The SEC’s Office of Compliance Inspections and Examinations (OCIE) recently announced its priorities for examinations to be conducted during 2016. OCIE examines, on a regular and routine basis, registered investment advisers and investment companies.
Over the last four years, the OCIE has announced, in advance, its examination priorities to allow the industry to gear up for such examinations. OCIE believes that providing this information in advance has been helpful in preparing for the examinations and for the staff to prioritize while conducting the examinations.
The OCIE generally determines the annual examination priorities by observing market conditions and industry developments, and by risk assessments.
The 2016 examination priorities include:
- Protecting retail investors, primarily retirement investors: OCIE will assess risks to such investors, including disclosure information available for investment products geared to seniors
- Cyber security compliance and controls: OCIE will continue to test and assess the registrants’ compliance and controls
- Use of data analytics: The OCIE will continue to collect, review and use large amounts of data collected from the industry in order to detect unusual and possible fraudulent activity
Of particular interest to our clients will be OICE’s focus on Public Pension Advisers, a close examination of exchange traded fund operations and risks, with an ongoing focus on cybersecurity and liquidity controls for funds that hold fixed income securities. Of note, the SEC also called out EB-5 programs for special attention, with respect to due diligence, disclosure and suitability.
Of particular interest to private fund advisers, OICE will maintain its focus on fees and expenses, as well as evaluation of the controls and disclosure of side by side management of performance fee and purely asset based fee accounts.
New target areas for the OCIE 2016 examinations include public pension advisers, product promotion, and investment products such as exchange-traded funds and variable annuities.
Other initiatives within the OCIE 2016 examinations will include municipal advisors and their compliance with the many regulatory requirements established by the MSRB; and private placements, with an emphasis in the areas of due diligence, disclosure, and suitability.