2018 SEC Examination Priorities
On February 7, 2018, the Office of Compliance Inspections and Examinations (“OCIE”) of the Securities and Exchange Commission (“SEC”) published its 2018 examination priorities on its regulated entities.1 OCIE identifies four pillars in its exam program: promoting compliance, preventing fraud, identifying and monitoring risk, and informing policy.
The examination priorities can generally be categorized as follows:
- Registered Investment Advisor (“RIA”) Issues: Key OCIE priorities related to RIAs include:
- Electronic advice using digital platforms, including use of “robo-advisors;”
- Never-before examined RIAs; and
- Wrap fee programs using RIAs and broker-dealers (“BDs”).
- Cryptocurrency products: The market for digital currencies, initial coin offerings, and the use of Blockchain technology continues to grow, with RIAs and BDs engaged in this space. OCIE will continue to monitor the use of these products, including any secondary trading markets. The SEC2 has made several pronouncements on the risks posed by cryptocurrency products, and OCIE will focus on whether market participants maintain effective controls and provide adequate risk disclosures to investors.
- Other Issues Important to “Main Street” Investors: Protecting retail investors continues to be an OCIE priority in 2018. OCIE will focus examinations on the disclosure of investment costs and fees, retirement products and senior investors, mutual funds and exchange traded funds (“ETFs”) and the execution of customer orders in fixed income securities.
- Compliance and Risks in Critical Market Infrastructure: OCIE considers examinations of these firms such as clearing agencies, national securities exchanges, transfer agents, and Regulation Systems Compliance and Integrity (“SCI”) entities to be critical to functioning of capital markets.
- Self-Regulatory Organizations (“SROs”): OCIE will continue its oversight of the following SRO issues:
- FINRA: Quality of BD and municipal advisor examinations, along with operations and regulatory programs; and
- MSRB: Effectiveness of select operations and internal policies, procedures, and controls.
- Cybersecurity: Emphasis will be placed on governance and risk assessment, access rights and controls, data loss prevention, vendor management, training, and incident response.
- Anti-Money Laundering (“AML”) Programs: Examiners will review for compliance with applicable AML requirements. OCIE’s priorities will continue to evolve throughout 2018, as the SEC identifies emerging risks to investors.
1 https://www.sec.gov/news/press-release/2018-12, SEC Office of Compliance Inspections and Examinations Announces 2018 Examination Priorities, February 7, 2018.
2 See generally https://www.sec.gov/news/testimony/testimony-virtual-currencies-oversight-role-us-securities-and-exchange-commission, Testimony on Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission by SEC Chairman Jay Clayton.