Within the last 2 weeks, the SEC and FINRA published their 2017 examination priorities letters. You can read our individual summaries of each here, SEC, FINRA. Here we summarize the 2 exam priorities letters into a top 10 must know.
10 Most Significant 2017 Examination Priorities
- Suitability: The SEC expressed significant concern about mutual fund share classes and wrap programs. FINRA will look at rep training as well as over-concentration of high-risk products.
- Cybersecurity: Each of the SEC and FINRA specifically highlighted cybersecurity. They will review information security, data storage formats, password controls, physical security, and service provider oversight.
- Bad Brokers: Both the SEC and FINRA will target firms that retain and/or hire recidivist brokers. The regulators will review supervision as well as hiring and training practices.
- Senior Investors: Both regulators will focus on sales practices to, and products for, senior investors. The regulators are concerned with suitability especially related to high-yield products, target-date funds, and variable insurance products.
- Public Plans: The OCIE staff will scrutinize how advisers to public pension plans fulfill their fiduciary duties. The staff also plans to examine pay-to-play practices.
- Branch Offices: Both regulators will examine how firms supervise branch locations. These exams will include reviews of marketing, client communications, and outside business activities.
- Anti-Money Laundering: Both the SEC and FINRA expressed continued concern about AML compliance. They will test suspicious activity reporting, independent testing, automated trading, money movement, and foreign currency transactions.
- Robos: The SEC will focus on compliance programs, suitability, data protection, and algorithm oversight.
- ETFs: The SEC wants to ensure compliance with exemptive relief conditions. The staff also promised reviews of the creation/redemption processes and sales practices.
- Private Funds: The SEC staff expressed concern about the private fund industry including conflicts of interest, disclosure and fees.
Author of post: Todd Cipperman, Cipperman Compliance Services LLC