2015 SEC Examination Priorities

By Darius Wood, Spring 2015 Student Intern

The Securities and Exchange Commission (SEC), like many government organizations, is not able enforce every regulation to the same extent.  Thus, each year their Office of Compliance and Examinations (OCIE) strategically priorities what particular areas they put an extra emphasis on enforcing during the year.  According to their press release, the SEC intends to focus on protecting individual investors and investors saving for retirement, assessing market-wide risk, and using data analytics.

 Protecting Individual Investors

The SEC intends to protect individual investors and investors saving for retirement by focusing on six trends.  First, the SEC will look at fee arrangements and reverse churning (putting investors into accounts that pay fixed fees just to collect the fee) to assess whether the particular accounts are in the best interest of the investor based on their financial profile and goals.  Second, the SEC plans to take a close look at advisers’ practices when they advise investors to move assets from employer-sponsored retirement accounts to other investments, like riskier investments that charge higher fees.

Third, the SEC will evaluate investment advisers and broker-dealers to determine where their recommendations to invest in structured products and higher yielding investments are suitable, i.e., right or appropriate for the investor.  Fourth, the SEC plans to focus on ensuring investment adviser firms and brokerage firms comply with their official policies.  Fifth, they plan to continue one of last year’s priorities by scrutinizing alternative investments.  Lastly, the SEC will review fixed income investment companies to ensure they have adequate controls in place to prepare for higher interest rates.

Assessing Market-Wide Risks

The OCIE plans to assess market-wide risk by examining the risk and trends across all firms and the industry as a whole.  In doing this, OCIE will look at how large firms monitor their risk, the cybersecurity policies and procedures that are in place, and how firms comply with their duty to ensure the best execution possible.

Data Analytics

OCIE intends to continue increasing the amount of data analytics they use to review firms that may be engaged in illegal activity.  They target firms with advisers who have a history of misconduct and look for suspicious transfers, excessive trading, and firms that have filed distrustful, incomplete, or late “suspicious activity reports”.

To read the full SEC Examination Priorities for 2015, click here.