SEC Office of Compliance Inspections and Examinations 2020 Examination Priorities

On January 7, 2020, the SEC Office of Compliance Inspections and Examinations (“OCIE”) published its examination priorities for 2020. Examination priorities identify key areas of risk that OCIE expects self-regulatory organizations, firms, investment advisers, and other market participants to identify and take steps to mitigate. Examination priorities are adjusted annually to adapt to the constantly evolving market.

The 2020 Examination Priorities include:

• Retail Investors, Including Seniors and Those Saving for Retirement
  • OCIE will focus on the various intermediaries that interact with seniors, e.g., broker-dealers and RIAs, and investments that are marketed to seniors. Disclosure relating to fees, expenses, and potential conflicts of interest.
  • Efforts to achieve Reg BI compliance. Under Reg BI, which takes effect June 30, 2020, broker-dealers and their agents will be required to act in the best interest of the retail customer when making recommendations for a securities transaction or investment strategy. The standard draws from key fiduciary principles. To assist in preparation for compliance with these new rules, the SEC established an inter-Divisional Standards for Conduct Implementation Committee. Further, OCIE will engage with broker-dealers during examinations regarding their progress on implementing new rules and answer any questions. After June 30, 2020, OCIE will assess the implementation of the requirements of Reg BI for both broker-dealers and RIAs.
• Market Infrastructure
  • OCIE will examine services that are critical to the functioning of capital markets including, but not limited to, clearing agencies, national securities exchanges, alternative trading systems, and transfer agents.
• Information Security
  • The entire examination program will prioritize cyber and other informational security risks.
• Focus Areas Relating to Investment Advisers, Investment Companies, Broker-Dealers, and Municipal Advisors
  • Risk-based examinations for each of these types of registered entities will continue.
    • RIA examinations will focus on areas that have not been previously examined, including RIAs advising both retail investors and private funds.
    • Investment company examinations will concentrate on mutual and exchange-traded funds, RIA activity, and the oversight practices of management.
    • Broker-dealer examinations will center on issues regarding the preparation and implementation of recent rulemaking and general trade practices.
    • Municipal Advisor examinations will address registration and continuing education requirements and municipal advisor fiduciary obligations.
• Anti-Money Laundering Programs
  • AML programs will be under review to ensure that entities are properly adapting their programs as issues evolve.
• Financial Technology (“Fintech”) and Innovation, Including Digital Assets and Electronic Investment Advice
  • Advancements in Fintech warrant ongoing review. OCIE will identify and examine registered firms and RIAs engaged in the digital asset space.
• FINRA and MSRB
  • FINRA’s operations, regulatory programs, and the quality of FINRA’s examinations of broker-dealers and municipal advisors will be a priority for examiners.
  • The MSRB’s operations, internal policies, procedures, and controls will continue to be monitored for effectiveness.

For more information, the 2020 Examination Priorities can be found here.