Conquering Current Compliance Challenges
April 10, 2019 | 2:00 - 2:30 PM EST

Real-Life Lessons Learned from Peers Who’ve Had to Implement their BCPs
April 16, 2019 | 2:00 - 2:30 PM EST

Conquering Current Compliance Challenges
Recorded: March 13, 2019 
  Includes: 23 Best Practices, 5 Peer-tested tools and 15 No Action Letters

Cybersecurity Strategies to Ensure SEC Compliance, 2nd Edition
Includes: 24 Best Practices, 16 Tools, 4 Risk Alerts and IM Guidance


One of the SEC’s enforcement priorities for investment advisers in fiscal year 2015 is false valuation, according to the Commission’s Director of Enforcement Andrew Ceresney.  The SEC’s exam staff is also on the lookout for valuation issues.
The Investment Advisers Act doesn’t mention valuation but broad anti-fraud provisions infer you must do right by your clients.  The Investment Company Act does mandate valuation duties for mutual funds.  An industry based on investing makes obvious the importance of valuation. The great recession exposed problems in valuing hard-to-value or illiquid assets, so the topic has been high on SEC examiners’ query list ever since. 

Valuation errors

OCIE has noted that some firms’ valuation policies “aren’t highly evolved.”  The exam division has seen errors tied to firms’ describing a valuation process to clients but not actually following the process, and firms’ changing their methodologies, perhaps to make their results look better, without informing investors.
While the SEC doesn’t dictate how one you should go about valuating securities, the agency has said it expects a firm to have a process in place, memorialized via P&Ps, and to follow those policies. It would be appropriate to veer from those policies in certain cases, but the alternative methods for valuating also should be noted in policies. Advisers Act rule 206(4)-7 states that a firm’s P&Ps must address processes to value client holdings and assess fees based on those valuations.
The SEC’s Asset Management Unit includes valuation issues among its 2015 priorities, including the use of friendly broker marks.  Recently examined firms have reported that SEC examiners are looking for a step-by-step valuation procedure, not an executive summary.

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