On January 4, 2014, the Securities and Exchange Commission (the “SEC”) announced its examination priorities for 2014, which cover a wide range of issues at financial institutions, including investment advisers and investment companies, broker-dealers, clearing agencies, exchanges and other self-regulatory organizations, hedge funds, private equity funds, and transfer agents.
Andrew J. Bowden, Director of the SEC’s Office of Compliance Inspections and Examinations stated, “We are publishing these priorities to highlight areas that we perceive to have heightened risk…This document, along with our Risk Alerts and other public statements, help us to increase transparency, strengthen compliance, and inform the public and the financial services industry about key risks that we are monitoring and examining.”
The examination priorities address market-wide issues and those specific to particular business models and organizations. The market-wide priorities include fraud detection and prevention, corporate governance and enterprise risk management, technology controls, issues posed by the convergence of broker-dealer and investment adviser businesses and by new rules and regulations, and retirement investments and rollovers.
The priorities include:
For investment advisers and investment companies — advisers who have never been previously examined, including new private fund advisers, wrap fee programs, quantitative trading models, and payments by advisers and funds to entities that distribute mutual funds
For broker-dealers — sales practices and fraud, issues related to the fixed-income market, and trading issues, including compliance with the new market access rule
For market oversight — risk-based examinations of securities exchanges and FINRA, perceived control weakness at exchanges, and pre-launch reviews of new exchange applicants
For transfer agents — timely turnaround of items and transfers, accurate recordkeeping and safeguarding of assets
For clearing agencies designated as systemically important — conduct annual exams as required by the Dodd-Frank Act, and pre-launch reviews of new clearing agency applicants
The priorities listed for 2014 are not exhaustive and may be adjusted throughout the year in light of ongoing risk assessment activities. The priorities were selected by senior exam staff and managers and other SEC divisions and offices in consultation with the chair and other commissioners, based on a variety of information and risk analytics, including:
● Tips, complaints and referrals, including from whistleblowers and investors;
● Information reported by registrants in required filings with the SEC;
● Information gathered through examinations conducted by the SEC and other regulators;
● Communications with other U.S. and international regulators and agencies;
● Industry and media publications;
● Data maintained in third party databases; and
● Interactions outside of examinations with registrants, industry groups, and service providers.
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