LAW BK 924 Contemporary Financial Services

You are the compliance supervisor for a securities investment adviser and you have just received a notice that your firm is on the 2017 schedule to be examined by the Office of Compliance Inspections and Examinations (“OCIE”).  Your firm has never been examined before and you have been asked to draft an examination preparation memorandum in anticipation of the exam. 

1. What areas of your firm’s compliance program would you focus on?

2. Prepare a memorandum that can be used by the firm to prepare for the upcoming examination. 

In the memorandum, clearly explain which OCIE examination priorities will be of most significance to your firm in preparation for the examination. 

3. i. Discuss at least 2 examination priority areas.

1.In accordance with the “Investment Advisors Act, 1940” The company identifies the 2017 selected examination priorities of the “Office of Compliance Inspection and Examination” for the “Securities and Exchange Commission”. The company intends to conduct examination of the organisation in order to promote compliance, prevent fraud by identifying risk and informing policies. The organisation intends to focus on the thematic areas as stated under “Rule 206- (4)-7” under the Investment Advisors Act 1940 in compliance with the “Financial Industry and Regulatory Authority” are as follows;

1. The company aims to focus on the areas of investors protection strategies and regulatory requirement
2. The firm intends to promote market integrity
3. The firm focuses on implementation of capital formation techniques
4. The firm aims to focus on supervisory control procedure

2.Memorandum Circular No: 01

To: Senior Management

From:  Office of Compliance Inspection and Compliance Supervisor

Date: 28/02/2017

Subject: Joint Securities and Exchange Commission and FINRA examination of the organisation:

The current memorandum is based on the discussion of the areas of significance relevance for SEC/FINRA examination. The memorandum focuses on sales practice and operational risk as the examination areas, which is significant to the regulatory requirement. The operational risk undertaken aims to review the supervisory control of the organisation in compliance with the rules and regulations. The memorandum lays down that the two components undertaken for examination is considered as paramount to the sales practice and operational risk.

The memorandum states down that all the regulatory requirements should be followed in order to ensure that appropriate bookkeeping procedures are followed. The authorities of SEC have the authority to evaluate the broker, dealer and investment advisor.

The company will continue to emphasis on the investors, advisers and services offered by the broker or dealer in order to provide service to the investors with the retirement accounts. The investors are more reliant on their own investments for retirement income and the company is devoted in increasing its attention to problems affecting the senior investors.

The company aims to assess the structural risks and trends governing the rules of the money market funds to construct structural and functional reforms in order to address the risk of redemptions in the money market funds.

Thank You

   Regards  

3.i.The company examination plans are intended to focus on the areas of exam programmes, which are specifically critical in the current market environment. These areas consist of;  

1. Portfolio management:The current losses suffered by investors may provide an impetus for portfolio managers to buy and sell more assertively so that they can deviate from the investment objectives in order to make up for the losses. Perhaps it can also lead to holding up of performance-based fees and ultimately lays down an area where the compliance manager needs to be active.
2. Financial controls:The company examination areas also involve compliance with the net capital and consumer control requirements through the help of broker-along with the firms risk management and procedure of internal control.

ii.Below listed are the deficiencies and weakness, which is of paramount importance with respect to the advisors regulatory filling obligations, are;

1. Inaccurate disclosure:It is found that few advisors have made inaccurate disclosure on “Form ADV Part 1A”. The deficiencies consist of inaccurate reporting of custody information and regulatory assets under the management.
2. Untimely filing of PF form:It is noticed that there are certain advisors under the obligations to file Form PF and were unsuccessful in completely the form accurately and correctly.   

References

Baklanova, Viktoria, Adam M. Copeland, and Rebecca McCaughrin. "Reference guide to US repo and securities lending markets." (2015).

Chan, Kam C., et al. "Compliance and determinants of US-listed foreign firms’ 20-F filings under the new Securities and Exchange Commission accelerated deadline." Journal of Financial Regulation and Compliance 23.2 (2015): 161-178.

Ingerman, Brett, et al. "Not just a compliance program, but an effective compliance program: SEC, DOJ issue strong reminders." Journal of Investment Compliance 16.4 (2015): 4-5.

Pershkow, Amy Ward, and Adam D. Kanter. "US Securities and Exchange Commission settles administrative action against fund manager concerning use of fund assets to pay management company expenses." Journal of Investment Compliance 16.4 (2015): 55-58.