The SEC continues to roll out guidance to the industry. Last month the SEC issued its 2025 Examination Priorities report (“Exam Priorities”) from the Division of Examinations (“the Division”). Earlier this month the Division issued a Risk Alert (the “Alert”) on registered investment company exams. The Alert gives the fund industry insight into how funds are selected for examination, the most common deficiencies found, and even provides a sample document request.
This is not the first time the Division has issued this type of Alert. In September 2023, it released similar guidance regarding SEC registered investment adviser examinations. See our ComplianceAlert, “SEC Reveals its Examination Strategy”
The SEC’s new Alert covers the following areas:
- How funds are selected for examination
- Observations from exams conducted:
- Compliance programs
- Fund disclosures and filings
- Fund governance
As is typical in these types of Alerts, the discussion focuses on weaknesses found during exams regarding the above topics, such as:
- Poorly written policies and procedures that do not cover the fund-specific risks or are too broad and not customized to the fund
- Weak Code of Ethics that were not followed by employees/access persons
- Lack of adequate fund board oversight or documentation regarding the oversight practices, especially related to the advisory agreement approval process
- Regulatory filings with missing or misleading disclosures
- Sales materials with untrue statements or omissions of material fact
Provided as part of the Alert is a sample SEC document request, a valuable piece of information that should help firms prepare for exams. An included attachment contains a list of the documents requested during a fund examination and importantly, in the format that the items are typically requested. Having this is especially helpful for firms to identify how they may be best able to provide the information in the requested SEC format during an exam.
The political environment has changed since this Alert was released. However, fund exams will continue regardless of a new White House administration and the political dynamics. Funds and their advisers should take heed of the guidance provided in the Alert and use it as a game plan to review their compliance program and take immediate steps to tighten up compliance. where necessary.
