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SEC Examination Priorities for 2019

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January 8, 2019

Client Alert
The Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) has released its 2019 National Exam Program Examination Priorities. Focus themes for the 2019 exam priorities include:

OCIE indicated that its examinations and analysis will remain grounded in four main pillars:

A more complete discussion of the exam priorities is included below. Firms should review their policies, procedures and business activities in light of OCIE’s 2019 priorities. A copy of the examination priorities publication is available here.

Retail Investor Protection

Protecting retail investors remains a priority for the OCIE in 2019, and it will likely continue to be a focus for the foreseeable future. In this respect, OCIE has indicated that it will focus on the following areas, among others, in conducting its 2019 examinations:

•  use of affiliated service providers and products;

•  promotion by advisers, broker-dealers and their employees of loans and lines of credit where securities in their brokerage or advisory accounts are posted as collateral; and

•  borrowing of funds from clients.

Cybersecurity

Cybersecurity continues to be an SEC priority including by OCIE as part of all of its examination programs. Examinations will continue to focus on cybersecurity governance and risk assessment, access rights and controls, data loss prevention, vendor management, training and incident response. OCIE will also focus on proper configuration of network storage devices, information security governance generally and policies and procedures related to retail trading information security. OCIE will also emphasize cybersecurity practices at investment advisers with multiple branch offices including those that have recently merged with other investment advisers.

Anti-Money Laundering Programs

OCIE will continue to examine whether SEC regulated entities are establishing appropriate anti-money laundering programs including meeting Suspicious Activity Reports (“SARs”) filing obligations, implementation of all elements of their anti-money laundering programs and independent testing of anti-money laundering programs.

Compliance and Risks in Critical Market Infrastructure

OCIE will continue to focus on examining entities providing services critical to the proper functioning of capital markets including:

Digital Assets

OCIE will continue to monitor the offer and sale, trading and management of digital assets and where products are securities, examine for regulatory compliance. For firms actively engaged in the digital market, OCIE will conduct examinations focused on, among other things, portfolio management of digital assets, trading, safety of client funds and assets, pricing of client portfolios, compliance and internal controls.

FINRA and MSRB

OCIE will continue its oversight and examination of FINRA and the MSRB focusing on operations, regulatory programs, examination programs and internal policies, procedures and controls.

Conclusion

Firms should consider the SEC examination priorities as they conduct their annual reviews of policies, procedures and business activities. Where firms observe deficiencies in their own practices, adjustments should be made before they find themselves the subject of an SEC investigation, examination or enforcement action.

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