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From Securities Regulation Daily, January 11, 2016

SEC’s 2016 examination priorities include new and ongoing focus areas

By Amanda Maine, J.D.

The SEC has issued a document outlining its priorities for examinations carried out in the upcoming year for its Office of Compliance Inspections and Examinations. OCIE’s priorities in 2016 include three thematic areas from its 2015 examinations—retail investors, market-wide risks, and data analytics—as well as several new areas of focus, including liquidity controls, public pension advisers, product promotion, exchange-traded funds (ETFs), and variable annuities.

Retail investors. As part of its priority to protect retail investors and retirement savers, OCIE will continue its ReTIRE initiative that focuses on SEC-registered advisers and brokers that provide investment services to those with retirement accounts. A new focus on ETFs will examine compliance with exemptive relief and ETF sales strategies and disclosures. OCIE will also continue to examine adviser account recommendations and fee arrangements for retail investors. Advisers to municipalities and other government entities are also the subject of greater scrutiny in 2016.

Market-wide risks. OCIE intends to do its part in carrying out the SEC’s mission to maintain fair, orderly, and efficient markets. In furtherance of this mission, in 2016 OCIE will continue its efforts to examine the cybersecurity compliance and controls for investment advisers and broker dealers. The staff will also scrutinize entities subject to Regulation SCI, which was adopted to strengthen the technology infrastructure of the U.S. securities markets. In addition, OCIE will continue to conduct examinations of systemically important clearing agencies.

Data analytics. In carrying out the risk-based approach of its examination program, OCIE will continue to utilize data and intelligence from its examinations and from regulatory filings to identify registrants with elevated risk profiles. These include recidivist representatives and the firms that employ them and broker-dealers that have not filed suspicious activity reports as part of their anti-money laundering programs. The staff will also examine data for activities that might indicate pump-and-dump schemes or market manipulation, as well as excessive trading and promotion of complex and high-risk products to potentially unsuitable clients.

Other priorities. OCIE also advised that it will continue to examine and conduct outreach to newly-registered municipal advisors. The staff will also continue to focus examinations on entities that have not yet been examined, on private fund advisers and the fees they charge, and on record keeping and the safekeeping of funds by transfer agents.

Office of Market Oversight. OCIE’s Office of Market Oversight, which conducts examinations of national securities exchanges and other SROs, also announced its examination priorities for 2016. These include undertakings imposed by SEC orders, regulatory practices (such as outsourcing of regulatory functions and internal control policies), compliance with listing requirements, and Regulation SCI compliance in coordination with OCIE.

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