Earlier this year, the SEC’s Office of Compliance Inspections and Examinations (OCIE) released its Examination Priorities for 2017. OCIE annually examines regulated entities to ensure compliance, prevent fraud, identify risk, and inform policy. These priorities reflect the practices, products, and services that, per OCIE, present the greatest risks to investors and U.S. capital markets. Regulated entities may use the priorities to prepare for their own OCIE examinations and update their internal compliance and supervisory rules and procedures; however, the priorities do not constitute legal advice.
OCIE organized its 2017 priorities around three thematic areas: (1) examining matters of importance to retail investors; (2) focusing on risks specific to elderly and retiring investors; and (3) assessing market-wide risks. First, OCIE is concerned with the potential risks to retail investors from “an increasingly complex investment landscape.” With products and services such as electronic investment advice, wrap fee programs that charge investors a single fee for advisory and brokerage services, and exchange-traded funds (ETFs) available to retail investors, OCIE will focus on whether regulated entities comply with rules regarding conflicts of interest, suitability, compliance practices, and investor data protection, amongst others. Further, OCIE will concentrate on examining the practices of never-before examined investment advisers, recidivist representatives and their employees, and multi-branch advisers and will review any conflicts of interest and other factors that affect registered entities’ recommendations regarding share classes of mutual funds.
Second, like the FINRA examination priorities released in January, the OCIE examination priorities 2017 also focus on preventing elder abuse. OCIE will focus on senior investors and retirement investments in an effort to protect the retirement income of an aging U.S. population. According to the Office, Americans are increasingly reliant on returns from investment portfolios to support themselves in retirement. OCIE will evaluate how investment firms manage their interactions with senior clients and whether these firms can identify and protect seniors from financial exploitations. The Office will continue the work of the ReTIRE (Retirement-Targeted Industry Reviews and Examinations) initiative and will pay particular attention to registered entities’ endorsements and sales of variable insurance products, and the sales and management of target date funds. Further, OCIE will examine public pension advisers and their management of conflicts of interest and their fulfillment of their fiduciary duties. The Office will also investigate whether public pension advisers are vulnerable to other “risks specific to these advisers,” such as pay-to-play schemes.
Third, OCIE will continue to assess market-wide, structural risks and trends that may include multiple firms or whole industries to maintain fair, orderly, and efficient markets. OCIE will focus on the following products, regulations, practices, and agencies to promote the safety of the U.S. capital markets: money market funds, payment for order flow and the duty of best execution, clearing agencies, FINRA, Regulation Systems Compliance and Integrity (SCI) entities, cybersecurity compliance procedures and controls, national securities exchanges, and anti-money laundering (AML) monitoring and suspicious activity report (SAR) compliance.
Additionally, OCIE will continue its examinations of municipal advisors, transfer agents, and private fund advisers. First, the Office will assess municipal advisors’ compliance with SEC and MSRB rules. Second, OCIE will continue to examine transfer agents’ “timely turnaround of items and transfers, recordkeeping and record retention, and safeguarding of funds and securities.” Third, OCIE will further examine private fund advisers to evaluate their treatment of conflicts of interest, their disclosures of conflicts to clients, and any actions that may benefit advisers over their investors. These areas represent an incomplete list of the Office’s priorities for 2017. While OCIE will dedicate “significant resources” to the examination of the aforementioned issues, the Office will conduct examinations focused on risks and policy matters that may arise throughout the year.
 OCIE oversees and examines broker-dealers (including branch offices and registered representatives), investment advisers, fund complexes (including mutual funds and exchange-traded funds), transfer agents, municipal advisors, twenty national security exchanges, FINRA, MSRB, SIPC, eight clearing agencies, PCAOB, security-based swap dealers, security-based swap data repositories, major security-based swap participants, eight securities-based swap execution facilities, and crowdfunding portals.
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