On December 20, 2018, the SEC’s Office of Compliance Inspections and Exams (“OCIE”) announced its 2019 examination priorities. Key areas include cybersecurity, anti-money laundering (“AML”) programs, retail investors (particularly seniors), and entities providing critical market infrastructure services.
Cybersecurity endures as a focal point for the SEC from multiple perspectives. On December 6th, 2018, Chairman Jay Clayton noted in a statement that the SEC will “continue to prioritize cybersecurity in our examinations of market participants, including . . . investment advisers.” OCIE’s areas of emphasis include the configuration of network storage devices, information security governance, and robust policies, procedures, and controls.
Anti-Money Laundering Programs
OCIE will continue to evaluate investment professionals’ implementation and adaptation of AML programs. In echoing its 2018 priorities, OCIE will assess firms’ compliance with customer due diligence requirements, timely filing of reports, and how firms adapt and revise their AML programs.
Once again, OCIE’s examination priorities will emphasize the protection of “Main Street investors,” especially seniors and those saving for retirement. OCIE will review advisory firms’ interactions with these individuals, with particular attention to the following areas:
- the disclosure and calculation of investor fees, expenses, and other charges investors pay;
- supervision of representatives selling products and services to investors; and
- portfolio management and trading.
Risks in Critical Market Infrastructure
OCIE will continue to concentrate on entities that provide services affecting critical capital market infrastructure. This includes self-regulatory organizations, clearing agencies, national securities exchanges, and transfer agents. As an extension of this priority, OCIE will examine the operations, regulatory programs, and examination processes of FINRA and MSRB.
WHAT DOES THIS MEAN FOR ME?
OCIE has emphasized that its list of exam priorities is neither exhaustive nor binding: the scope of each of its exams is determined through a risk-based multifactor analysis of a registrant. Nevertheless, these priorities will be the primary drivers behind OCIE’s exams, and investment advisers are encouraged to self-assess these areas to determine whether their existent policies and procedures are sufficiently developed and updated.
In publishing its 2019 exam priorities, OCIE also took the opportunity to remind registrants and their services providers of the policies that underpin OCIE’s operations: “improve compliance, prevent fraud, monitor risk, and inform policy.”
Fairview is committed to helping its clients navigate the regulatory landscape as it continues to evolve. Please contact Fairview if you have any questions or concerns about how OCIE’s 2019 exam priorities may relate to you or your firm.