The SEC’s Office of Compliance Inspections and Examinations (OCIE) announced on January 7th its 2020 examination priorities. OCIE publishes its priorities on an annual basis to enhance the transparency of its examination program and to provide insights into its risk-based approach, including the areas it believes present potential risks to investors and the integrity of the US capital markets. Developing the annual examination priorities is a collaborative effort that begins with feedback from examination staff (who are uniquely positioned to identify the practices, products, services, and other factors that may pose risk to investors or markets) and other sources of input and advice from the SEC Chairman, other Commissioners, other SEC divisions and departments, and other federal financial regulatory agencies.
OCIE’s 2020 examination priorities are as follows:
Retail Investors, Including Seniors and Those Saving for Retirement: OCIE will continue in its focus on protecting retail investors, including investigating the various intermediaries that serve and interact with retail investors and the investments designed for and/or marketed to them. OCIE will review disclosures related to fees, expenses, and conflicts of interest.
Market Infrastructure: OCIE will also focus on entities that provide services critical to the functioning of capital markets. This includes clearing agencies, national securities exchanges, alternative trading systems, and transfer agents. The department will pay special attention to the security and resilience of entities’ systems.
Information Security: OCIE will continue to prioritize cyber and other information security risks across its entire examination program.
Focus Areas Relating to Investment Advisers, Investment Companies, Broker-Dealers, and Municipal Advisors: OCIE will continue its risk-based examinations for each type of these registered entities. In particular, analyses of registered investment advisers (RIAs) will center on RIAs that have never been examined, including new RIAs and RIAs that have been registered for several years without undergoing examination. Both RIAs advising retail investors and private funds will be examined. Investment company examinations will focus on the mutual funds and exchange-traded funds, the activities of their RIAs, and the oversight practices of their boards of directors. Examinations of broker-dealers will focus on issues pertaining to the preparation for and implementation of recent rulemaking, along with trading practices. Municipal advisor examinations will include reviews of registration and continuing education requirements and municipal advisor fiduciary duty obligations to municipal entity clients.
Anti-Money Laundering Program: OCIE will continue to monitor compliance with applicable anti-money laundering requirements, including whether entities are appropriately implementing their anti-money laundering programs to address regulatory obligations.
Financial Technology (FinTech) and Innovation, Including Digital Assets and Electronic Investment Advice: OCIE recognizes that advancements in financial technologies, methods of capital formation, and market structures, as well as registered firms’ use of new sources of data (referred to as “alternative data”), warrant ongoing attention and review. OCIE will identify SEC-registered firms engaged in the digital asset space, as well as RIAs that provide services to clients through automated investment tools and platforms, and examine these entities.
FINRA and MSRB: OCIE will continue to provide oversight of the Financial Industry Regulatory Authority (FINRA) by focusing examinations on FINRA’s operations, regulatory programs, and the quality of FINRA’s examinations of broker-dealers and municipal advisors. In addition, OCIE will examine the Municipal Securities Rulemaking Board (MSRB) to determine the effectiveness of its operations and internal policies, procedures, and controls.
These priorities for Fiscal Year 2020 are not exhaustive and will not be the sole areas OCIE focuses on in its examinations, risk alerts, and investor and industry outreach. The scope of any OCIE examination is determined through a risk-based approach and that includes analysis of a given entity’s history, operations, services, products offered, and other risk factors, in addition to SEC priorities.
Sources:
SEC Office of Compliance Inspections and Examinations Announces 2020 Examination Priorities (www.sec.gov)
