On January 12, 2017, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) announced its 2017 priorities. OCIE sets its priorities based upon the areas which are believed to pose the highest risk to investors. In accordance with these priorities, OCIE will focus on issues impacting investment advisers, investment companies, broker-dealers, transfer agents, clearing agencies, private fund advisers, national securities exchanges, and municipal advisors.
In 2017, OCIE’s examinations will concentrate on:
- Retail investors;
- Senior investors and retirement investments;
- Market-wide risks;
- FINRA’s operations, exams, and regulatory programs; and
- Cybersecurity compliance procedures and controls.
Examiners will ascertain whether firms have tested their cybersecurity procedures and controls.
Protecting retail investors is always a priority
As part of its efforts to protect retail investors, OCIE will focus on:
- Electronic investment advice, including robo-advisers;
- Wrap fee programs, because they raise questions regarding suitability, effectiveness of disclosures, conflicts of interest, and brokerage practices;
- Exchange-Traded Funds (“ETFs”), including their sales practices, disclosures, and the suitability of broker-dealers’ recommendations of ETFs with niche strategies;
- Registered Investment Advisers (“RIAs”) that were never examined before;
- Recidivist representatives and their employers;
- Multi-branch advisers and the unique risks arising from that business model; and
- Share class selection, such as situations where shares with higher loads or distribution fees are recommended.
In particular, senior investors and retirement investments need to be protected. In addition to its focus on public pension advisers, OCIE is expanding its multi-year Retirement-Targeted Industry Reviews and Examinations (“ReTIRE”) Initiative. The ReTIRE Initiative will look closely at RIAs and broker-dealers offering variable insurance products to investors with retirement accounts. In addition, advisers that offer and manage target-date funds can expect a higher degree of scrutiny. As has been the case for several years, OCIE is focused on registrants’ interactions with senior investors to ensure they are not exploited financially.
Examinations aimed at assessing and neutralizing market-wide risks
OCIE will continue its focus on registrants’ compliance with the anti-money laundering requirements, as well as Regulation SCI. It will also evaluate money market funds’ compliance with the SEC’s recently-amended rules.
OCIE intends to enhance its oversight of FINRA with the goal of protecting investors and market integrity. Aside from inspecting FINRA’s operations and regulatory programs, OCIE will use resources to evaluate the quality of individual broker-dealers’ examinations.
In addition, OCIE will allocate examination resources to other priorities. It will continue to examine municipal advisors to evaluate their compliance with SEC and Municipal Securities Rulemaking Board rules. OCIE will also be examining transfer agents and private fund advisers.
Forewarned is forearmed
OCIE’s 2017 priorities can be found at https://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2017.pdf. These priorities are not exhaustive and may be revised in response to market conditions, industry developments, and emerging risks. Furthermore, examiners will be looking at all aspects of your compliance program, not just these specific areas.
Compliance personnel should do more than just read about these 2017 examination priorities. Firms should revise and improve their policies and procedures to ensure that they thoroughly address OCIE’s priorities, as well as other risks that may cause harm to investors. NCS Regulatory Compliance stands ready to help you make those improvements before OCIE makes your firm an examination priority.
Les Abromovitz can be reached at NCS Regulatory Compliance by calling 561-570-1813 or by e-mailing him at firstname.lastname@example.org. Les is the author of THE INVESTMENT ADVISOR’S COMPLIANCE GUIDE, which was published by the National Underwriter Company, a division of ALM. The second edition will be published in March, 2017.