December 2018 Disciplinary Actions

The Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and Exchange Commission (SEC) released its 2019 examination priorities. The protection of retail investors, including seniors and those saving for retirement, remain a priority.

OCIE has organized the 2019 priorities around six themes, which reflect certain practices, products, and services they believe present potential heightened risk to investors and/or the integrity of the U.S. capital markets. These five areas include:

1. Matters of importance to retail investors, including seniors and those saving for retirement;

2. Compliance and risks in registrants responsible for critical infrastructure;

3. Select areas and programs of FINRA and MSRB;

4. Digital Assets

5. Cybersecurity; and

6. Anti-Money Laundering

Aside from protecting retail investors, particularly seniors and those saving for retirement, examinations will also focus on higher risk products as well as recent technological changes in how investment advice is delivered. The areas of focus include:

• Fees and Expenses: Disclosure of the Costs of Investing;

• Conflicts of Interest;

• Use of Affiliated Service Providers and Products ;

• Securities-Backed Non-purpose Loans and Lines of Credit;

• Borrowing Funds from Clients;

• Senior Investors and Retirement Accounts and Products;

• Portfolio Management and Trading;

• Never-Before or Not Recently-Examined Investment Advisers;

• Mutual Funds and Exchange Traded Funds;

• Municipal Advisors;

• Broker-Dealers Entrusted with Customer Assets; and

• Microcap Securities

OCIE has also made it a point to review for compliance risk for those registrants responsible for critical market infrastructure.  The areas of focus will include:

• Clearing Agencies;

• Entities Subject to Regulation Systems Compliance and Integrity;

• Transfer Agents; and

• National Securities Exchanges

Digital Assets, Cybersecurity and Anti-Money Laundering compliance programs continue to remain examination priorities. The digital asset market has grown and presents significant risk to retail investors. With the significant growth in the number of digital market participants, OCIE will continue to monitor the offer and sale, trading, and management of digital assets, and where the products are securities, examine for regulatory compliance.

OCIE will prioritize cybersecurity in each of its five examination programs.  The examination focus will be among other things, proper configuration of network storage devices, information security governance, policies and procedures related to retail trading information security.

As it relates to Anti-Money Laundering Programs, OCIE will prioritize examining broker-dealers for compliance with their AML obligations, including SAR filing obligations and timely conduct of independent tests of AML compliance programs.  Throughout the year OCIE may release further priorities, as they continue to identify risks and trends and respond to tips, complaints and referrals.

If you should have any questions, please do not hesitate to contact us.