Earlier this month, the SEC announced the creation of its Office of Risk and Strategy to operate within its Office of Compliance Inspections and Examinations (OCIE). The new office will consolidate and streamline OCIE’s risk assessment, market surveillance, and quantitative analysis teams and provide operational risk management and organizational strategy for OCIE.
Headed by Peter B. Driscoll, a former E&Y auditor with law and CPA degrees, the Office of Risk and Strategy will lead the OCIE’s risk-based and data-driven National Examination Program. Mr. Driscoll emphasized at the Investment Adviser Association’s annual compliance conference in Washington that private equity funds and private fund advisors would “continue to be a big focus” for the exam unit as well this year. While this is no surprise, Driscoll also added that the focus on hedge funds will zero in on such areas as portfolio management, trading and back-office operations. This may suggest a broader, deeper and more focused scrutiny on hedge funds than just the trading offenses we are familiar with from national headlines.
The SEC has been busy: it has visited at least 25% of ‘never-before-examined’ advisers, numbering over 700, which surpasses the SEC’s own goal. There is no reason to expect the SEC’s enthusiasm to decline in this area in 2016. If you are a hedge fund manager that has never been examined before, you may get a knock on your door this year.