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Attention financial industry: SEC reveals 2016 compliance exam targets

Here are the areas that the SEC will be focusing on this year

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The Securities and Exchange Commission revealed Monday what areas of the financial industry its compliance examiners will be focusing on in 2016.

The SEC said that there are several new areas of focus for its compliance exams this year.

According to the SEC’s Office of Compliance Inspections and Examinations, the SEC will be begin focusing on liquidity controls, public pension advisers, product promotion, and exchange-traded funds and variable annuities, in addition to its normal areas of focus.

The Office of Compliance Inspections and Examinations also said that its 2016 list of examination priorities include a “continuing focus on protecting investors in ongoing risk areas such as cyber-security, microcap fraud, fee selection, and reverse churning.”

According to SEC Chair Mary Jo White, the new areas of focus are “extremely important” for investors and financial institutions as well.

“Through information sharing and conducting comprehensive examinations, OCIE continues to promote compliance with the federal securities laws to better protect investors and our markets,” White said.

OCIE Director Marc Wyatt said Monday’s announcement is the latest in an effort to provide the financial industry with more information.

“For the last four years, OCIE’s transparency and information sharing has helped inform the industry,” Wyatt said.  “We hope that registrants will use this information to inform the evaluation of their own compliance programs in these key areas.”

The SEC said that its 2016 examination priorities will focus on issues across a variety of financial institutions, including investment advisers, investment companies, broker-dealers, transfer agents, clearing agencies, and national securities exchanges.

According to the SEC, new areas of examination this year include:

Retail Investors – Protecting retail investors, including those investing for retirement, remains a priority in 2016, the SEC said. The OCIE will continue several 2015 initiatives to assess risks to retail investors seeking information, advice, products, and services to help them plan for and live in retirement. It also will undertake examinations to review exchange-traded funds (ETFs) and ETF trading practices, variable annuity recommendations and disclosure, and potential conflicts and risks involving advisers to public pension funds.  

Market-Wide Risks – To help fulfill the SEC’s mission of maintaining fair, orderly, and efficient markets, OCIE will continue its focus on cyber-security controls at broker-dealers and investment advisers, the SEC said. New initiatives for 2016 include an evaluation of broker-dealers’ and investment advisers’ liquidity risk management practices, and firms’ compliance with the SEC’s Regulation SCI, designed to strengthen the technology infrastructure of the U.S. securities markets.

Data Analytics – OCIE’s enhanced ability to analyze large amounts of data will assist examiners’ ongoing initiatives to assess anti-money laundering compliance, detect microcap fraud, and review for excessive trading, the SEC said. Data analytics also will help examinations focused on promotion of new, complex, and high-risk products.

The SEC said that this list of exam priorities for 2016 is “not exhaustive” and could be adjusted “in light of market conditions, industry developments and ongoing risk assessment activities.”

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