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FRAUD

New regulations among SEC’s 2014 examination priorities

 

By Ken Tysiac
January 9, 2014

Issues posed by new rules and regulations will be among the issues the SEC scrutinizes most closely in 2014 in its examination of issues at financial institutions reviewed under the Office of Compliance Inspections and Examinations’ National Examination Program.

The SEC on Thursday announced its examination priorities for 2014, which cover a range of issues at financial institutions. Some of the priorities—fraud detection and prevention, corporate governance and enterprise risk management, and technology controls—also were on the 2013 examination priorities list.

Under the National Examination Program, the SEC conducts examinations of registered entities, including broker-dealers, transfer agents, investment advisers, investment companies, the national securities exchanges, clearing agencies, self-regulatory organizations such as the Financial Industry Regulatory Authority (FINRA), and the PCAOB.

New to the list of priorities for 2014 are:

  • Issues posed by new rules and regulations.
  • Issues posed by the convergence of broker-dealer and investment adviser businesses.
  • Retirement investments and rollovers.


The SEC has been in the process of implementing a wave of new regulations in recent years, and Thursday’s announcement is an indication that the SEC will be closely watching compliance. General solicitation practices, verification of accredited investor status, and recently adopted rules for municipal advisers are among the priorities for the SEC related to new regulations.

In addition, the SEC announced its examination priorities for sectors within the financial industry:

  • Investment advisers and investment companies. Priorities include advisers who have never been previously examined, including new private fund advisers; wrap fee programs; quantitative trading models; and payments by advisers and funds to entities that distribute mutual funds.
  • Broker-dealers. Priorities include sales practices and fraud; issues related to the fixed-income market; and trading issues, including compliance with the new market access rule.
  • Market oversight. Priorities include risk-based examinations of securities exchanges and FINRA; perceived control weaknesses at exchanges; and prelaunch reviews of new exchange applicants.
  • Transfer agents. Priorities include timely turnaround of items and transfers, accurate recordkeeping, and safeguarding of assets.
  • Clearing agencies designated as systemically important. Priorities include conducting annual examinations as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203; and prelaunch reviews of new clearing agency applicants.


The priorities highlight areas where the SEC staff perceives heightened risk, Andrew Bowden, the director of the SEC’s Office of Compliance Inspections and Examinations, said in a statement. The priorities may be adjusted during the year as a result of ongoing risk assessment activities, according to the SEC.

Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.

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