Securities Division – Audit Unit
Quarterly Report – Second 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 Second Quarter 2012
| 2nd Quarter | Year to Date | |
Number of audits opened (onsite audits and desk audits) |
9 |
20 |
Number of audits closed (onsite audits and desk audits) |
8 |
18 |
| Number of pre-registration examinations commenced (total) | 57 |
81 |
Number of investment adviser firms applying for state registration pursuant to Dodd-Frank "Switch" |
44 |
57 |
Number of "for-cause" audits |
2 |
2 |
Number of audits referred to Enforcement Section |
3 |
3 |
Number of new registered broker-dealer firms |
17 |
45 |
Number of new registered investment adviser firms |
53 |
71 |
Number of new notice-filed federal-covered investment adviser firms |
24 |
80 |
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:
Inappropriate or misleading hedge/arbitration clauses;*
Inconsistencies between ADV Part 1 and Part 2;*
Failure to update client suitability information;*
Failure to accurately report outside business activities; and
Failure to clearly identify soft-dollar benefits in Form ADV Part 2.
*Also common deficiencies in the first quarter of 2012.
Dodd-Frank IA Switch Update
In response to the Dodd-Frank Act's mandated switch to state registration for certain investment advisers, the Division has received a total of 63 applications for registration from investment advisers switching from federal to state registration. Of those 63 applicants, 30 are based in Missouri.
As of June 30, 2012, 56 of the 63 (28 of 30 Missouri-based) switching advisers that applied with Missouri have been approved for registration. Some applications remain pending, as Division auditors have required additional information or modifications from seven applicants.
Based on information received from both the U.S. Securities and Exchange Commission and the North American Securities Administrators Association, the Securities Division might receive as many as 10-20 additional applications from advisers required to switch to state registration.
For more information on switching from federal to state oversight, please visit the Securities Division's IA Switch website at www.sos.mo.gov/iaswitch.