SEC’s Examination Approach on Rule 18f-4 | Chuck Martin Reacts
Chuck Martin Observations | Vigilant Insights
Brief Introduction
Vigilant’s Chief Operating Officer, Chuck Martin, provided his thoughts on BoardIQ that focuses on the SEC’s examination of Fund Compliance with the new Derivatives Rule (18f-4), a mere 11 days after the compliance deadline.
The letter that was sent by the Boston Office included a request for multiple documents about a Fund Board’s oversight of the Derivatives Risk Management Program. It displayed a heighted focus on Boards, more specifically relating to what they do or do not do.
As it relates to the level of documentation, Chuck stated that will be a “key piece, in mind” and that while the “board is allowed to designate somebody else [to administer the program], they also have the overall responsibility.”
Observations From Chuck Martin
In reference to the letter sent by the SEC to the Board requesting a plethora of documents related to its Derivatives Program oversight, Chuck immediately noticed “This is really quick”. He made it clear that this was the earliest he had ever seen exam letters after a compliance date.
He also commented on the preparation required for such an early request, and the letter tells him that “[the SEC] were planning to immediately add it to their examination of funds.”
For Fund Directors and other professionals, Chuck provided a warning that the commission is going to continue “moving quickly” and that it will be important to “prepare for similar requests about the fair valuation rule, which had a compliance deadline of Sept. 8, 2022.”
Vigilant’s Final Conclusion
This situation demonstrates just how prepared the SEC is to examine any new rules or regulations when there is a compliance deadline.
While it is unclear whether the requested document’s purpose was to gather information about how Firms are approaching the rule and how quickly this could potentially turn into a violation stage, it should serve as a reminder to the industry to be sure these new rules have been applied to their program (if applicable) and are in effect.
Firms need compliance management with a complete understanding of the new Derivatives Rule and how their compliance procedures may need immediate adjustment.
With many new Rules such as the Marketing Rule coming into effect, Vigilant helps Firms stay on track in making sure that their Compliance Program is up to date, and especially, to the SEC’s standards.