U.S. Securities and Exchange Commission – Examination Priorities 2015
In early January, the U.S. Securities and Exchange Commission (“SEC”) often documents the examination priorities of the Office of Compliance Inspections and Examinations (“OCIE”) for the upcoming year. Priorities reflect certain practices and products that the OCIE perceives to present potentially heightened risk to investors and/or the integrity of our capital markets. It conducts examinations of registered entities to promote compliance, prevent fraud, identify risk and inform policy.
Summary of Examination Priorities
- Examining matters of importance to retail investors and investors saving for retirement, including whether the information, advice, products and services being offered are consistent with applicable laws, rules and regulations;
- Assessing issues related to market-wide risks;
- Using its evolving ability to analyze data to identify and examine registrants that may be engaged in illegal activity, such as excessive trading and penny stock pump-and-dump schemes;
- Other initiatives.
“Alternative” Investment Companies
- The SEC will continue to assess funds offering alternative investments and using alternative investment strategies, with a particular focus on: (i) leverage, liquidity and valuation policies and practices; (ii) factors relevant to the adequacy of the funds’ internal controls, including staffing, funding and empowerment of boards, compliance personnel and back-offices; and (iii) the manner in which such funds are marketed to investors.
- The SEC launched an initiative in 2014 to examine broker-dealers’ and investment advisers’ cybersecurity compliance and controls. In 2015, the SEC will continue these efforts and will expand them to include transfer agents.
Using Data Analytics to Identify Signals of Potentially Illegal Activity
- OCIE has made significant enhancements in data analytics that enable the SEC to efficiently and effectively analyze the data to which it has access. It will use these capabilities to focus on registrants and firms that appear to be potentially engaged in fraudulent and/or potentially illegal activity.
Protecting Retail Investors and Investors Saving for Retirement
- Registrants are developing and offering to retail investors a variety of new products and services that were formerly characterized as alternative or institutional, including private funds, illiquid investments and structured products intended to generate higher yields in a low-interest rate environment.
- Fees and expenses in private equity: Given the high rate of deficiencies that the SEC has observed among advisers to private equity funds in connection with fees and expenses, it will continue to conduct examinations in this area.
The complete description of OCIE priorities can be found at: http://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2015.pdf. The description of priorities is not exhaustive and the staff will also conduct examinations focused on risks, issues and policy matters that arise from market developments, new information learned from examinations or other sources, including tips, complaints and referrals, and coordination with other regulators.
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