What will the Securities and Exchange Commission (SEC) be watching this year? Not reality TV, that’s for certain. Among the areas the SEC’s Office of Compliance Inspections and Examinations (OCIE) intends to focus in 2017 are the usual suspects: electronic investment advice, money market funds, and financial exploitation of senior investor, as well as assessing market-wide risks.
According to OCIE Director Marc Wyatt, “OCIE’s priorities identify where we see risk to investors so that registrants can evaluate their own compliance programs in these important areas and make necessary changes and enhancement.”
The 2017 examination priorities address issues across a variety of financial institutions, including investment advisers, investment companies, broker-dealers, transfer agents, clearing agencies, private fund advisers, national securities exchanges, and municipal advisors. Among the newer areas of examination focus are:
1) Never-before examined investment advisers
The OCIE is expanding its Never-Before Examined Adviser initiative to include focused, risk-based examinations of newly registered advisers as well as selected advisers that have been registered for a longer period, but have never been examined by OCIE. Is that you?
2) Recidivist representatives and their employers
This is that “bad apple” check we blogged about previously. The OCIE will continue to use its analytic capabilities to identify individuals with a track record of misconduct and examine the investment advisers that employ them. Is that you or your firm?
The OCIE, for example, will assess the compliance oversight and controls of investment advisers that have employed bad actors, including those who have been subject to a regulatory action or barred from associating with a broker-dealer.
3) Multi-Branch Advisers
Got multiple locations, the SEC’s OCIE will be focusing on registered investment advisers like you. It is the OCIE’s experience that the branch office model can pose unique risks and challenges to advisers, particularly in the design and implementation of a compliance program and the oversight of advisory services provided at branch offices. Is that you?
4) Public Pension Advisers
Because the OCIE sees that pension plans of states, municipalities, and other government entities hold a large amount of U.S. investors’ retirement assets, regulators will examine investment advisers to these
entities to assess how they are managing conflicts of interest and fulfilling their fiduciary duty as well as review other risks specific to these advisers, including pay-to-play and undisclosed gifts and entertainment practices. Is that you?
Even the Financial Industry Regulatory Authority (FINRA) will be in the SEC spotlight. The Commission will enhance oversight of FINRA, consistent with its aim to protect investors and market integrity. In addition to continuing to conduct inspections of FINRA’s operations and regulatory programs, the SEC will focus resources on assessing the quality of FINRA’s examinations of individual broker-dealers.
6) Regulation Systems Compliance and Integrity (SCI)
The SEC will continue to examine SCI entities to evaluate whether they have established, maintained, and enforced written policies and procedures reasonably designed to ensure their systems have levels of capacity, integrity, resiliency, availability, and security adequate to maintain operational capacity and promote maintenance of fair and orderly markets, and that they operate in a manner compliant with the Exchange Act. Is that you?
And that’s just the proverbial “tip of the iceberg!”
Okay. It’s clear that for the foreseeable future, the regulators are still coming. Will you be ready? All of us — broker-dealers, RIAs, futures traders, muni bond dealers, etc. are still in the regulator gun sights.
Be prepared. But don’t overpay!
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