On January 11, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) released its 2016 examination priorities for investment companies, investment advisers, broker-dealers and transfer agents. The examination priorities highlight new and continuing areas of interest. Among the priorities listed are the following items:
Retail and Retirement Investor Protection – ETFs
OCIE will be examining exchange-traded funds (ETFs) for compliance with applicable exemptive relief granted under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 and with other regulatory requirements. In addition, OCIE also will be focused on ETF sales strategies, trading practices and disclosures, including excessive portfolio concentration, primary and secondary market trading risks, adequacy of risk disclosure, and suitability, particularly in niche or leveraged/inverse ETFs.
Assessing Market-Wide Risks – Cybersecurity
OCIE’s market-wide risk assessment will focus on advancing its September 2015 Cyber Security Examination Initiative through 2016. OCIE’s examination of broker-dealers and investment advisors will include testing and assessments of firms’ implementation of cybersecurity procedures and controls.
Assessing Market-Wide Risks – Liquidity Controls for Fixed-Income Funds
OCIE will examine advisers to mutual funds, ETFs and private funds that have exposure to potentially illiquid fixed income securities. Broker-dealers who are a source of liquidity in fixed income securities also will be examined. These examinations will include a review of various controls, such as controls over market risk management, valuation, liquidity management, trading activity and regulatory capital.
Other 2016 examination areas include, among other things, a focus on branch office supervision of representatives, suitability of variable annuities, public pension advisors, newly registered municipal advisors, private placements under Regulation D and the Immigrant Investor Program (EB-5 Program), never before examined advisors and investment companies, and private advisors for fees and expenses and evaluating, among other things, the controls and disclosure associated with side-by-side management of performance-based and purely asset-based fee accounts.