The Securities and Exchange Commission’s exam division released Wednesday its 2018 priorities list.
The Office of Compliance Inspections and Examinations said that examiners “will continue to prioritize our commitment to protect retail investors, including seniors and those saving for retirement,” focusing a close eye on products and services offered to retail investors, and the disclosures investors receive about those investments.
OCIE plans to conduct exams targeting “circumstances in which retail investors may have been harmed and reviewing whether financial service professionals have met their legal obligations,” the team, led by OCIE Director Pete Driscoll, said.
The securities regulator’s exam team will also zero in on digital advice and wrap-fee programs, mutual funds and ETFs, cryptocurrencies as well as never-before examined advisors.
“As the markets continually evolve and the products and services available to investors adapt, OCIE remains committed in its risk-based examination program to prioritizing the interests of retail investors and examining those aspects of securities firms posing risks to investors and the proper functioning of our capital markets,” said Driscoll in a statement announcing the priorities.
OCIE noted that the 2018 list is “not exhaustive,” and that “additional priorities may be added in light of market conditions or as OCIE identifies emerging risks and trends.”
While the annual exam priorities starts with feedback from exam staff, OCIE also seek advice of the SEC chairman and commissioners, staff from other SEC divisions and offices, the SEC’s investor advocate, and the SEC’s fellow regulators.
Read on to see how the agency’s examiners will zoom in on the following key areas:
OCIE will continue to conduct exams of investment advisors and broker-dealers that offer services and products to investors with retirement accounts, with exams drilling down on, among other things, investment recommendations, sales of variable insurance products, and sales and management of target date funds. OCIE will also examine investment advisor and broker-dealer facilitation and involvement in retirement vehicles that primarily serve state and local government employees and non-profit employees, including 403(b) and 457 plans.
FINRA and MSRB Oversight
OCIE’s exams will focus on the Financial Industry Regulatory Authority’s operations and regulatory programs and the quality of FINRA’s exams of broker-dealers and municipal advisors that are also registered as broker-dealers.
Given the responsibility of the MSRB to regulate municipal securities firms, exam staff will examine the Municipal Securities Rulemaking Board to evaluate the effectiveness of select operational and internal policies, procedures, and controls.
OCIE is focused on working with firms to identify and manage cybersecurity risks and to encourage market participants to actively and effectively engage in this effort. Examiners will continue to prioritize cybersecurity in each of their exam programs. Exams have and will continue to focus on, among other things, governance and risk assessment, access rights and controls, data loss prevention, vendor management, training and incident response.
OCIE will continue to monitor the sale of these products, and where the products are securities, examine for regulatory compliance. Areas of focus will include: whether financial professionals maintain adequate controls and safeguards to protect these assets from theft or misappropriation, and whether financial professionals are providing investors with disclosure about the risks associated with these investments, including the risk of investment losses, liquidity risks, price volatility and potential fraud.
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