This week, the SEC’s Office of Compliance Inspections and Examinations (OCIE) released its Examination Priorities for 2017 that reflects 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.
The Examination Priorities for 2017 are organized into the following general categories:
- Protecting Retail Investors. OCIE is pursuing a variety of examination initiatives to assess potential risks to retail investors that arise in the increasingly complex investment landscape.
- Senior Investors and Retirement Investments. OCIE is continuing to devote attention to issues affecting senior investors and those investing in retirement.
- Assessing Market-wide Risks. OCIE anticipates allocating resources to examine perceived structural risks and trends in the securities industry.
- Other Initiatives. Examination priorities that OCIE doesn’t think are cool enough to fit in the above categories.
Here are a couple of notable items from the extensive list of priorities that OCIE identified:
- Robo-Advisors. OCIE will examine investment advisers and broker-dealers that are using automation as a component of their services. They will review compliance programs, client disclosures, data protections, marketing and algorithms used for generation of investment advice.
- Recidivist Representatives and Their Employers. OCIE will employ their risk-based approach and examine industry professionals that have a track record of misconduct and assess the compliance oversight and controls of their employers.
- Investment Advisors. OCIE will continue their initiative to examine those investment advisors that have never been examined. Note that if you are a newly registered investment advisor in part of the market that is identified as a higher risk, you may be examined before a long-standing investment advisor that has never been examined.
- Senior Investors. Senior investor issues continue to be a focus of OCIE and FINRA. OCIE will examine supervisory programs and controls of investment advisors and broker-dealers to assess how they are managing conflicts of interest, fulfilling fiduciary duty or best execution obligations, and managing their interactions with senior investors.
- Payment for Order Flow. Something of an unknown topic for many investors and non-industry professionals, OCIE states that it will examine select broker-dealers and market-makers to assess how they are complying with their duty of best execution when routing customer orders for execution.
- Reg SCI. OCIE will examine SCI entities to evaluate whether they have established, maintained, and enforced written policies and procedures reasonably designed to ensure their systems comply with industry best practices and what OCIE has determined to be appropriate levels of capacity, integrity, resiliency, availability, and security that are adequate enough to maintain operational capacity and promote maintenance of fair and orderly markets, as well as operate in a manner compliant with the Exchange Act.
- Anti-Money Laundering. AML continues to be an area of focus of OCIE and FINRA (as well as other regulators and government enforcement agencies). OCIE will examine broker-dealers to assess whether AML programs are compliant with requirements and are tailored to the risks of the firm; whether AML programs are properly supervised, monitored and tested; and whether SARs are filed according to requirements.
- Private Fund Advisers. After a year that brought a number of large enforcement actions and settlements in the private fund space, OCIE will continue to examine private fund advisors with a focus on conflicts of interest, disclosures of those conflicts, and compensation/fee arrangements and calculations.
Similar to FINRA’s Regulatory and Examinations Priorities Letter published last week, the OCIE’s enumerated priorities is not comprehensive or all inclusive. OCIE intends to operate their examination program in a primarily risk-based manner that allocates limited examination resources on the risks, issues, and policy matters that are driven from existing information and data from tips, complaints, referrals, and enforcement actions, as well as those that may arise from changes in market conditions or the regulatory environment. To find out more about how the SEC Examination Priorities for 2017 impacts your regulatory compliance program or business initiatives for the year, do not hesitate to contact us and we will be more than happy to assist you.