Recently, the SEC announced its examination priorities for 2016.  Like last year, the SEC organized its priorities into three "thematic areas":

  • Retail investors;
  • Market-wide risks; and
  • The use of analytics.

Although it's always an endeavor filled with generalities and "more of the same," there are a few interesting highlights from this year's announcement. 

Regarding retail investors, the SEC has again stated its intention to focus on the protection of retail investors and specifically "retirement savers."  The SEC stated that it will continue its ReTIRE program, a multi-year examination initiative focusing on SEC-registered IAs and broker-dealers and the services they offer to investors with retirement accounts.  The ReTIRE program includes examining the reasonable basis for recommendations made to investors, conflicts of interest, supervision and compliance controls and marketing and disclosure practices. 

Regarding market-wide risks, the SEC stated it will make cybersecurity and firms' compliance and controls a focal point, including testing and "assessments of firms' implementation of procedures and controls."  Predictably, the SEC did not give any more specific information regarding its cybersecurity expectations.

Finally, regarding its ever-growing use of analytics, the SEC outlined several initiatives that it plans to utilize in 2016 in an attempt to identify "registrants that appear to have elevated risk profiles."  In particular, the SEC stated that it will use analytics to focus on broker-dealer AML programs, including specifically using the SEC's analytic capabilities to focus on firms that have not filed the number of SARs that would be consistent with their business models or have filed incomplete or late SARs.  The SEC also stated that it will continue to access broker-dealer AML programs, with a particular emphasis on:

  • The adequacy of the independent testing obligation -- to ensure that these programs are robust and are targeted to each firm's specific business model, and
  • The extent to which firms consider and adapt, as appropriate, their programs to current money laundering and terrorist financing risks.

As mentioned, these so-called "priorities" often don't tell us much more than we already know.  Nevertheless, there is some insight to be gleaned.  First, its clear cybersecurity will again be a "hot" issue for the SEC; it's also equally clear that the SEC is unlikely to clarify or specify further its expectations of firms on this issue either, so firms will remain essentially "in the dark" on this issue through 2016. 

Further, the SEC's use of analytics as a means to streamline its oversight is also not going way, and is only likely to increase in 2016 and beyond.  Finally, it's clear that given the rough start to 2016 for the global financial markets, and the SEC's decision to lead with retail investors and specifically "retirement savers" as the first priority listed, that the SEC is preparing to get a jump on any regulation that spins out of a tumultuous market in 2016. 

To view the SEC's official press release, click here.

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