OCIE Announces Examination Priorities for 2020, Emphasizing Emerging Trends, Technologies, and Compliance with New Regulation Best Interest.

On Monday, January 7, 2020, the Office of Compliance Inspections and Examinations (OCIE), the audit and examination arm of the U.S. Securities and Exchange Commission (SEC), announced its examination priorities for 2020, which include an emphasis on evolving financial technologies and innovative investment instruments. OCIE will also work with registrants to help them comply with new Regulation Best Interest (Reg BI), click here to read more. The announced priorities are summarized below.

Protection of Retail Investors

OCIE’s number one priority, as it has been in past years, is to protect retail investors. Broker-dealers trading in microcap securities (companies with a market capitalization less than $250 million) in particular will continue to face intense scrutiny of their compliance and supervision practices, including compliance with Section 5, Reg SHO “locate” requirement, and Rule 15c-211; registered representative hiring practices; and implementation of proper procedures and follow-through for required SAR filings. In 2020, OCIE has indicated interest in a few new areas:

Information Security

For 2020, OCIE will specifically inspect network storage devices, third-party vendors, and cloud-based storage and review the firm’s internal policies and governance practices respecting information and data security.

Financial Technology

The OCIE acknowledges the rapid innovation in financial technology in 2020 and its intention to stay apprised of new developments and their impact on investors. OCIE continues to be concerned with digital assets like Bitcoin and other digital- or blockchain-based assets. OCIE will observe RIA policies and practices surrounding “robo-advisers,” or automated tools used to recommend investments to clients. OCIE will examine the configuration of, and internal procedures and practices related to, algorithmic trading by broker-dealers.

Anti-Money Laundering

While AML compliance has always been a significant component of OCIE examinations, examiners will place particular importance on a firm’s compliance with the AML programming requirements of the Bank Secrecy Act, specifically including how it identifies customers, monitors for suspicious activity, performs due diligence, and conducts independent tests of its own AML programs. In addition, OCIE will continue to examine whether broker-dealers and other registrants are filing suspicious activity reports (SARs) when required.

Market Infrastructure, FINRA, and MSRB

As in past years, OCIE will conduct examinations of registrants that are critical to market infrastructure, including SEC SIFMU clearing agencies, FINRA, and MSRB, and will review their respective policies, procedures, and controls.

Contact the experts on Michael Best’s Securities and Capital Markets team for more information about broker-dealer and registered investment adviser compliance with securities laws, preparation for OCIE examinations, and understanding and compliance with new Reg BI.

by Betsy T. Voter, Kevin C. Timken, James R. Kruse and Sam C. Johnston

January 14 2020

Michael Best & Friedrich LLP



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