Examination Priorities.

On January 13th, the Securities and Exchange Commission (“SEC”) announced the Office of Compliance Inspections and Examinations’ (“OCIE”) priorities for 2015. OCIE will assess risks to retail investors that can arise from the offering of private funds, illiquid investments, and structured products. In particular, OCIE notes that financial professionals serving retail investors are increasing choosing to operate as an investment adviser or as a dually registered investment adviser/broker dealer. Because investment advisers tend to employ a variety of fee structures for services offered (such as fees based on assets under management, hourly fees, performance- based fees, wrap fees, and unified fees), when an adviser offers a variety of fee arrangements, OCIE will focus its review on recommendations of account types and whether they are in the best interest of the client at the inception of the arrangement and thereafter, including review of fees charged, services provided, and disclosures made about such relationships. Noting that investors are more dependent than ever on their own retirement investments, OCIE will conduct various initiatives to assess risks and monitor how financial services firms are providing information, advice, products, and services to help retail investors plan for and live in retirement. With respect to market-wide risks, OCIE will examine for structural risks and trends that involve multiple firms or entire industries, including: monitoring large broker-dealers and asset managers in coordination with the SEC’s policy divisions, conducting annual examinations of clearing agencies as required by the Dodd-Frank Act, assessing cybersecurity controls across a range of industry participants, and examining broker-dealers’ compliance with best execution duties in routing equity order flow. OCIE will use its data analytic enhancements to focus on registrants and registered representatives that appear to be potentially engaged in illegal activity. SEC Press Release. As part of OCIE’s exam priorities, the Office of Market Oversight advised national securities exchanges that it is preparing to conduct examinations of them. Finally, OCIE noted the high rate of deficiencies observed among advisers to private equity funds in connection with fees and expenses and warned that it will continue to conduct examinations in this area. In a separate letter, Market Oversight listed priorities which include those exchanges which have been the subject of enforcement proceedings since 2012; internal controls; and the monitoring and enforcement of listing rules.