Risk Alert: OCIE to Conduct Exams on Mutual Funds and ETFs, Review Oversight of Boards of Directors


Staff members at the SEC Office of Compliance Inspections and Examinations ("OCIE") issued a Risk Alert November 8th informing market participants that they will be conducting a series of examination initiatives on regulatory compliance of mutual funds and exchange-traded funds. The purpose of the new regulatory exams is to assess how firm policies and operations manage fund risks and conflicts, and how current efforts affect retail investors who could be disadvantaged. The OCIE stated that the examinations will focus on the activities of certain categories of mutual funds, exchange traded funds and advisers, and the adequacy of the oversight of the compliance programs of those funds by boards of directors.

The OCIE listed and described the following categories of funds and advisers for examination:

  • Index funds that track custom-built indexes
  • Smaller ETFs and/or ETFs with little secondary market trading volume
  • Mutual funds with higher allocations to certain securitized assets
  • Funds with aberrational underperformance relative to their peer group
  • Advisers relatively new to managing mutual funds
  • Advisers who provide advice to both mutual funds and private funds that have similar strategies and/or are managed by the same portfolio managers

Highlighted areas for review include: (i) policies and procedures of the Funds or their advisers intended to address risks and conflicts, including Funds’ board oversight of the compliance program; (ii) disclosures and shareholder communications (by Funds to investors in prospectuses, and advisers to Fund boards) regarding risk and conflicts, and (iii) Fund, adviser and board’s processes meant to assess practices and controls and oversight related to risks and conflicts. The OCIE is encouraging registrants to “reflect upon their own practices, policies and procedures” and to improve their supervisory, oversight and compliance programs.

How Bates can Help:

Regulatory and Internal Investigations

Bates Group is positioned to provide specialized analyses that can include an examination of the performance of the fund versus the custom-built index, accounting for changes in the construction or calculation of the index itself; a review of the securitized assets and the valuation approach taken with those assets as held within the funds, including modeling the performance of the funds without those assets included; and custom analyses to contextualize the performance of specific funds against peer funds in instances where a fund has underperformed. In all instances, Bates applies our extensive experience analyzing large-scale data along with our deep industry expertise to provide clients with a strong narrative to take to regulators and/or internal review boards in response to mutual funds and ETF inquiries.

Compliance Solutions

Bates Group works with clients to develop programs to help mitigate conflicts of interest associated with investment companies and exchange-traded funds. We develop procedures relating to due diligence, approval, ongoing reviews, disclosures and board reporting. Additionally, Bates assist firms with testing policies, procedures and conflicts-related programs to ensure compliance with regulatory requirements and expectations. Bates’ experienced professionals are well positioned to perform assessments and develop enhancements that will meet regulatory expectations and industry leading practices.

For more information concerning the above Alert, Contact:

Scott Lucas, Managing Director, Regulatory and Internal Investigations - slucas@batesgroup.com

Robert Lavigne, Managing Director, Bates Compliance Solutionsrlavigne@batesgroup.com.

Or contact us by phone at (503) 670-7772


Get Bates Group News and Alerts in your Inbox

Sign Up Now

Contact Bates Group

Bates Group is with you every step of the way. Contact us today for more information on how our End-to-End Solutions can help your firm.

Contact Bates Group