On March 3, 2021, the Division of Enforcement of the U.S. Securities and Exchange Commission (the Division) released its list of 2021 Examination Priorities. The annual list outlines the regulator’s most pertinent exam initiatives and highlights important areas of risk for investors.
The Examination Priorities are selected by commission staff and can help your firm navigate its compliance program throughout the year. Reviewing and integrating these priorities into your business’s operations can also help your firm prepare for routine examinations and provide additional protections for investors.
2021 EXAMINATION PRIORITIES
- Retail investors: The Division is continuing its interest in protections for retail investors, especially seniors and those saving for retirement. As retail investors can be more susceptible to fraud than other market participants, the Division emphasizes the importance of regulatory standards of conduct, fraud disclosures, and the special risk associated with retail-targeted investments.
- Data security and resiliency: Strong information security practices continue to be critical to firms’ operations. The focus on cybersecurity is higher than ever this year, as the COVID-19 pandemic has greatly increased the industry’s reliance on remote working. During exams, the Division is looking more closely at business continuity and disaster recovery plans as a result of the pandemic.
- Fintech and innovation: The Division is looking at how firms are pivoting trading practices to automated technology, like roboadvising, which is becoming more popular across the financial industry. This extends to regulatory technology or “RegTech”, which can cause deficiencies in a compliance program if improperly configured or utilized. The initiative also includes digital assets, that are the subject of developing rules and regulations.
- Anti-money laundering (AML): This year, the Division is continuing to focus on AML efforts. Broker-dealers and registered investment companies are required to maintain an AML program that consists of policies and procedures designed to identify and address illicit money-laundering.
- LIBOR transition: The transition away from the London Inter-Bank Offered Rate (LIBOR) could have a significant effect on capital markets. The Division is evaluating firms for how they have measured and addressed their LIBOR exposure.
- Other RIA-related priorities: The Division notes some smaller initiatives related to RIAs and investment companies, like evaluating compliance programs of firms and funds and an additional emphasis on risks specific to advisers to private funds.
- Other broker-dealer and municipal advisor related priorities: These additional priorities focus on broker-dealer financial responsibilities to customers, broker-dealer trading practices, and how the COVID-19 pandemic may be impacting municipal advisor clients and related compliance obligations.
- Market infrastructure: In the area of market infrastructure, the Division will focus on several types of agencies, including clearing agencies, national securities exchanges, and transfer agents. Also part of the Division’s focus on market infrastructure is enforcement of Regulation Systems Compliance and Integrity, which applies to certain non-adviser entities.
- FINRA and MSRB: The Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB) are a priority for the Division this year. The Division examines FINRA to evaluate levels of risk across the agency, and also assesses applicable firms for MSRB compliance.
WHAT DOES THIS MEAN FOR ME?
Your firm may be more likely to be examined by the Division in 2021 if any of the above business practices or circumstances affect your firm. The SEC will likely release more in-depth information on the 2021 Examination Priorities in the coming weeks, which will provide further details on who may be examined this year.
Fairview Investment Services provides comprehensive and ongoing compliance services, including complete examination support. Contact Fairview Investment Services with questions concerning the Division’s examination process or for additional information about the 2021 Examination Priorities.
Fairview Cyber specializes in the creation, testing, and maintenance of meaningful cybersecurity programs for financial industry businesses, in compliance with SEC regulations. Reach out to Fairview Cyber for more information about achieving comprehensive and compliant cybersecurity practices.