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SEC Exam Priorities 2017

SEC Exam Priorities 2017

This January, as with every January, the SEC’s Office of Compliance Inspections and Examinations (OCIE) published its examination priorities for investment advisors for the year, many of which had been on the SEC’s radar for years and should not come as a surprise. They include:

  • Retail Investors. Protection of retail investors is a priority for 2017. The review will include firms delivering investment advice through electronic mechanisms ("robo-advising"), as well as wrap fee programs.
  • Senior Investors and Retirement Investments. There will be continued focus on public pension advisors and expanded focus on the protection of senior investors and individuals investing for retirement. The ReTIRE initiative will be expanded to include reviews of advisors offering variable insurance products and target-date funds to investors with retirement accounts. I have written before about the widespread exploitation of seniors, so the continued focus is much needed.
  • Cybersecurity. Particular focus will be placed on appropriate compliance policies and procedures, including the testing of such procedures and controls. This is part of OCIE’s effort to examine structural risks to the U.S. economy (the SEC issued guidance regarding the components of a cybersecurity policy which I found really helpful).
  • Market-Wide Risk. Particular focus will be placed on compliance with Regulation SCI and anti-money laundering rules. New initiatives include an evaluation of the compliance by money market funds with the SEC’s amended rules.
  • Private Fund Advisers. Focus will be on conflicts of interest and disclosure of conflicts and actions that appear to benefit the adviser at the expense of investors.
  • Newly Registered Advisors. The SEC launched an initiative to conduct focused, risk-based examinations of newly registered and never-before-examined advisers.
  • Advisors With Multiple Locations. There will be a particular focus on the design and implementation of the compliance program and the oversight of advisors with multiple locations to examine proper supervision.

This list is, of course, not exhaustive. The SEC conducts examinations focused on risks, issues and policy matters that arise from market developments; new information learned from examinations or other sources, including complaints and referrals; and coordination with other regulators, as well as regulatory developments. I note in this context that, with the recent changes regarding additional disclosure of social media activities of advisors in their ADV, advisors should pay close attention to the contents of all their sites and ensure that they are in compliance. The annual amendment filing is due at the end of the month—it would be good practice to review your compliance practices and procedures in the second quarter to true them up to your ever-evolving business with the above priorities in mind.

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