SEC Releases Top Six Exam Priorities for 2019

On December 20, 2018, the staff of the Office of Compliance Inspections and Examinations (OCIE) of the SEC announced its 2019 examination priorities. According to the report, the agency oversees more than 13,200 registered investment advisers, approximately 10,000 mutual funds and exchange traded funds, roughly 3,800 broker-dealers, 7 active clearing agencies, 21 national securities exchanges, nearly 600 municipal advisors, FINRA and the MSRB.

The OCIE completed over 3,150 examinations in Fiscal Year (FY) 2018, which is a 10 percent increase over FY 2017. Coverage of investment advisers increased to approximately 17 percent of SEC-registered investment advisers, up from approximately 15 percent in 2017. The OCIE completed over 300 examinations of broker-dealers and actively oversaw FINRA and other regulated entities.

The OCIE broke its priorities into six categories, each of which is summarized below.

Compliance and Risks in Critical Market Infrastructure

The OCIE will continue to examine entities that provide services critical to the proper functioning of capital markets. The OCIE will conduct examinations of these firms which include, among others, clearing agencies, national securities exchanges, and transfer agents, focusing on certain aspects of their operations and compliance with recently effective rules.

Retail Investors, Including Seniors and Those Saving for Retirement

Stopping the abuse of retail investors, including seniors, continues to be a top SEC priority in 2019. The OCIE will focus examinations on the disclosure and calculation of fees, expenses, and other charges investors pay, the supervision of representatives selling products and services to investors, broker-dealers entrusted with customer assets, and portfolio management and trading.

FINRA and MSRB

The OCIE will continue its oversight of FINRA by focusing examinations on FINRA’s operations and regulatory programs and the quality of FINRA’s examinations of broker-dealers and municipal advisors. The OCIE will also examine MSRB to evaluate the effectiveness of select operations and internal policies, procedures, and controls.

Digital Assets

Given the significant growth and risks presented in this market, the OCIE will continue to monitor the offer and sale, trading, and management of digital assets, and where the products are securities, examine for regulatory compliance. For firms actively engaged in the digital asset market, the OCIE will conduct examinations focused on, among other things, portfolio management of digital assets, trading, safety of client funds and assets, pricing of client portfolios, compliance, and internal controls.

Cybersecurity

Each of the OCIE’s examination programs will prioritize cybersecurity with an emphasis on, among other things, proper configuration of network storage devices, information security governance, and policies and procedures related to retail trading information security.

Anti-Money Laundering Program

Examiners will review for compliance with applicable anti-money laundering requirements, including whether firms are appropriately adapting their AML programs to address their regulatory obligations.


Below is a graph that identifies the SEC’s examination priorities for the past three years.

Exam Priority

2017

2018

2019

Anti-Money Laundering (“AML”)  Χ X X
Clearing Agencies  Χ X X
Cryptocurrency, Initial Coin Offerings, Secondary market trading and Blockchain X X
Cybersecurity  Χ X X
Disclosure of the Costs of Investing X X
Electronic Investment Advice  Χ X
Exchange-Traded Funds (ETFs)  Χ X X
FINRA  Χ X X
Fixed Income Order Execution X
Microcap Fraud X
Money Market Funds  Χ X
MSRB X X
Mutual Funds X X
Multi-Branch Advisers  Χ
Municipal Advisor/Underwriters  Χ X
National Securities Exchanges  Χ X X
Never Before Examined Investment Advisors  Χ X X
Payment for Order Flow  Χ
Private Fund Advisers  Χ
Public Pension Advisers  Χ
Recidivist Representatives and their Employers  Χ
Regulation Systems Compliance and Integrity (“SCI”)  Χ X X
Retail Investors  Χ X
ReTIRE  Χ
Senior Investors  Χ X X
Share Class Selection  Χ X
Transfer Agents  Χ X X
Wrap Fee Programs  Χ X X
Broker-Dealers Entrusted with Customer Assets X