SEC s Office of Compliance Inspections and Examinations: Examination Priorities for 2015

Transcription

1 SEC s Office of Compliance Inspections and Examinations: Examination Priorities for 2015

2 Office of Compliance Inspections and Examinations ( OCIE ) The OCIE serves as the eyes and ears of the SEC. Conducts examinations of registered entities to promote compliance, prevent fraud, identify risk, and inform policy. The 2015 Examination 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.

3 2015 Examination Focus Examining matters of importance to retail investors and investors saving for retirement, including whether the information, advice, products, and services being offered is consistent with applicable laws, rules, and regulations Assessing issues related to market-wide risks Analyzing data to identify and examine registrants that may be engaged in illegal activity, such as excessive trading and penny stock pump-and-dump schemes

4 Protecting Retail Investors and Investors Saving for Retirement

5 Protecting Retail Investors and Investors Saving for Retirement As investors become more dependent than ever on their investments for retirement, the financial services industry is offering a variety of new products and services formerly characterized as alternative or institutional, including: Private funds Illiquid investments Structured products The OCIE is planning on assessing the risks of these products and services that are intended to generate higher yields in a low-interest rate environment.

6 Suitability OCIE will evaluate recommendations or determinations to invest retirement assets into complex or structured products and higher yield securities Due diligence on products Properly disclose risks associated with each product

7 Fee Selection and Reverse Churning Dually registered investment adviser/broker-dealers need to ensure that clients are being placed in the appropriate types of commission or fee-based accounts. Unlike broker-dealers, investment advisers have a fiduciary duty to serve their client s best interests. When an adviser offers a variety of fee arrangements, the OCIE will focus on recommendations of account types and whether they are in the best interest of the client. i.e. fees charged, services provided, and disclosures about the relationship

8 Sales Practices OCIE will assess whether investment advisers are using improper or misleading practices when recommending the movement of retirement assets from employer-sponsored defined contribution plans into other investments and accounts, especially when they pose greater risks and/or charge higher fees

9 Branch Offices OCIE will begin focusing on registered entities supervision of registered representatives and financial adviser representatives in branch offices. Using data analytics to identity branches that may be deviating from the compliance practices of the firm s home office.

10 Alternative Investment Companies OCIE will continue to asses firms offering alternative investment strategies, with a particular focus on: leverage, liquidity and valuation policies and practices; the staffing, funding, and empowerment of boards, compliance personnel, and back-offices; and the manner in which such funds are marketed to investors. OCIE will also review representations and recommendations made regarding the suitability of such investments.

11 Fixed Income Investment Companies The OCIE will continue to monitor the risks associated with a changing interest rate environment and the impact this may have on bond funds and related disclosures of risks to investors.

12 Assessing Market-Wide Risks

13 Large Firm Monitoring OCIE has announced that it will continue to collaborate with the Division of Trading and Markets and the Division of Investment Management to monitor the largest broker-dealers and asset managers. The purpose of this focus is to: Assess the risk to individual firms and Maintain early awareness of developments industrywide.

14 Clearing Agencies The OCIE will continue to conduct annual examinations of all clearing agencies designated systemically important, pursuant to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Areas for review will be determined through a riskbased approach in collaboration with the Division of Trading and Markets and other regulators.

15 Cybersecurity Last year, the OCIE launched an initiative to examine broker-dealers and investment advisers cybersecurity compliance and controls. The OCIE will be expanding those efforts in 2015.

16 Potential Equity Order Routing Conflicts The OCIE will assess whether firms are prioritizing trading venues based on payments or credits for order flow in conflict with their best execution duties.

17 Using Data Analytics to Identify Signals of Potential Illegal Activity

18 Recidivist Representatives Individuals with a track record of misconduct and the firms that employ them will be tracked using data analytics.

19 Microcap Fund Data analytics will be used to examine the operations of broker-dealers and transfer agents for activities that indicate they may be engaged in, or aiding and abetting, pump-and-dump schemes or market manipulation.

20 Excessive Trading The OCIE will use data obtained from clearing brokers to identify and examine introducing brokers and registered representatives that appear to be engaged in excessive trading.

21 Anti-Money Laundering ( AML ) OCIE will continue to examine clearing and introducing broker-dealers AML programs. Data analytics will be used to focus on firms that have not filed suspicious activity reports ( SARs ) or have filed incomplete or late SARs. Broker-dealers that allow customers to deposit and withdraw cash and/or provide customers direct access to markets from higher-risk jurisdictions will also be examined.

22 Other OCIE Examination Initiatives

23 Municipal Advisors Newly registered municipal advisors will be examined in order to ensure compliance with recently adopted SEC and Municipal Securities Rulemaking Board rules. Outreach Education

24 Proxy Services Select proxy advisory service firms will be examined for the following: How they make recommendations on proxy voting How they mitigate potential conflicts of interest Whether they are compliant with their fiduciary duty in voting proxies on behalf of investors

25 Never-Before-Examined Investment Companies OCIE is conducting focused, risk-based examinations of advisers that have been registered for more than three years but may not have been previously examined

26 Fees and Expenses in Private Equity Given the high rate of deficiencies that the OCIE has observed among advisers to private equity funds in connection with fees and expenses, they will continue to conduct examinations in this area.

27 Transfer Agents The OCIE has announced that they will allocate more resources to examining transfer agents, particularly those involved with microcap securities and private offerings.

28 Conclusion This description of OCIE priorities is not exhaustive. The OCIE has also asserted that it 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.

29 How TerraNua can help? MyComplianceOffice Employee Personal Trading Compliance Program Management Gifts and Entertainment, OBAs and Other Conflict Reporting MySurveillanceOffice Client Suitability Firm Trade Surveillance

30 What is MyComplianceOffice? Document Library Policies and Procedures Personal Account Dealing * Case/Issue Tracking Compliance Calendar Document & Report Review Certifications, Attestations & Affirmations Gifts and Entertainment, Political Donations Custom Forms, Questionnaires & Checklists * Key module

31 How can MyComplianceOffice help? Data can be accessed easily and quickly. Being able to produce the data quickly on demand provides the regulator with the confidence that the firm has compliance under control Regulators like to see automation as lack of automation is a red flag. Drastically cuts the time compliance team spends gathering data for the visit. Duration of SEC visits can be drastically reduced.

32 Dashboard Click on graph to see all open personal trading alerts Click on graph to see all open employee requests Click on graph to see details of cases Click on graph to see details of all open assignments

33 Benefits of Automation Before.After Reduces Costs, Risks, Saves Management Time, Demonstrates Culture of Compliance to Regulators and Investors

34 What is MySurveillanceOffice? Accounts Trading & Cash Activity Holdings Household & Client Data Rules Engine External Data e.g. Security Master, Market Data (e.g. Pricing, Volume) News, Edgar Alerts Workflow to Review Cases Workflow to Review Employees Compliance

35 Q&A

36 Contact Us Advanced Regulatory Compliance, Inc. 415 N. Camden Drive, Ste. 223 Beverly Hills, CA Phone: (310) Fax: (310)

37 Contact Details TerraNua Nancy Chilcote, Sales Director T: E: