On January 11, the Office of Compliance Inspections and Examinations (OCIE) of the SEC announced its 2016 Examination Priorities (“Priorities”). To promote compliance, prevent fraud and identify market risk, OCIE examines investment advisers, investment companies, broker-dealers, municipal advisors, transfer agents, clearing agencies, and other regulated entities. In 2016, OCIE will continue to rely on the SEC’s sophisticated data analytics tools to identify potential illegal activity.
This year, private fund advisers should pay attention to the following OCIE Priorities:
- Side-by-side management of performance-based and asset-based fee accounts: controls and disclosure related to fees and expenses
- Cybersecurity: testing and assessments of firms’ implementation of procedures and controls
- High frequency trading: excessive or inappropriate trading
- Liquidity controls: potentially illiquid fixed income securities – focus on controls over market risk management, valuation, liquidity management, trading activities
- Marketing / Advertisements: new, complex, and high risk products, including potential breaches of fiduciary obligations
- Compliance controls: focus on repeat offenders and those with disciplined employees
Highlights for other market participants:
- Never-Before-Examined Investment Advisers and Investment Companies: focused, risk-based examinations will continue
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Broker-Dealers
:
- Marketing / Advertisements: new, complex, and high risk products and related sales practices, including potential suitability issues
- Fee selection / Reverse Churning: multiple fee arrangements – recommendations of account types, including suitability, fees charged, services provided, and disclosures
- Market Manipulation: pump and dump; OTC quotes; excessive trading
- Cybersecurity: testing and assessments of firms’ implementation of procedures and controls
- Anti-Money Laundering: missed SARs filings; adequacy of independent testing; terrorist financing risks
- Registered representatives in branch offices – focus on inappropriate trading
- Retirement Accounts: suitability, conflicts of interest, supervision and compliance controls, and marketing and disclosure practices
- Public Pension Advisers: pay to play, gifts and entertainment
- Mutual Funds and ETFs: liquidity controls – potentially illiquid fixed income securities
- Immigrant Investor Program: Regulation D and other private placement compliance
For additional details, visit the SEC’s Examination Priorities for 2016. Please call an Investment Funds and Investment Management Attorney to discuss your firm’s risk areas.