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Retirement Planning > Retirement Investing

SEC’s Top Exam Priorities for 2015: Retirement Savers, Branch Offices

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The Securities and Exchange Commission said Tuesday that this year’s exam priorities include protecting those saving for retirement, focusing on registered entities’ branch offices and expanding the agency’s review of never-examined firms to encompass registered investment companies.

The agency’s exam priorities list, released Tuesday, says its “various examination initiatives” affect investment advisors, broker-dealers and transfer agents and are broken down into three areas: protecting retail investors and those saving for retirement; addressing marketwide risks like cybersecurity; and using data analytics to identify illegal activity.

The exam priorities list, which the agency has shared publicly since 2013, is shorter than in past years and strays from its typical list format.  

While focusing on threats posed to retail investors and their retirement planning is “nothing new” for the agency, the fact that SEC exam chief Andrew Bowden is “leading with it” means the agency “will dive into it a bit more,” says Sanjay Lamba, assistant general counsel at the Investment Adviser Association.

Frontline Compliance Services notes that because retail retirement accounts will be “priority No. 1” for the agency, SEC exams of advisors and brokers likely will “focus heavily on retirement assets, especially rollovers of plan assets.”

The SEC also says that it will focus on fees charged by dually registered advisors, including wrap fees. “Where an advisor offers a variety of fee arrangements, we will focus on recommendations of account types and whether they are in the best interest of the client at the inception of the arrangement and thereafter, including fees charged, services provided, and disclosures made about such relationships,” the SEC explained.

A new focus this year, according to Bowden, will be on registered entities’ supervision of registered reps and financial advisor reps in branch offices. Its exams will use data analytics to identify branches that may be “deviating from compliance practices of the firm’s home office.”

Bowden said on a Tuesday afternoon call with reporters that these branch office reviews will focus on “registrants’ supervision of reps located outside the home office.” The agency will use “data analytics to identify issues in this regard.”

In addition, the agency will continue to examine fixed-income investment companies, “assessing the preparedness of fixed-income funds to address risk associated with the expected raise, at some point, in interest rates,” Bowden said.

As to marketwide risk, Bowden said that OCIE will “assess structural risk and trends that may involve multiple firms or entire industries.”

Under this theme, he said, “we will continue to monitor large firms, including broker-dealers and investment advisors, in collaboration” with the agency’s Divisions of Trading and Markets and Investment Management.

Also, OCIE will continue its efforts in cybersecurity, examining the “controls put in place” by broker-dealers, investment advisors and transfer agents to mitigate risks.

The SEC, Bowden said on the call with reporters, will “expand our review of firms that have never been examined to focus on registered investment companies that have been registered with the SEC but not yet examined.”

Included among the SEC’s current exam initiatives are: “presence exams” of newly registered private fund advisors, which started in late 2012 and is near completion; exams of never-been-examined investment advisors, which is “well underway,” according to Bowden; and exams of never-been-examined investment companies (or “fund complexes”), as set out in the 2015 priorities list.

The “presence exam” initiative, which involves exams that are more limited in scope than a traditional exam, “wasn’t intended to be the beginning and the end of the private fund advisor initiative,” he explained. Plus, the SEC “envisioned that we would continue to do exams in that [private fund] advisor area, it would just be informed by what we learned in the presence exams. We always figured we’d be back out there.”

At a recent hedge fund compliance conference, Bowden shared that the OCIE will conduct “a similar” presence examine initiative for never-examined advisors in 2015.

“We will use the presence exam process to examine non-private fund advisors that have been registered for more than three years but not yet examined,” he told ThinkAdvisor through an SEC spokesperson after his comments at the Practising Law Institute’s hedge fund compliance conference on Jan. 7.

— Check out FINRA’s Top Exam Priorities for 2015 on ThinkAdvisor.


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