The Securities and Exchange Commission announced this week its examination priorities for the coming year. The Office of Compliance Inspections and Examinations (OCIE), considered the “eyes and ears” of the regulator, will continue to focus on the fees charged by advisers working for private equity firms. In addition, it will continue to review proxy voting, newly registered investment companies and private equity fees and expenses. (The OCIE’s full list of examination priorities for 2015 can be found by CLICKING HERE)
This is a continuation of the SEC’s probes into the private equity industry since last year when it announced it found potential violations in more than 50 percent of the fees and expenses handled by advisers to private equity funds.
Andrew Bowden, Director of the OCIE, commented in a speech made in May that, “Some of the most common deficiencies we see in private equity in the area of fees and expenses occur in firm’s use of consultants, also known as “Operating Partners,” whom advisers promote as providing their portfolio companies with consulting services or other assistance that the portfolio companies could not independently afford.”
There is, however, another side to this regulatory coin. On Wednesday, the House passed legislation that would repeal aspects of the Dodd-Frank Act which many House Republicans view as unworkable and an unnecessary. (Reuters) Within this, an amendment to the Volcker rule would extend the timeframe in which banks would have to dispose of certain investments deemed “risky”.
The overall regulatory environment seems to be uncertain. The balancing act between the new Republican Congress and an ever-vigilant SEC could leave banks, businesses and private equity firms on edge in 2015.