The SEC’s Office of Compliance Inspections and Examinations (OCIE) released its Examination Priorities for 2015 this week and indicated that it would focus on three top level issues: retail investors, market-wide risks, and data analytics. In a release accompanying the examination priorities, OCIE indicated that the focus on retail investors is due to the increasing trend for the group to be offered what were previously known as institutional products. For alternatives, OCIE plans to focus on “(i) leverage, liquidity, and valuation policies and practices; (ii) factors relevant to the adequacy of the funds’ internal controls, including staffing, funding, and empowerment of boards, compliance personnel, and back-offices; and (iii) the manner in which such funds are marketed to investors.” The focus will also include a look at the adequacy of disclosure of fixed income funds due to the potential for rising interest rates.
OCIE plans to focus on market risks by “monitoring large broker-dealers and asset managers in coordination with the SEC’s policy divisions, conducting annual examinations of clearing agencies as required by the Dodd-Frank Act, assessing cybersecurity controls across a range of industry participants, and examining broker-dealers’ compliance with best execution duties in routing equity order flow.” Lastly, OCIE plans to utilize enhancements in the department’s ability to analyze large volumes of data to identify firms and individuals “engaged in illegal activity, such as excessive trading and penny stock pump-and-dump schemes.”
As an “other initiative,” OCIE indicated that it would examine certain proxy advisory firms and their processes for making recommendations and avoiding conflicts of interest, and look at how investment advisers are fulfilling their fiduciary duties in voting proxies.