The SEC’s 2019 Examination Priorities preview the areas – practices, products, and services – that it believes present potentially heightened risk to investors or to the integrity of the U.S. capital markets. The priorities will drive many of the OCIE’s upcoming examinations; the SEC adds that the scope of individual examinations as well as the selection of registered entities for examination will generally be determined through a risk-based approach. Highlights of the individual priority areas follow.
Critical market infrastructure. Examinations of firms that provide services critical to the functioning of capital markets will focus on:
Cybersecurity. Examinations in all of the SEC’s programs will prioritize cybersecurity and emphasize storage, information security governance, and the security of retail trading information. Examinations of investment advisers, in particular, will focus on investment advisers with multiple branch offices as well as governance and risk assessment, access rights and controls, data loss prevention, vendor management, training, and incident response
Digital Assets. Market participants in digital assets include broker-dealers, trading platforms, and investment advisers. Where the products are securities, the OCIE states it will examine for regulatory compliance. “Through high level inquiries, OCIE will take steps to identify market participants offering, selling, trading, and managing these products or considering or actively seeking to offer these products and then assess the extent of their activities.” For firms activity engaged in the digital assets market, the OCIE will conduct examinations focused on portfolio management, trading, safety of clients’ funds and assets, pricing of client portfolios, compliance, and internal controls.
Anti-money laundering. The OCIE will continue to prioritize examining broker-dealers for compliance with their anti-money laundering (AML) obligations, including implementing policies and procedures to reasonably identify suspicious activity and illegal money laundering activities, meeting Suspicious Activity Report filing obligations, implementing all elements of their AML program, and “robustly and timely conducting independent tests of their AML program.”
Retail investors. Examinations will focus on matters of importance related to retail investors, including:
The SEC identified select areas and programs of FINRA and the MSRB (Municipal Securities Rulemaking Board) as a sixth examination priority. Such examinations will be focused on:
The SEC’s 2019 Examination Priorities are consistent with its previously released Four-Year Strategic Plan (see KPMG’s Regulatory Alert), which describes using examination resources to bolster regulatory requirements and protect investors as a “core principle”.