On February 7, 2018, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) released its 2018 National Exam Program Examination Priorities. The examination priorities are broken down into five categories: (1) compliance and risks in critical market infrastructure; (2) matters of importance to retail investors, including seniors and those saving for retirement; (3) FINRA and MSRB; (4) cybersecurity; and (5) anti-money laundering programs.
Specifically, this year’s priorities are as follows:
1. Compliance and Risks in Critical Market Infrastructure
OCIE will continue its examination of certain entities that offer services critical to the proper functioning of capital markets, including clearing agencies, national securities exchanges, transfer agents and regulation systems compliance and integrity (“SCI”) entities.
2. Matters of Importance to Retail Investors
OCIE will continue to prioritize protecting retail investors, particularly seniors and those saving for retirement, and pursue examinations of firms that provide products and services directly to them. Focus areas include:
- Disclosure and calculation of fees, expenses, and other charges,
- Electronic investment advice, including “robo-advisers,”
- Wrap fee programs, including whether investment advisers associated with wrap fee programs are obtaining best execution and disclosing costs associated with trading through another broker-dealer,
- Never-before-examined investment advisers, including those that have not been examined in some time,
- Certain high risk mutual funds and exchange traded funds, and
- Cryptocurrencies, initial coin offerings (“ICOs”), secondary market trading and blockchain.
3. FINRA and MSRB
OCIE will continue to examine the effectiveness of the Financial Industry Regulatory Authority and Municipal Securities Rulemaking Board.
OCIE will continue to prioritize cybersecurity in its examination programs, focusing on, among other topics, governance and risk assessment, access rights and controls, data loss prevention, vendor management, training, and incident response.
5. Anti-Money Laundering Programs
OCIE will review compliance by entities regulated by the SEC, such as broker-dealers and registered investment companies, with applicable anti-money laundering (“AML”) obligations, including the requirement to establish written programs to identify their customers, perform customer due diligence, and monitor accounts for suspicious activity.
OCIE noted that its list of examination priorities is not exhaustive. While OCIE expects to allocate significant resources to these examination issues, OCIE will also conduct examinations focused on risks, issues, and policy matters that arise from market and regulatory developments, new information learned from examinations, or other sources, including tips, complaints, and referrals, and coordination with other regulators.
Click here to access the 2018 National Exam Program Examination Priorities.