Each year, the SEC’s Office of Compliance Inspections and Examinations (OCIE) publishes its priorities, and 2018 is no exception.

On February 7, 2018, the SEC’s Office of Compliance Inspections and Examinations (OCIE) published its 2018 examination priorities. When it announces these priorities, OCIE’s goal is to improve compliance, prevent fraud, monitor risk, and inform policy.

OCIE’s examination priorities are divided among five categories:

    • Compliance and risks in critical market infrastructure;
    • Matters that are important to retail investors, including seniors and those saving for retirement;
    • FINRA and Municipal Securities Rulemaking Board (MSRB);
    • Cybersecurity; and
    • Anti-money laundering programs.

Although these areas are critical, they are not exhaustive and priorities will change in response to emerging threats.

Matters of importance to our clients, include the protection of senior investors and individuals who are saving for retirement.

The protection of Main Street investors continues to be a high priority. Therefore, OCIE’s examinations of Registered Investment Advisers (RIAs) and broker-dealers will focus on issues such as:

    • Disclosure and calculation of fees, expenses, and other charges paid by investors;
    • Supervision of representatives who sell products and services to investors; and
    • Execution of customer orders in fixed income securities.

RIAs must disclose conflicts of interest that might incentivize financial professionals to recommend certain products or services, especially those that are more costly and riskier.

Examiners will scrutinize fees that are based on the value of the advisory account in order to evaluate whether those assets are valued in accordance with the RIA’s disclosures, investor contract, and the firm’s policies and procedures.

In addition, examiners will look at whether firms’ practices or business models increase the risk that an investor will pay fees, expenses, or other charges that were inadequately disclosed. Those practices or business models include situations where:

    • Advisory personnel receive financial incentives to recommend more expensive share classes;
    • Investment Adviser Representatives (“IARs”) have left the firm and a new IAR has not been assigned to oversee the account; and
    • The firm has changed the way fees are charged from a commission basis to an assets under management formula.

OCIE will continue to examine RIAs and broker-dealers that offer investment advice through automated or digital platforms, often referred to as robo-advisers. Examiners will focus on registrants’ compliance programs, including the oversight of algorithms that generate recommendations, as well as their marketing materials, investor data protection, and disclosure of conflicts of interest.

OCIE examiners will pay close attention to RIAs and broker-dealers associated with wrap fee programs. Examiners will review whether RIAs are fulfilling their fiduciary and contractual obligations to the client.

As part of its efforts to protect seniors, OCIE will continue to conduct examinations of RIAs and broker-dealers offering services and products to investors with retirement accounts. Examiners will review the firms’ internal controls pertaining to the sale of products and services aimed at senior investors.

When OCIE announced its 2018 priorities, the SEC reaffirmed its commitment to a risk-based examination program. OCIE observed that there are a large number of new RIAs and firms that have not been examined in a long time. OCIE’s release emphasized that it still uses risk-based assessments to select which RIAs to examine.


Other high priorities

OCIE will continue to oversee FINRA by focusing on its operations and regulatory programs, as well as its examinations of broker-dealers and municipal advisors. In addition, OCIE will examine MSRB to evaluate its effectiveness.

Not unexpectedly, cybersecurity is still a high priority. Examinations will continue to focus on governance and risk assessment, access rights and controls, data loss prevention, vendor management, and incident response.

OCIE’s efforts to curb money laundering remain a high priority. Broker-dealers and investment companies must establish AML programs. Examiners will analyze those AML programs to ascertain whether they are evaluating their customer relationships and addressing the risks arising from them. Firms must also file timely, complete and accurate Suspicious Activity Reports. Fortunately, AML Programs are not yet required for RIA only firms.

In addition to its other priorities, OCIE will be monitoring the growth of cryptocurrencies, as well as initial coin offerings, and determining if investors received adequate disclosures regarding the risks of those investments.

The press release and related materials can be found HERE


About RIA Compliance Group: RIA Compliance Group is an investment adviser compliance consulting firm based in Delray Beach, Florida. The firm’s mission is to provide affordable, timely, practical, and cost-effective compliance advice. We help investment advisers to comply with the myriad of state and SEC regulations and compliance obligations facing their firms. RIA Compliance Group takes pride in giving personal service and real world compliance advice, not theoretical concepts and legalese. The firm interacts on a daily basis with SEC and state securities regulators.

RIA Compliance Group, LLC – 701 SE 6th Ave, Suite 201, Delray Beach, FL 33483 – Tel: 561-600-0564 – sales@ria-compliance.com.