if such treatment would have a material, negative effect on other investors. In all other cases of preferential treatment, the Commission adopted a disclosure-based exception to the proposed prohibition, including a requirement to provide certain specified disclosures regarding preferential terms to all current and prospective investors.\u00a0<\/p><p>In addition, the final rules will restrict certain other private fund adviser activity that is contrary to the public interest and the protection of investors. Advisers generally will not be prohibited from engaging in certain restricted activitie<a name=\"m_4738498581132024765_m_-8425310888099512074__Ref136333793\"><\/a>s, so long as they provide appropriate specified disclosure and, in some cases, obtain investor consent. The final rules, however, will not permit an adviser to charge or allocate to the private fund certain investigation costs where there is a sanction for a violation of the Investment Advisers Act of 1940 or its rules.<\/p><p>To avoid requiring advisers and investors to renegotiate governing agreements for existing funds, the Commission adopted legacy status provisions applicable to certain of the restricted activities and preferential treatment provisions. Such legacy status will apply to those governing agreements entered into in writing prior to the compliance date and with respect to funds that have commenced operations as of the compliance date.<\/p><\/div><\/div><p>[\/et_pb_text][et_pb_button admin_label=\"Button Fact Sheet Download\" _builder_version=\"4.22.1\" button_text=\"Download The Fact-Sheet\" button_url=\"http:\/\/ics-compliance.com\/wp-content\/uploads\/08\/ia-6383-fact-sheet.pdf\" url_new_window=\"on\" button_alignment=\"left\" button_text_shadow_horizontal_length=\"button_text_shadow_style,%91object Object%93\" button_text_shadow_horizontal_length_tablet=\"0px\" button_text_shadow_vertical_length=\"button_text_shadow_style,%91object Object%93\" button_text_shadow_vertical_length_tablet=\"0px\" button_text_shadow_blur_strength=\"button_text_shadow_style,%91object Object%93\" button_text_shadow_blur_strength_tablet=\"1px\" box_shadow_horizontal_tablet=\"0px\" box_shadow_vertical_tablet=\"0px\" box_shadow_blur_tablet=\"40px\" box_shadow_spread_tablet=\"0px\" vertical_offset_tablet=\"0\" horizontal_offset_tablet=\"0\" z_index_tablet=\"0\" custom_button=\"on\" button_text_size=\"13px\" button_text_color=\"#ffffff\" button_bg_color=\"#006daf\" button_border_width=\"0px\" button_border_radius=\"0px\" button_icon=\"%%20%%\" button_icon_tablet=\"%%20%%\" button_icon_phone=\"%%20%%\" button_icon_color=\"#ffffff\" \/][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>","_et_gb_content_width":"","footnotes":""},"categories":[10],"tags":[],"class_list":["post-580","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ics-insights"],"_links":{"self":[{"href":"https:\/\/ics-compliance.com\/es\/wp-json\/wp\/v2\/posts\/580","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ics-compliance.com\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ics-compliance.com\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ics-compliance.com\/es\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ics-compliance.com\/es\/wp-json\/wp\/v2\/comments?post=580"}],"version-history":[{"count":8,"href":"https:\/\/ics-compliance.com\/es\/wp-json\/wp\/v2\/posts\/580\/revisions"}],"predecessor-version":[{"id":650,"href":"https:\/\/ics-compliance.com\/es\/wp-json\/wp\/v2\/posts\/580\/revisions\/650"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ics-compliance.com\/es\/wp-json\/wp\/v2\/media\/587"}],"wp:attachment":[{"href":"https:\/\/ics-compliance.com\/es\/wp-json\/wp\/v2\/media?parent=580"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ics-compliance.com\/es\/wp-json\/wp\/v2\/categories?post=580"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ics-compliance.com\/es\/wp-json\/wp\/v2\/tags?post=580"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}