On November 8, 2018, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“OCIE”) issued a National Exam Program Risk Alert announcing its 2019 examination initiatives focused on matters relevant to mutual funds and exchange-traded funds (“ETFs”).1 These initiatives illustrate OCIE’s continued commitment to examining matters important to retail investors, as mutual funds and ETFs are their primary investment vehicles. Here we focus on the ETF initiatives.
During examinations, OCIE staff will look at the activities of ETFs and their advisers, as well as the oversight exercised by ETFs’ boards of directors. OCIE’s 2019 examination areas described below mirror those of its 2018 initiatives for ETFs.
delisting and associated liquidation proceedings have received the requisite board approvals and oversight, as applicable.
review the effectiveness of the ETF’s compliance program for portfolio management and the board of director oversight.
marketing and distribution efforts related to the ETF.
With its risk alert, OCIE is giving ETFs and their advisers and boards of directors a head start on reviewing, and possibly strengthening, their compliance programs. These entities should review each examination focus area for relevance to their business. For each area that is relevant, ETFs and their advisers should (i) test the focus area; (ii) review risk and control matrices, policies, and procedures; (iii) enhance or begin personnel training in these areas; and (iv) review disclosures to shareholders and reporting to the board. They should also consider noting in detail in their annual compliance reports the steps they take to address these focus areas.
1 See “Risk-Based Examination Initiatives Focused on Registered Investment Companies,” November 8, 2018, available here. See also ACA Compliance Alert “OCIE Risk-Based Examination Initiatives Focused on Mutual Funds” available here.