By: Steve Levine, Esq., Senior Vice President, Alliant
Examination priorities for the upcoming year were announced by the U.S. SEC Office of Compliance Inspections and Examinations (”OCIE”) in early February 2018.
The OCIE broke down their current priorities into five categories:
- Compliance and Risks in Critical Market Infrastructure
- Matter of Importance to Retail Investors*
- FINRA and MSRB
- Anti-Money Laundering Programs
*The OCIE’s focus on retail investor issues and cybersecurity are “carryover” issues from 2017.
The OCIE conducts the SEC’s National Exam Program. The OCIE has examination responsibilities for over 28,000 registrants including, among others, investment advisers, mutual funds and ETF’s, broker-dealers, transfer agents, national securities exchanges and FINRA.
The OCIE’s role is to improve compliance, prevent fraud, monitor risk and inform policy. Examination results are used by the SEC to improve industry practices by identifying and monitoring risks as well as the pursuit of misconduct. The OCIE shares the results of its findings with the SEC Chairperson, Commissioners, and other SEC divisions, including the SEC Division of Enforcement. While the OCIE conducts examinations, it does not make policy nor conduct enforcement proceedings.
One of the “carryover” issues pertains to an examination of advisers and broker-dealers that offer investment advice to their retail investors through “robo-advisers” and other automated platforms.
With respect to cybersecurity, it is likely the OCIE will remain focused on such issues for the foreseeable future (highlighted by: risk assessment, access rights and controls, data loss prevention, vendor management, training and incident response procedures).
Of the new priorities highlighted by the OCIE, the most interesting is the expected examination as to whether SEC-regulated entities are adapting Anti-Money Laundering (“AML”) programs in light of recent new rules promulgated by the U.S. Treasury Financial Crimes Enforcement Network. It is anticipated that examiners will review for compliance with AML requirements, including whether firms are in fact adapting their AML programs in accordance with regulatory requirements. While the AML rules and regulations are not issued by the SEC, it is against the law to do financial transactions with people and companies on the sanction list. The OCIE would, therefore, expect that at a minimum, advisers should be checking their investors and clients against such sanction lists.
The OCIE may add additional priorities as market conditions develop over the course of the year and as the OCIE identifies emerging risks.