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SEC Announces 2015 Exam Priorities

Author: Dan Brecher|January 30, 2015

Don’t say you haven’t been warned! In January, the Securities and Exchange Commission (SEC) announced its 2015 exam priorities for the coming year.

SEC Announces 2015 Exam Priorities

Don’t say you haven’t been warned! In January, the Securities and Exchange Commission (SEC) announced its 2015 exam priorities for the coming year.

In regards to the 2015 exam priorities, the report should be required reading for all investment professionals under the agency’s purview, most notably investment advisers, broker-dealers, and transfer agents.

“We share our 2015 examination priorities to promote compliance,” said Andrew J. Bowden, Director of the agency’s Office of Compliance Inspections and Examinations (OCIE). “We have observed that when we share our areas of focus, many industry participants independently review their controls in the areas we have identified.”

According to the SEC, its specific priorities revolve around three areas: protecting retail investors, especially those saving for or in retirement; assessing market-wide risks; and using data analytics to identify signs of potential illegal activity. Below are specific issues that the OCIE identified in its report:

  • Newly registered advisers

    Examiners will continue to target newly registered municipal advisors to assess their compliance with recently adopted SEC and Municipal Securities Rulemaking Board rules. Similarly, the SEC will also continue its efforts to examine selected registered investment companies that have not yet been examined.

  • Fees and Expenses in Private Equity

    Citing the high rate of deficiencies that it has observed among advisers to private equity funds in connection with fees and expenses, the SEC plans to continue to conduct examinations in this area.

  • Large-firm monitoring

    The agency plans to monitor the largest U.S. broker-dealers and asset managers for the purpose of assessing risks at individual firms and maintaining early awareness of developments industry-wide.

  • Cybersecurity

    The SEC expects to continue and expand its initiative to examine broker-dealers’ and investment advisers’ cybersecurity compliance and controls.

  • Branch offices

    The SEC will scrutinize the supervision of registered representatives and financial adviser representatives in branch offices, including using data analytics to identify branches that may be deviating from compliance practices of the firm’s home office.

  • Suitability

    The SEC intends to evaluate registered firms’ recommendations or determinations to invest retirement assets into complex or structured products and higher yield securities, including whether the due diligence conducted, the disclosures made, and the suitability of the recommendations or determinations are consistent with existing legal requirements.

  • Fee selection

    For advisers that offer a range of fee structures, the SEC will evaluate the recommendations of account types and whether they are in the best interest of the client at the inception of the arrangement and thereafter, including fees charged, services provided, and disclosures made about such relationships.

  • Transfer agents

    The SEC intends to allocate more resources to examine transfer agents, particularly those that are involved with microcap securities and private offerings.

  • Data analytics

    The agency plans to use its growing capabilities to pursue initiatives involving microcap fraud, excessive trading, anti-money laundering programs, and recidivist brokers.

Despite a stated lack of resources, the SEC is still working to prove that it can handle the growing task of examining financial advisers as well as preventing securities fraud before it harms investors. Accordingly, registered firms should be prepared to face a heightened enforcement environment for the foreseeable future.

Are you on top of the 2015 exam priorities? What was your experience? Feel free to leave a comment in the section below.

SEC Announces 2015 Exam Priorities

Author: Dan Brecher

In regards to the 2015 exam priorities, the report should be required reading for all investment professionals under the agency’s purview, most notably investment advisers, broker-dealers, and transfer agents.

“We share our 2015 examination priorities to promote compliance,” said Andrew J. Bowden, Director of the agency’s Office of Compliance Inspections and Examinations (OCIE). “We have observed that when we share our areas of focus, many industry participants independently review their controls in the areas we have identified.”

According to the SEC, its specific priorities revolve around three areas: protecting retail investors, especially those saving for or in retirement; assessing market-wide risks; and using data analytics to identify signs of potential illegal activity. Below are specific issues that the OCIE identified in its report:

  • Newly registered advisers

    Examiners will continue to target newly registered municipal advisors to assess their compliance with recently adopted SEC and Municipal Securities Rulemaking Board rules. Similarly, the SEC will also continue its efforts to examine selected registered investment companies that have not yet been examined.

  • Fees and Expenses in Private Equity

    Citing the high rate of deficiencies that it has observed among advisers to private equity funds in connection with fees and expenses, the SEC plans to continue to conduct examinations in this area.

  • Large-firm monitoring

    The agency plans to monitor the largest U.S. broker-dealers and asset managers for the purpose of assessing risks at individual firms and maintaining early awareness of developments industry-wide.

  • Cybersecurity

    The SEC expects to continue and expand its initiative to examine broker-dealers’ and investment advisers’ cybersecurity compliance and controls.

  • Branch offices

    The SEC will scrutinize the supervision of registered representatives and financial adviser representatives in branch offices, including using data analytics to identify branches that may be deviating from compliance practices of the firm’s home office.

  • Suitability

    The SEC intends to evaluate registered firms’ recommendations or determinations to invest retirement assets into complex or structured products and higher yield securities, including whether the due diligence conducted, the disclosures made, and the suitability of the recommendations or determinations are consistent with existing legal requirements.

  • Fee selection

    For advisers that offer a range of fee structures, the SEC will evaluate the recommendations of account types and whether they are in the best interest of the client at the inception of the arrangement and thereafter, including fees charged, services provided, and disclosures made about such relationships.

  • Transfer agents

    The SEC intends to allocate more resources to examine transfer agents, particularly those that are involved with microcap securities and private offerings.

  • Data analytics

    The agency plans to use its growing capabilities to pursue initiatives involving microcap fraud, excessive trading, anti-money laundering programs, and recidivist brokers.

Despite a stated lack of resources, the SEC is still working to prove that it can handle the growing task of examining financial advisers as well as preventing securities fraud before it harms investors. Accordingly, registered firms should be prepared to face a heightened enforcement environment for the foreseeable future.

Are you on top of the 2015 exam priorities? What was your experience? Feel free to leave a comment in the section below.

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