SEC Exam Priorities for 2017

• Posted on: Jan 27 2017

What does the SEC have planned for investment advisers and brokers dealers?

The Securities and Exchange Commission (“SEC”) recently released its list of examination priorities for 2017. In particular, the SEC will be focusing on three areas: matters of importance to retail investors, risks to elderly and retiring investors, and market-wide risks. There are 21 areas of focus on this year’s list, including:

• Money market funds
• Representatives and employers with prior records of misconduct
• Wrap-fee programs
• Exchange-traded funds
• Multi-branch advisers
• Senior investors
• Automated Investment Services

The last area is generating a lot of buzz as this is the first year the SEC is making electronic investment advice — that is advice that is offered through “robo-advisers” — a priority.  The SEC is hoping to ascertain the risks of digital investment platforms that provide automated advisory services.

In fact, automated services that interact with investors online, as well as those that combine automation with access to financial professionals (known as hybrids), will be under enhanced scrutiny. Examinations will zero in on compliance programs, marketing, how investment recommendations are formulated, data security, and conflict of interest disclosures. The agency will also be reviewing compliance oversight of algorithms that generate recommendations.

While innovation in the financial services industry historically leads to enhanced regulatory scrutiny, the SEC’s plan to focus on automated investment services is part of a growing concern of services that are marketed to fiduciaries.

“These priorities make clear we are continuing to focus on a wide range of issues impacting our markets, from traditional areas such as market-wide risks to new forms of technology including automated investment advice,” outgoing SEC Chairwoman Mary Jo White said.

Finally, in addition to robo-advisers, the SEC plans enhanced oversight of examinations conducted by the Financial Industry Regulatory Authority. So, broker-dealers can expect visits by examiners of both regulatory bodies.

The Takeaway

It remains unclear whether examination priorities will change under the Trump Administration, but robo advice will continue to be a hot button issue given the growth of the industry. Nonetheless, securities litigation cases and arbitration matters will continue to require the advice and counsel of an experienced attorney.

Tagged with: Alternative Dispute Resolution, Complex Litigation