On January 12, the SEC’s Office of Compliance and Examinations (“OCIE”) released its Examination Priorities for 2017 with a focus on “certain practices, products, and services that OCIE perceives to present potentially heightened risk to investors and/or the integrity of the U.S. capital markets.”
Here is a roundup of key priorities mentioned in the release:
Matters of importance to retail investors
- OCIE plans to examine registered and investment advisers and broker-dealers that offer electronic investment advice, including the use of robo-advisers. Exams will likely focus on compliance programs, marketing, formulation of investment recommendations and more. Compliance practices for the oversight of algorithms will also be explored.
- OCIE plans to expand its focus on RIAs and broker-dealers associated with wrap fee programs, including whether advisers are acting in a manner consistent with fiduciary duty. Wrap account suitability, disclosure effectiveness and conflicts of interest are all areas of scrutiny.
- OCIE’s Never-Before-Examined Adviser initiative will be expanded to include focused, risk-based exams of newly registered advisers.
- Other focuses in this area include recidivist representatives and their employers, multi-branch advisers and share class selection.
Risks specific to elderly and retiring investors
- The ongoing ReTIRE initiative will continue, with an expanded focus on registrants’ recommendations and sales of variable insurance products, as well as sales and management of target date funds.
- Investment advisers will be examined as to how they assess how they are managing conflicts of interest and fulfilling their fiduciary duty. Other risks including pay-to-play and undisclosed gifts and entertainment practices will be reviewed.
- OCIE will assess how firms manage interactions with senior investors, including their ability to identify financial exploitation of seniors.
- In October 2016, rule amendments regarding structural and operational reforms to address redemption risks became effective. OCIE will examine money market funds for compliance with the amendments, including assessments of the boards’ oversight of the funds’ compliance as well as a review of policies and procedures relating to stress testing and periodic reporting to the SEC.
- Cybersecurity will continue to be a focus, with scrutiny on procedures and controls, including testing the implementation of those procedures and controls.
- Broker-dealers will have their AML programs examined to assess whether they are customized for specific risks the firm faces. OCIE will also review how broker-dealers are monitoring for suspicious activity, and the effectiveness of independent testing.
Other initiatives OCIE expects to expend resources on include the examination of municipal advisors; transfer agents; and private fund advisers, with an emphasis on conflicts of interest and disclosure of conflicts.
NOTE: The SEC Exam Process will be one of the key focus areas of Ascendant’s upcoming conference on April 3-5. During the course of the conference, we’ll take you through a typical SEC exam journey, highlighting the lessons we’ve learned in the field alongside compliance teams just like yours. We’ll go through all essentials, from how to respond to the SEC’s information requests, to handling the in-person interactions, to the exit interview and responding to a findings letter. For more information, view our agenda by clicking here, and registration information by clicking here.
Written by: Ascendant Compliance Management