SEC’s Exam Priorities Offer Insight Into National Exam Program

On February 7, 2018, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued their 2018 Examination Priorities (see Ascendant’s summary here). In addition to defining their examination priorities for the year, the OCIE staff offered some insight into the National Exam Program.  Specifically, they defined the following five principles in executing their exam priorities:

  • Risk-based – OCIE realizes that the size of the securities industry prevents them from conducting regular, comprehensive examinations of every firm. The staff considers risk in setting priorities, selecting firms to examine and determining the scope of exams.
  • Data-driven – OCIE acknowledges that they utilize data in setting priorities and evaluating risk. Over the past several years, the SEC has added quantitative capabilities for analyzing trade blotters and market data.
  • Transparency – OCIE believes that publicly sharing information about the exam program enables firms to achieve compliance with the securities laws, thus helping investors. In fiscal year 2017, OCIE published six Risk Alerts, which identified issues for registrants to consider.
  • Highest and Best Use of Resources – OCIE recognizes that their resources are limited, and attempts to leverage their talent, technology and data analysis in an effort to maximize the benefit to investors.
  • Embrace Innovation and Technology – Technology in the financial markets often leads to innovation in ways that benefit investors, such as improving access or driving down cost. OCIE works to keep pace with advancing technological innovations and recognizes the threats through cybersecurity attacks.

Look familiar? In many ways, these principles are the hallmarks of an effective compliance organization. As OCIE has focused on increasing transparency, advisers and broker-dealers will be well served to pay attention to OCIE’s guidance and make sure that their compliance programs are up to par.

OCIE’s full priorities paper can be found here.


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