SEC to focus on retail investors in 2018 – Proskauer

The Securities and Exchange Commission is to shift its enforcement focus to protecting retail investors’ interests, lessening the spotlight on internal compliance matters for private fund firms, according to law firm Proskauer.

In a client note presenting the enforcement outlook for 2018, the law firm said chairman Jay Clayton’s focus on retail investor protection in recent speeches narrows the enforcement approach by the regulator to private funds managers, PERE‘s sister publication, Private Funds Management, reported Monday.

Clayton has “repeatedly stated that the ‘analysis starts and ends with the long-term interests of the Main Street investor,’” Proskauer noted. “With this end in mind, it appears that the focus relative to private funds will be on areas where retail investors (including pension funds and retirement plans) have access to non-public offerings.”

Enforcement priorities for private funds in 2018 will single out valuations practices and the compliance of gatekeepers used by fund advisors including custodians and administrators. There will be a continued focus on the sufficient disclosure of fees and expense allocations, the note said.

The note also detailed additional changes to SEC exam procedure, with surprise exams being conducted by the SEC’s Boston office and “sweep examinations” focusing on initial public offerings, private credit financing and electronic messaging compliance.

The outlook also described the typical exam format taken by the SEC this year. Fund advisors are subject to one week on-site visits for inspection, with two weeks’ advance notice and a two or three hour introductory call from the SEC. Following an on-site visit, the regulator sends queries for firms to answer for a period of up to six months.