RIA Compliance Blog
On February 7, 2018, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) published its Examination Priorities for 2018. The Examination Priorities cover “certain practices, products, and services that OCIE believes may present potentially heightened risk to investors and/or the integrity of the U.S. capital markets.” The five priorities that OCIE specifically listed are (1) issues crucial to retail investors, such as seniors and those saving for retirement, (2) compliance and risks in critical market infrastructure, (3) FINRA and MSRB, (4) cybersecurity, and (5) anti-money laundering programs. This is not an exclusive list, and OCIE invited comments concerning how it can adequately promote compliance.
OCIE intends to continue to make shielding retail investors from fraud a priority. OCIE plans to focus especially on senior investors and those saving for retirement. For example, examiners will pay particular attention to firms’ internal controls that are intended to monitor their representatives, especially in relation to products targeted at senior investors. OCIE will also focus on disclosure of the costs of investing, examination of investment advisers and broker-dealers who primarily offer advice through digital platforms, wrap fee programs, mutual funds and exchange traded funds, municipal advisors and underwriters, and the growth of the cryptocurrency and initial coin offering markets.
OCIE also plans to focus on compliance and risks in critical market structure. To achieve this goal, OCIE intends to continue to evaluate clearing agencies, which are tasked with making sure that “trades settle on time and at the agreed upon terms.” OCIE will also focus its attention on the internal audits, governance, and operations of national securities exchanges; OCIE also plans to conduct examinations of transfer agents, concentrating on transfers, recordkeeping, and the safekeeping of funds. Finally, it intends to focus on Systems Compliance and Integrity (“SCI”) Entities in light of the adoption of Regulation SCI, which is designed to better the technological infrastructure of United States securities markets.
With respect to FINRA and MSRB’s operations. To accomplish this, OCIE plans to evaluate FINRA’s day-to-day functioning and the status of FINRA’s evaluations of FINRA member firms. OCIE also intends to evaluate MSRB’s operations as part of evaluating municipal advisors, and assuring that advisors have implemented guidelines for municipal securities dealers and municipal advisors to follow.
OCIE also plans to continue to pay particular attention to cybersecurity in light of the fact that the types and negative consequences of cyber threats have grown over the years. In order to adequately address cybersecurity issues, OCIE intends to collaborate with firms to pinpoint cybersecurity issues. OCIE also intends to make cybersecurity a prominent component of its examination programs, focusing particularly on issues such as access rights and controls and data loss prevention.
OCIE also plans to evaluate whether firms are implementing anti-money laundering programs that are adequate. These examinations will include evaluations of firms’ customer due diligence obligations, as well as firms’ obligation to file Suspicious Activity Reports (“SARS”) if they find suspicious activity.
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