The Securities and Exchange Commission (SEC) has announced its Office of Compliance Inspections (OCIE) examination priorities for 2018 – the first since the appointment of SEC Chairman Jay Clayton. Despite shifts in the regulatory landscape under the new administration in Washington D.C., OCIE’s 2018 priorities remain consistent with 2017’s priorities. This year, OCIE will continue to focus on retail investors, particularly seniors and those saving for retirement, and pursue examinations of firms that provide products and services directly to them. Anti-money laundering (AML) programs will continue to be a heightened priority for OCIE. In 2017, the OCIE’s National Exam Program completed over 2,870 examinations – representing an 18 percent increase over 2016. We see no let-up in the SEC’s examination process.
OCIE’s 2018 priorities focus on five themes:
1. Retail Investors, Including Seniors and Retirement Accounts. A continuing theme from 2017’s priorities will be OCIE’s focus on retail investors. Ongoing initiatives emphasize fee disclosures, particularly those relating to wrap-fee programs; electronic investment advice (i.e., “robo-advisors” and other firms that interact with clients primarily online); and risk disclosures for mutual funds, exchange-traded funds (ETFs), and cryptocurrencies. Examinations will also continue to focus on internal controls related to sales of products directed at senior investors and individuals investing for retirement, including variable annuities and target-date funds.
As senior investors are becoming a mainstay priority for securities regulators, Bressler has developed a Senior Issues Group, with programs designed to assist clients in confronting issues affecting seniors.
2. Compliance and Risks in Critical Market Infrastructure. Examiners will focus on operational functions and governance plans for capital markets service providers such as clearing agencies, national securities exchanges, and transfer agents.
3. FINRA and MSRB. OCIE will continue to focus on the effectiveness of the Financial Industry Regulatory Authority (FINRA) and Municipal Securities Rulemaking Board (MSRB) oversight programs. This includes a focus on FINRA’s examinations of broker-dealers as well as MSRB’s internal policies and procedures.
4. Cybersecurity. With the Equifax and EDGAR breaches still fresh in the headlines, OCIE will continue to prioritize cyber risk assessment, access rights and controls, data loss prevention, vendor management, training, and incident response. This examination priority highlights the SEC’s ongoing concern with hackers accessing material, non-public information; account intrusions to conduct manipulative trading; and dissemination of false information to manipulate stock prices.
5. Anti-Money Laundering Programs. OCIE makes clear that AML programs will continue to be closely scrutinized. Please see Bressler’s additional alert for a more detailed discussion of OCIE’s AML focus.