On Jan. 12, 2017, the Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and Exchange Commission (SEC) issued its annual Examinations Priorities for 2017 (Exam Priorities), which is available for download here. As in past years, the Exam Priorities focus around three thematic areas, the first and the last of which are similar to the thematic areas highlighted in 2016 (which we summarized in the GT Alert titled “2016 SEC Exam Priorities”) while the second is an expansion of a past focus of OCIE – (1) matters of importance to retail investors, (2) risks specific to elderly and retiring investors and (3) market-wide risks. OCIE also highlights its objective of conducting data-driven and risk-based exam initiatives and the use of data analytics in “the vast majority” of exam initiatives.
The Exam Priorities note the evolving choices faced by retail investors, as well as the “ever widening array of information, advice, products and services” available to retail investors. Many of the Exam Priorities cited with respect to this theme – e.g., focusing on share class selection, multi-branch advisers, ETFs and wrap fee programs – represent a continuation or expansion of previously identified priorities and initiatives and past focus areas. OCIE also intends to expand its never-before-examined investment adviser initiative to cover not only select advisers that have been registered for a longer period but have not been examined but also focused, risk-based exams of newly-registered advisers, and for the first time highlights a focus on providers of electronic investment advice, including ‘robo-advisers.’
In focusing on elderly and retiring investors, in 2017 OCIE intends to continue its multi-year “ReTIRE” initiative (focused on retirement accounts serviced by SEC-registered advisers and broker-dealers) as well as its focus on the practices of public pension advisers (including pay-to-play compliance). In addition, OCIE intends to have a new focus on how asset management firms interact with senior investors and identify financial exploitation of seniors.
Related to market-wide risks, while cybersecurity and Regulation SCI will remain focus areas, the Exam Priorities highlight a number of newer initiatives. These initiatives include assessing the implementation and oversight of the newly-effective money market fund rules adopted in 2014, examining broker-dealers to assess compliance with their best execution duties and enhancing OCIE’s oversight of FINRA – focusing resources not just FINRA’s operations and regulatory programs, but also on assessing FINRA’s examination of individual broker-dealers.
In addition to these focus areas, the Exam Priorities identify municipal advisors, private fund advisers, and transfer agents as other types of capital markets participants to which OCIE’s examination resources are expected to be deployed.