Regulatory Update: 2021 SEC Examination Priorities: Broker-Dealers and Municipal Advisors
The Securities and Exchange Commission’s Division of Examinations today announced its 2021 examination priorities, including greater focus on MUNICIPAL ADVISORS and BROKER-DEALERS. Areas of focus include the following:
Municipal Advisor Examinations:
The Division will examine, in light of the COVID-19 pandemic and its potential impact on municipal advisors and their clients, how municipal advisors may have adjusted their practices. The Division will also examine whether municipal advisors have met their fiduciary duty obligations to municipal entity clients, including the disclosing of and managing conflicts of interest and documentation of the scope of their client engagements.
Broker-Dealer Examinations:
Examination of broker-dealers will continue to focus on compliance with the Customer Protection Rule and the Net Capital Rule, including the adequacy of internal processes, procedures, controls, and compliance with requirements for borrowing securities from customers. Broker-dealer examinations will also focus on compliance with best execution in a zero commission environment, recently amended Rule 606 order routing disclosure rules, and market-maker compliance with Reg SHO.
Financial Technology (Fintech) and Innovation, Including Digital Assets – Among other areas, examinations will focus on evaluating whether registrants are operating consistently with their representations, whether firms are handling customer orders in accordance with their instructions, and review compliance around trade recommendations made in mobile applications. Examinations of market participants engaged with digital assets will continue to assess the following: whether investments are in the best interests of investors; portfolio management and trading practices; safety of client funds and assets; pricing and valuation; effectiveness of compliance programs and controls; and supervision of representatives’ outside business activities.
Anti-Money Laundering Programs – The Division will continue to review for compliance with applicable anti-money laundering (AML) requirements, including evaluating whether broker-dealers and registered investment companies have adequate policies and procedures in place that are reasonably designed to identify suspicious activity and illegal money-laundering activities.
Retail Investors, Including Seniors and Those Saving for Retirement, Through Reg. BI and Fiduciary Duty Compliance – The Division will focus on compliance with Regulation Best Interest, Form CRS, and whether registered investment advisers have fulfilled their fiduciary duties of care and loyalty. The Division will examine whether firms are appropriately mitigating conflicts of interest and, where necessary, providing disclosure of conflicts that is sufficient to enable informed consent by retail investors. With respect to those investments heavily used by retail investors or those that may present elevated risks, the Division will continue to prioritize these products, including mutual funds, exchange-traded funds (ETFs), municipal securities and other fixed income securities, variable annuities, private placements, and microcap securities.
You can read the SEC 2021 Exam Priorities Report here: https://www.sec.gov/files/2021-exam-priorities.pdf / https://www.sec.gov/files/2021-exam-priorities.pdf
