On February 21, 2013, the SEC’s Office of Compliance Inspections and Examinations (OCIE) announced its 2013 examination priorities for financial institutions. The publication identifies the market-wide issues on which the SEC will be focused, and also the specific subjects of interest within the distinct areas of OCIE’s National Examination Program.
For all SEC registrants, OCIE will be paying particular attention to issues of:
• Fraud identification – leveraging quantitative and qualitative tools
• Corporate governance and enterprise risk management – executive management of financial, legal, compliance, operation, and reputational risks
• Conflicts of interest – steps taken to mitigate and disclose conflicts where they arise
• Use of technology – governance and supervision of information technology systems
In its discussion of priorities for each of the different examination program areas, OCIE identified the ongoing risks, emerging risks, and policy topics for each area of focus.
For investment companies, OCIE has announced a particular interest in examining, among other things:
• Distribution payments to intermediary distributers, cloaked as payments for client servicing
• Performance marketing, including as an indicator of valuation deficiencies
• Fund governance, including the provision of information to Boards, and their use of such information
For broker-dealers, OCIE will be taking a particularly keen look at:
• Sales practices and fraud concerning retail investors, including the role of supervision by the regulated entity
• Anti-money-laundering programs, particularly customer identification program elements
• Market access rule, especially the use of master/sub-account arrangements by customers
• Sales of exchange-traded funds.
For transfer agents, the examination priorities for 2013 will include:
• Core TA activities such as transaction timeliness, recordkeeping accuracy, record retention, and safeguarding of funds and securities
• Risk mitigation policies and procedures including business continuity plans, record backups, and third-party access and security
• Oversight of TA functions that are outsourced to other transfer agents or financial intermediaries
• Third-party administration services provided by registered TAs