On October 26, 2017, the SEC announced that it had launched an initiative to protect retail investors and to fight cyber attacks. Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, discussed two of its more critical priorities in a speech, which can be found HERE.The initiative demonstrates that the SEC remains committed to protecting retail investors who are viewed as the most vulnerable. It also shows that the SEC is working diligently to mitigate the risks from cyber attacks. The SEC has created the Retail Strategy Task Force and the Cyber Unit to address these critical priorities.
The Retail Strategy Task Force will help identify misconduct
Retail investors intersect with the securities markets in a number of ways. The Retail Strategy Task Force will identify strategies to uncover and deal with widespread misconduct. For example, data analytics can be used to identify misconduct that targets a broad spectrum of retail investors. Although the Task Force will rely to a large degree on data analytics and technology, it will work closely with the Office of Compliance Inspections and Examinations and other groups.
Technology can be used to slice and dice data. Analytics are then utilized to look for all types of misconduct and suspicious activity, such as inadequately disclosed fees, recommendations of unsuitable products and strategies, and wrap fee account abuses. The Task Force also expects to identify investment professionals who push customers to invest in mutual fund share classes that charge a higher fee.
SEC’s Cyber Unit will focus on cybersecurity
The SEC’s newly-created Cyber Unit will deal with misconduct impacting the securities markets. According to Avakian, it will focus on cyber-related misconduct, which attempts to gain an unlawful market advantage. Cyber criminals might engage in hacking to access material, nonpublic information or to disseminate false information through electronic publishing.
The Cyber Unit will also scrutinize failures by registered entities to safeguard information or to ensure system integrity. The Cyber Unit will be on the lookout for firms that fail to comply with Regulations S-P, S-ID, SCI, and others. In addition, the Cyber Unit will identify situations where publicly-traded companies have failed to disclose cyber risks and incidents in a timely manner.
SEC’s other priorities won’t be neglected
Avakian’s speech outlines how the SEC will be allocating resources to further address these two critical priorities. Although the SEC will be allocating more resources to protecting retail investors and cybersecurity, the SEC will continue its efforts to fight other types of financial fraud and to police Wall Street.
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.