On January 12, 2017 the SEC announced its Office of Compliance Inspections and Examinations (OCIE) priorities for the year, including areas of focus for Retail Investors, Senior Investors and Retirement Investments, Market-wide risks, FINRA oversight, and cybersecurity. These priorities reflect an extension of previous years' commitments, in particular with regard to focus on the retirement industry and cybersecurity. The "Regulation Systems Compliance and Integrity" (Regulation SCI) adopted by the SEC in November 2014 will also be a continued focus.
Once again, protection of retail investors is of primary concern for the OCIE. Among the detailed areas of focus are examining risks related to electronic investment advice, "wrap fee" programs where investors are charged a single fee for bundled advisory and brokerage services, and "Never-before examined" Investment advisers, an initiative that was started in 2014 to engage with newly-registered advisers that had never-before been examined. Examination of Exchange-Traded funds (ETFs) and continuation of the ReTIRE initiative are two carryovers from 2016 priorities . The OCIE previously identified ETFs, which are sometimes seen as alternatives to mutual funds, for examination related to compliance with the Securities Exchange Act of 1934 and the Investment Company Act of 1940. ReTIRE, launched in June 2015, places particular focus on those SEC-registered investment advisers and broker dealers who offer retirement-oriented investment services to retail investors, including examining whether there is a reasonable basis for the recommendations made. This year, the SEC will expand ReTIRE to include "assessing controls surrounding cross-transactions, particularly with respect to fixed income securities."
Another group of priorities focused on structural risks and trends is intended to address market-wide risks. These priorities include cybersecurity, enhanced oversight of FINRA, additional anti-money laundering (AML) assessments, and Regulation SCI. The OCIE noted that broker dealers are responsible for tailoring AML programs to identify money laundering and terrorist financing risks, including by monitoring for and reporting suspicious activity in compliance with suspicious activity report (SAR) requirements. The OCIE will continue to examine these AML programs to ensure that they are tailored to the specific risks arising out of a firm's business and operations.
Outgoing SEC Chair Mary Jo White described the OCIE priorities as emphasizing the importance of "protecting our most vulnerable senior investors or those investing in the trillion dollar money market fund industry." Although White will leave her position at the end of President Barack Obama's term in a few days, OCIE Director Marc Wyatt has not announced his departure from the agency. The examination priorities specifically reflect the goals of OCIE, considered the "eyes and ears" of the SEC, and while the Commissioners, senior staff from various divisions within the SEC and other regulators are consulted in preparing the priorities, they ultimately reside with OCIE alone. There is an assumption that the issues identified on Thursday will remain largely unchanged throughout the year, even after White's departure. But once Trump appointee Jay Clayton is confirmed and takes the reins as the new SEC Chair, he could ask the OCIE to revisit its priorities and examination focus as the year progresses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.