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OCIE Announces 2019 Exam Priorities

The SEC’s Office of Compliance Inspections and Examinations published its exam priorities for 2019, placing emphasis on digital assets, cybersecurity, and matters of importance to retail investors, including fees, expenses, and conflicts of interest.  The exam priorities are broken down into six categories: (1) compliance and risk at registrants responsible for critical market infrastructure; (2) matters of importance to retail investors, including seniors and those saving for retirement; (3) FINRA and MSRB; (4) digital assets; (5) cybersecurity; and (6) anti-money laundering programs. In its report, OCIE said it will continue to review fees charged to advisory accounts, ensuring that the fees are assessed in accordance with the client agreements and firm disclosures. OCIE will also look into certain areas of conflicts of interest, including advisers’ use of affiliated service providers and products; securities-backed non-purpose loans and lines of credit; and adviser disclosures related to borrowing funds from clients. As detailed in a recent risk alert, OCIE will focus on mutual-fund and ETF risks associated with: (1) index funds that track custom-built or bespoke indexes; (2) ETFs with little secondary market trading volume and smaller assets under management; (3) funds with higher allocations to certain securitized assets; (4) funds with aberrational underperformance relative to their peer groups; (5) funds managed by advisers that are relatively new to managing mutual funds; and (6) advisers that provide advice to both mutual funds and private funds with similar investment strategies. OCIE will also prioritize cybersecurity with an emphasis on, among other things, proper configuration of network storage devices, information security governance, and policies and procedures related to retail trading information security.  

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