SEC staff highlights areas of focus in broker‐dealer, investment adviser and investment company exams

Abstract

PurposeThe purpose of this paper is to summarize and comment on a July 22, 2008 SEC ComplianceAlert letter, which summarizes findings from recent compliance examinations by the SEC Office of Compliance Inspections and Examinations of investment advisers, mutual funds, broker‐dealers, and transfer agents, identifies some issues of particular concern, and suggests some solutions.Design/methodology/approachThe areas of concern for investment advisers and mutual funds include personal trading by an advisory staff, proxy voting and funds' use of proxy voting services, valuation and liquidity in high‐yield municipal bond funds, and soft dollar practices. The areas of concern for broker‐dealers include securities firms targeting seniors by providing free‐lunch sales seminars, valuation and collateral management processes, broker‐dealers affiliated with insurance companies, solicitations of advisory services, mortgage financing as credit for the purchase of securities, and supervisory arrangements and practices under the Office of Supervisory Jurisdiction.FindingsThe paper finds that while the ComplianceAlert points to the danger of certain deficient practices in the areas of concern, it also emphasizes throughout the importance of strong, well documented policies, procedures, controls, supervision, record‐keeping, and compliance reviews.Originality/valueThe paper is a practical explanation of SEC guidelines by experienced securities lawyers.