Get Ready! On January 12, 2017, the Securities and Exchange Commission released its Office of Compliance Inspections and Examinations’ (OCIE) 2017 priorities which include an increased focus on electronic investment advice, money market funds, financial exploitation of senior investors and protecting retail investors. As usual, the extensive details as to WHAT ADVISORS HAVE TO DO IS MISSING.
SEC Chair Mary Jo White said, “These priorities make clear we are continuing to focus on a wide range of issues impacting our markets, from traditional areas such as market-wide risks to new forms of technology including automated investment advice. Whether it is protecting our most vulnerable senior investors or those investing in the trillion dollar money market fund industry, OCIE continues its efficient and effective risk-based approach to ensure compliance with our nation’s securities laws.”
OCIE Director Mark Wyatt’s said, “OCIE’s priorities identify where we see risk to investors so that registrants can evaluate their own compliance programs in these important areas and make necessary changes and enhancements,”
So, in the Advisor world, there is little to no guidance as to HOW to comply, just a demand that “You better figure out what to do to comply.”
Retail Investors – Protecting retail investors remains a priority in 2017. As in 2016, OCIE will continue to attempt to assess risks to retail investors seeking information, advice, products, and services. It also will initiate examinations to review firms delivering investment advice through roboadvisors and wrap fee programs in which investors are charged a single bundled fee for advisory and brokerage services.
Senior Investors and Retirement Investments – OCIE will also keep a sharp eye on public pension advisers and the retirement market, especially senior investors and individuals with retirement accounts (should be everybody, but no word on those with IRAs, particularly). OCIE has a “ReTire” initiative which includes reviews of investment advisers and broker-dealers that offer variable insurance products to investors with retirement accounts as well as those advisers that offer and manage target-date funds. There is no word as to whether Bridgestone is going to sponsor the ReTire program. OCIE also will look closely at advisor communication with senior investors, as they examine the possibility of the financial exploitation of seniors.
Market-Wide Risks – Systems, Compliance Integrity (SCI) and anti money laundering, including compliance with the SEC’s new money market funds rules.
FINRA – OCIE will continue conducting inspections of FINRA’s operations and regulatory programs, evaluating the examinations of individual broker-dealers.
Cybersecurity – OCIE ramps up the examination of cybersecurity compliance procedures and controls, including testing the implementation of those procedures and controls at broker-dealers and investment advisers. This has significance because it is no longer enough to have policies, Advisors will have to have control operationally in place.
OCIE states that the published priorities for 2017 are not exhaustive and may be adjusted in light of market conditions, industry developments, and ongoing risk assessment activities.
Large firms such as the warehouses have the resources and capital, including human capital to have programs and procedures to be well prepared for an exam push. However, smaller firms, and especially those independents, are really going to have to look for help.
Not to make this into a commercial, but we are in the business of providing guidance on these matters at Somebody Else’s Money.
Regards, John
SEC Announces 2017 Examination Priorities
New Areas of Focus Include Electronic Investment Advice, Money Market Funds, and Senior Investors
FOR IMMEDIATE RELEASE
2017-7
Washington D.C., Jan. 12, 2017 — The Securities and Exchange Commission today announced its Office of Compliance Inspections and Examinations’ (OCIE) 2017 priorities. Areas of focus include electronic investment advice, money market funds, and financial exploitation of senior investors. The priorities also reflect a continuing focus on protecting retail investors, including individuals investing for their retirement, and assessing market-wide risks.
“These priorities make clear we are continuing to focus on a wide range of issues impacting our markets, from traditional areas such as market-wide risks to new forms of technology including automated investment advice,” said SEC Chair Mary Jo White. “Whether it is protecting our most vulnerable senior investors or those investing in the trillion dollar money market fund industry, OCIE continues its efficient and effective risk-based approach to ensure compliance with our nation’s securities laws.”
“OCIE’s priorities identify where we see risk to investors so that registrants can evaluate their own compliance programs in these important areas and make necessary changes and enhancements,” said OCIE Director Marc Wyatt.
The 2017 examination priorities address issues across a variety of financial institutions, including investment advisers, investment companies, broker-dealers, transfer agents, clearing agencies, private fund advisers, national securities exchanges, and municipal advisors. Areas of examination focus include:
Retail Investors – Protecting retail investors remains a priority in 2017. OCIE will continue several 2016 initiatives to assess risks to retail investors seeking information, advice, products, and services. It also will undertake examinations to review firms delivering investment advice through electronic mechanisms, sometimes referred to as “robo-advising,” as well as wrap fee programs in which investors are charged a single bundled fee for advisory and brokerage services. Senior Investors and Retirement Investments – OCIE also is continuing its focus on public pension advisers and expanding its focus on senior investors and individuals investing for retirement. OCIE is broadening its ReTIRE initiative to include reviews of investment advisers and broker-dealers that offer variable insurance products to investors with retirement accounts as well as those advisers that offer and manage target-date funds. OCIE also will focus more specifically on registrants’ interactions with senior investors, including with respect to identifying financial exploitation.
Market-Wide Risks – To help fulfill the SEC’s mission of maintaining fair, orderly, and efficient markets, OCIE will continue its focus on registrants’ compliance with the SEC’s Regulation SCI and anti-money laundering rules. New initiatives for 2017 include an evaluation of money market funds’ compliance with the SEC’s amended rules, which became effective in October 2016.
FINRA – Consistent with OCIE’s goal of enhancing oversight of FINRA to protect investors and the integrity of our markets, it will continue conducting inspections of FINRA’s operations and regulatory programs, and focus resources on assessing the examinations of individual broker-dealers.
Cybersecurity – OCIE will continue its ongoing initiative to examine for cybersecurity compliance procedures and controls, including testing the implementation of those procedures and controls at broker-dealers and investment advisers.
The published priorities for 2017 are not exhaustive and may be adjusted in light of market conditions, industry developments, and ongoing risk assessment activities. OCIE selected the priorities in consultation with the Commission, the SEC’s policy divisions and regional offices, the Division of Enforcement, the SEC’s Investor Advocate, and other regulators.