RIA Compliance Blog
On January 12, 2017, the Office of Compliance Inspections and Examinations (“OCIE”) of the Securities and Exchange Commission (“SEC”) published its examination priorities for 2017. OCIE selects its priorities based on practices and products that it believes to constitute significant risks to investors and the investment markets. It also receives insight from a variety of sources, such as staff from the SEC’s regional offices and other regulators. The priorities for 2017 are primarily based around protection of retail investors, protection of elderly and retiring investors, and addressing market-wide risks like cybersecurity and anti-money laundering.
The first priority that OCIE plans to emphasize is the protection of retail investors. Over the years, new technology has provided investors with new, innovative ways to invest their finances. As a result, the SEC and other regulators must regulate new potential risks that are bound to occur. To address the possible challenges that retail investors face, OCIE plans to implement a number of examination initiatives. For example, it plans to evaluate registered investment advisers and broker-dealers who provide electronic investment advice, such as “robo-advisers.” It also intends to pay particular attention to wrap fee programs and exchange-traded funds (“ETFs”), as well as enlarge its Never-Before-Examined Adviser Initiative program. Finally, OCIE intends to address the challenges related to investment advisers who operate on a multi-branch business model
The next priority on which OCIE intends to focus is the protection of senior investors and retirement investments. OCIE has found that this issue is particularly important based on both the aging United States population and the increased dependence on one’s investments for retirement. To address these issues, OCIE plans to carry on with its ReTIRE initiative, a set of examinations it developed to evaluate investment advisers and broker-dealers who provide products and services involving retirement accounts. It also plans to conduct examinations of investment advisers who provide advice to states and municipalities that have public pension plans. Finally, OCIE will examine how investment advisory firms approach senior investors who are clients. Of particular importance will be how well the firms can detect possible financial exploitation.
The third priority on which OCIE plans to focus in 2017 is market-wide risks. For example, in October 2016, some amendments to rules overseeing money market funds were implemented. OCIE intends to conduct examinations of money market funds to ensure that they are following these new rules. The OCIE also intends to evaluate select broker-dealers to determine “how they are complying with their duty of best execution when routing customer orders for execution.” In prior years, OCIE performed annual examinations of clearing agencies, and it plans to continue to do so this year.
The examination priorities also provide that OCIE intends to expand its administration of the Financial Industry Regulatory Authority (“FINRA”), focusing on its regulatory programs and its broker-dealer examinations. OCIE also intends to review Systems Compliance and Integrity (“SCI”) organizations to determine whether their policies and procedures are tailored to ensure that their systems operate at an optimal level. It also plans to conduct evaluations of firms’ cybersecurity systems and their effectiveness. Finally, OCIE wants to perform inspections of national securities exchanges and to evaluate whether firms’ anti-money laundering programs are adequately equipped to address suspicious activity.
Other priorities that OCIE intends to pay particular attention to include municipal advisers, transfer agents, and private fund advisers. In regards to municipal advisers, OCIE wants to ensure that they are in compliance with the SEC and Municipal Securities Rulemaking Board rules. OCIE plans to focus particularly on transfer agents that work with microcap issuers in regard to transfer agents. As for private fund advisers, OCIE intends to particularly focus on possible conflicts of interest.
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