Securities Division – Audit Unit
Quarterly Report – Third Quarter 2012
The Audit Unit of the Missouri Securities Division releases a quarterly report that provides information on audit activities, common deficiencies and best practices.
Audit Statistics for the Third Quarter 2012
| 3rd Quarter | Year to Date | |
Number of audits opened (onsite audits and desk audits) |
16 |
36 |
Number of audits closed (onsite audits and desk audits) |
17 |
35 |
| Number of pre-registration examinations commenced (total) | 8 |
89 |
Number of investment adviser firms applying for state registration pursuant to Dodd-Frank "Switch" |
2 |
59 |
Number of "for-cause" audits |
4 |
6 |
Number of audits referred to Enforcement Section |
5 |
8 |
Number of new registered broker-dealer firms |
22 |
67 |
Number of new registered investment adviser firms |
10 |
81 |
Number of new notice-filed federal-covered investment adviser firms |
20 |
100 |
Top 5 Deficiencies
The Audit Unit inspects broker-dealers and investment advisers and notes deficiencies in their compliance with Missouri statutes and regulations. The following were the top five most common deficiencies found in the second quarter of 2012:
Client contracts that contain inappropriate or misleading hedge/arbitration clauses*;
Failure to maintain the required net worth;
Failure to update client suitability information;*
Inaccurate disclosure of outside business activities;* and
Inconsistencies between the firm’s compliance manual and its compliance practices.
* Also common deficiencies in the second quarter of 2012
IA Switch Report
IIn the first six months of 2012, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Missouri Securities Division facilitated the transition of approximately 60 investment advisers from federal to state registration (the “IA Switch”).
After that registration transition was complete, the Division compiled and analyzed the information gathered during the IA Switch to evaluate the effectiveness of the Division’s efforts. The findings of that analysis were then issued in a report (the “IA Switch Report”) summarizing the Division’s outreach leading up to the transition, providing data about the mid-sized investment advisers new to state registration, and outlining the Division’s audit schedule for mid-sized investment advisers that transitioned to Missouri registration.
The IA Switch Report in its entirety can be found at:
http://www.sos.mo.gov/securities/listserv/docs/iaswitchreport_2012.pdf