SEC’s Office of Compliance Inspections and Examinations Releases Annual Examination Priorities
On Jan. 11, 2016, the Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and Exchange Commission (SEC) issued its annual Examinations Priorities for 2016 (Exam Priorities), which is available for download here. In the Exam Priorities, OCIE notes that its priorities focus on the same three thematic areas as in 2015 – (1) matters of importance to retail investors (including those saving for retirement), (2) market-wide risks, and (3) the use of OCIE’s data analytics to identify potential illegal activity.
OCIE stated that retail investor (and retirement investor) matters are expected to remain a focus area “for the foreseeable future.” Under this thematic area, in 2016 OCIE expects to focus on its multi-year “ReTIRE” initiative (focused on retirement accounts serviced by SEC-registered advisers and broker-dealers), compliance-related matters involving exchange-traded funds (ETFs) and variable annuities, practices of public pension advisers (including pay-to-play compliance), and to continue prior priorities related to branch office oversight and related to fee selection and reverse churning by broker-dealers and investment advisers.
Related to market-wide risks, OCIE expects to focus on areas including cybersecurity (including the second initiative to examine broker-dealers and investment advisers and their cybersecurity compliance and controls launched in September 2015, compliance with Regulation SCI, liquidity controls and “systemically important” clearing agencies pursuant to requirements of Dodd-Frank. OCIE further noted it will use its data analytics capabilities to identify potential incidents of recidivist activities (by firms and their personnel), anti-money laundering compliance concerns, microcap fraud, excessive trading and issues and fiduciary duty breaches related to promotion of new, complex and high-risk investment products.
In addition to these focus areas, the Exam Priorities identify municipal advisors, private placements (specifically including offerings under Regulation D as well as under the Immigrant Investor (EB-5) Program), never-before-examined investment advisers and investment companies, private fund advisers, and transfer agents as other types of capital markets participants and/or activities to which OCIE’s examination resources are expected to be deployed.