The SEC regularly examines a range of financial institutions to ensure compliance with federal securities laws. But the regulator's exams have been criticised for missing big violations such as the Ponzi scheme at Ber-nard Madoff's asset management arm. The agency has resp-onded by adding specialist examiners, covering areas ran-ging from financial markets to derivatives, and coordinating among examiners nationally.
The SEC already has examiners who specialise in funds, but historically the agency has focused on public asset managers such as mutual funds that have been highly regulated since 1940. Dodd-Frank required most mid-sized and large private equity and hedge funds to register with the SEC. Many hedge funds and private equity firms hold complex and illiquid investments that are harder to value than those at traditional asset managers. This has spurred the need for specialist SEC examiners. Also, these funds can have complex fee structures that are harder for investors to understand. Ensuring transparency in these funds is a top SEC priority.
The SEC has asked Congress for more resources for fund inspections. SEC chair Mary Jo White told a US House of Representatives appropriations panel that the regulator examined only 9% of registered investment fund advisers last fiscal.