Feb. 16, 2018
By Sal (Kislay) Shah, CPA
In its Feb. 7 press release, the Securities and Exchange Commission (SEC), together with its Office of Compliance Inspections and Examinations (OCIE), outlined its 2018 examination priorities. Exam priorities are released annually in an effort to improve compliance, fraud prevention, and risk monitoring, as well as to inform policy making. The examination priorities are divided into five main themes, each listing specific items of focus. The following item lists are not exhaustive, however, as the SEC has noted that its examinations will be tailored to market and regulatory developments, new information obtained, tips, and complaints.
1. Matters of importance to retail investors, including seniors and those saving for retirement
- The costs of investing
- Conflicts of interests
- Fees charged to investors
- Electronic investment advice programs and systems
- Wrap-fee programs
- Never-before-examined investment advisers
- Senior investors and retirement accounts and products
- Mutual funds and exchange-traded funds (ETFs) with poor performance and liquidity
- Municipal advisers and underwriters
- Fixed-income order execution
- Cryptocurrency, initial coin offerings (ICOs), secondary market trading, and blockchain
2. Critical market infrastructure risk compliance
- Clearing agencies
- National securities exchanges
- Transfer agents
- Regulation of systems compliance and integrity (SCI) entities
3. Financial Industry Regulatory Authority (FINRA) and Municipal Securities Rulemaking Board (MSRB)
- Effectiveness of FINRA’s operations and regulatory programs and the quality of their exams
- Effectiveness of select MSRB operational and internal policies, procedures, and controls
4. Cybersecurity
- Identifying and managing cybersecurity risks
- Governance and risk assessment
- Access rights and controls
- Data loss prevention
- Vendor management
- Training
- Incident response
5. Anti-money laundering programs
- Identifying customers
- Performing customer due diligence
- Monitoring accounts with suspicious activities
- Filing suspicious activity reports (SARs)
The SEC’s National Exam Program (NEP) fosters compliance and helps fulfill the agency’s mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. To accomplish its mission objectives, the SEC uses its examination program and publishes risk alerts, holds outreach events, and speaks to investors and market participants. Determining the priorities is a collaborative effort that includes discussions with OCIE examiners, financial professionals, market participants, compliance professionals, accountants, attorneys, the SEC chair and commissioners, staff from other SEC divisions, the SEC’s investor advocates, and fellow regulators. The discussions consider new products, recent trends, compliance challenges, and high-risk areas.