SEC launches targeted exams of mutual funds, ETFs

The SEC has launched a series of exam initiatives focused on mutual funds and exchange-traded funds (ETFs).

The agency’s Office of Compliance Inspections and Examinations released a Risk Alert stating that the exams will focus on funds and/or advisors that fall into one or more of the following categories:

• Index funds that track custom-built indexes
• Smaller ETFs and/or ETFs with little secondary market trading volume
• Mutual funds with higher allocations to certain securitized assets
• Funds with aberrational underperformance relative to their peer groups
• Advisors relatively new to managing mutual funds; and
• Advisors who provide advice to both mutual funds and private funds that have similar strategies and/or are managed by the same portfolio managers.

The exams will target circumstances in which retail investors could be disadvantaged and review whether registrants have met their regulatory and other legal obligations, OCIE states.

SEC examiners intend to focus on certain mutual funds and exchange-traded funds, the activities of their advisors and boards of directors’ oversight.