The SEC’s Examination Priorities for 2015
The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“OCIE”) announced the National Examination Program (“NEP”). Below are the top 6 things to take away from it. The SEC says they’re concerned with:
1) Cybersecurity – Last year, the SEC launched an initiative to examine broker-dealers and registered investment advisers (“RIAs”) cybersecurity controls and procedures. This refers to the sanctity of client related information and procedures for electronic requests to wire account proceeds to unknown entities, etc. The SEC is continuing those efforts and expanding them this year to transfer agents.
2) Fee Selection By Dual Registered Individuals – Individuals that are licensed as registered representatives and investment adviser representatives (“IARs”) and firms that are both broker-dealers and registered investment advisers (“RIAs”) may be in a position to steer clients into accounts or relationships that may primarily benefit the registrants and not necessarily the customers. For example, a customer who seldom trades might be worse off with a wrap account. The SEC will examine if the client’s interests are being put first.
3) Retail Investors and Those Saving for Retirement – Products that are alternative or institutional only are now being offered to retail investors. SEC exams will focus on broker-dealers and investment adviser handling of retirement assets, especially IRA rollovers. This was on the SEC’s 2014 Exam Priorities List as well. The SEC seems cognizant of certain studies that show the prevalence of rollovers from old 401(k) plans and that registered representatives and investment adviser representatives might not fully explain clients’ options.
4) Branch Offices – The SEC is focusing on the supervision of registered representatives and IARs by data mining and other means to ensure that they are abiding by the same compliance practices that the home offices of such firms are.
5) Anti-Money Laundering (“AML”) – The SEC will continue to review broker-dealers – both introducing and clearing – AML programs. Particularly, the SEC is looking at forms that have never filed a suspicious activity report (“SAR”) or firms that filed them late or filed incomplete SARs.
6) Market-Wide Risks – The SEC is looking at trends and structural risk factors that involve entire industries or multiple firms. Among these are the examination of brokers’ compliance with “best execution” responsibilities in payment for order flow situations.