RIA Compliance and Practice Management Blog

SEC Announces RIA Examination Priorities for 2016

Posted by RIA in a Box

Jan 11, 2016 2:44:00 PM

2016 SEC RIA Regulatory Exam Priorities

Today, the Securities and Exchange Commission (SEC) Office of Compliance Inspections and Examinations (OCIE) released its annual top exam priorities for the 2016 calendar year. The OCIE is the SEC division which conducts examinations of registered investment adviser (RIA) firms and this list can help investment advisers be better prepared when the time comes for their firm to be examined. In general, the list of priorities for 2016 closely mirrors the agency's 2015 registered investment adviser (RIA) examination priorities. Similar to last year, the OCIE is once again focused on three categories: protecting retail investors and investors saving for retirement, assessing market-wide risks, and using data analytics to identify signals of potential illegal activity.

The OCIE states that within these continued areas of emphasis, the agency will be particularly focused on:

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  • Branch Offices: This is a relatively new area of focus that the SEC also noted in the 2015 list of examination priorities. The agency notes that it will be particularly focused on inappropriate trading taking place in branch offices due to a lack of proper supervision.
  • Fee Selection and Reverse Churning: This has been an issue the SEC has publicly discussed on a number of occasions as of late and also addressed in its 2014 and 2015 list of examination priorities. RIA firms need to continue to ensure that they are always acting in the best interest of their clients and that proper disclosures are being made. 
  • Cybersecurity: The agency notes that in September 2015 it launched its second round of cybersecurity-focused examinations. In particular, the agency notes that it will focus on the testing and assessment of a firm's policies and controls as they relate to information security. 
  • Recidivist Representatives and their Employers: This was listed as a focus area in 2015 but it appears that the agency may focus even more on this issue in 2016. In particular, the agency notes that it "will assess the compliance oversight and controls of investment advisers that have employed such individuals after they have been disciplined or barred from a broker-dealer." In other words, the agency is putting RIA firms on notice that they need to have the proper policies and procedures in place in order to conduct the necessary diligence before inviting any investment adviser representative (IAR) to join the firm.

It's also important to note that the SEC OCIE makes it clear that it will continue to focus on auditing never-before-examined investment advisory firms as part of its continued National Exam Program (NEP) efforts.

As RIA compliance consultants, we strongly recommend that the principals and Chief Compliance Officer of all investment advisory firms registered with the SEC, regardless if the firm has been examined before or not, review the contents of the SEC 2016 exam priority document. Furthermore, past exam priority lists released in prior years should also be reviewed. Links to these past investment adviser audit priority lists are here:

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Topics: RIA Compliance

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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