On January 7, 2020, the Securities and Exchange Commission (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) released its 2020 Examinations Priorities for SEC registered investment advisers. After completing over 3,089 investment adviser examinations in 2019, the SEC outlined several themes for the focus of investment adviser examinations which include the following:
- Fraud, Sales Practices, and Conflicts – The SEC wrote, “It is critically important that registered firms provide investors with the disclosures required by the federal securities laws, including those relating to fees and expenses, and conflicts of interest, which will help enable the investing public to make better informed choices. Registered firms must effectively implement controls and systems to ensure those disclosures are made as required and that a firm’s actions match those disclosures.”
- Retail-Targeted Investments – OCIE will continue to prioritize examinations of issues focused on retail investors, including those related to mutual funds and ETFs, municipal securities and other fixed income securities, and microcap securities.
- Standards of Care – In addition to focusing on the new Form CRS, the SEC will examine whether an RIA firm’s “fiduciary duty that comprises duties of care and loyalty to their clients” is being properly met by the firm.
- Information Security – OCIE will continue to focus on 1) governance and risk management, 2) access controls, 3) data loss prevention 4) vendor management, 5) training, and 6) incident response and resiliency.
- Financial Technology and Electronic Investment Advice -OCIE will continue its focus on RIAs that provide services to their clients through automated investment tools and platforms, often referred to as “robo-advisers.” Areas of focus include, among others: 1) SEC registration eligibility, 2) cybersecurity policies and procedures, 3) marketing practices, 4) adherence to fiduciary duty, including adequacy of disclosures, and 5) effectiveness of compliance programs.
- RIA Compliance Programs – OCIE has a particular interest in the accuracy and adequacy of disclosures provided by RIAs offering clients new types or emerging investment strategies, such as strategies focused on sustainable and responsible investing, which incorporate environmental, social, and governance (ESG) criteria.
These themes will not be the only issues the SEC addresses in its investment adviser examinations, risk alerts, and investor and industry outreach. The SEC’s exam priorities also reference services, fees, expenses, conflicts of interest for investment advisers, and trading and execution quality issues for broker-dealers as other exam focuses.
RIA Compliance Consultants strongly encourages your CCO and other executives to read the SEC’s examination priorities. Additionally, hosted a webinar on Jan. 16, 2020 on SEC’s 2020 Exam Priorities for Investment Advisers. Click here to purchase that webinar.
To speak with a compliance consultant about adopting and implementing policies and procedures to address SEC’s examination priorities. If you are an existing client of RIA Compliance Consultants contact your consultant or click here to schedule an introductory call.