In a risk alert published earlier this month, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) flagged investment advisers’ failure to adhere to requirements on disclosure and consent as issues compliance departments should examine.
The Investment Advisers Act of 1940 requires advisers to disclose and obtain consent of clients in so-called principal trades in which the investment adviser, acting as principal for his or her own account, sells or purchases any security from a client. In a similar vein, disclosure and prior consent are also required for agency cross trades when an adviser acts as a broker for someone other than the advisory client.
