Funds and Investment Management

Action Item: On January 12, 2017, SEC’s Office of Compliance Inspections and Examinations (“OCIE”) revealed where it plans to focus its attention throughout this year. By broadening its scope, OCIE will address a wide array of issues across various financial institutions, such as investment advisers, investment companies, broker-dealers, private fund advisers, and municipal advisers. New areas of focus include: retail investors, risks associated with senior and retiring investors, and market-wide risks.

Below are some of the highlights:

• Retail Investors: OCIE will conduct examinations to review electronic “robo-advising,” as well as wrap fee programs whereby investors are charged a single fee for both brokerage and advisory services. OCIE will also examine investment advisers who have never been subject to an exam, exchange-traded funds (“ETFs”) (including sales practices, disclosures, and compliance with any applicable expemptive relief), multi-branch advisers (those that offer services across multiple locations), selection of mutual fund classes, and recidivist representatives and their employees. In particular, with respect to mutual fund share classes, OCIE staff will monitor potential conflicts of interest in connection with recommendations by advisers of certain mutual fund share classes, including classes with higher loads or distribution fees.
• Senior and Retiring Investors and Related Investments: OCIE will assess public pension advisers to ensure that they are efficiently managing conflicts of interest and adhering to their fiduciary duties. OCIE will expand its “ReTIRE” initiative by reviewing investment advisers and broker dealers who offer variable insurance products as well as advisers who offer and manage target date funds.
• Market-Wide Risks: OCIE will focus on compliance with the SEC’s Regulation Systems Compliance and Integrity (“SCI”) and anti-money laundering programs. This will include new initiatives that will evaluate how money market funds comply with the recently amended SEC rules on money market fund reform, which became effective in October 2016. OCIE will also heighten its administration of FINRA’s operations and regulatory programs as they pertain to individual broker-dealers. OCIE will also continue its focus on cybersecurity and enhance its oversight of FINRA.