On January 9, 2014, the National Exam Program of the SEC issued its "Examination Priorities for 2014" letter providing information for registrants about areas that are viewed as heightened risk areas for which the SEC staff may focus some examination efforts during 2014. This letter is a must read for all compliance folks working for registered entities, be it a broker-dealer, investment adviser, investment company, clearing firm or transfer agent. Keep in mind, however,that the SEC staff will investigate and examine anything that it deems appropriate and necessary throughout the year and is not limited to just the topics in this priorities letter.
General Issues. According to the letter, the SEC has some initiatives across the various registrant categories including concerns about news laws and regulations. Notably, the SEC will be reviewing compliance with revised Rule 506(c) in private offerings, including a focus on the proper use of general solicitation in offerings, as well as the verification of investors as accredited investors. As crowdfunding rules comes online, the staff will also focus on compliance with these rules as well. Importantly, the staff is still concerned about due diligence for offerings and will be reviewing issues in that area.
Retirement rollovers are also a concern to the SEC (as it seems to be with FINRA, see the earlier post about FINRA's annual exam letter). Here, the staff advises that they will be examining sales practices of brokers and advisers who target retirement-age workers to roll-over their employer retirement account (such as a 401(k) or a 403(b) into a higher cost investment, and also reviewing for misleading marketing and advertising when recommending such changes, among other things.
Broker-dealer. The SEC discloses that they will be reviewing affinity fraud and micro-cap fraud, as well as examining for unsuitable recommendations involving high yield and complex products, among other things. On the supervision side, the staff will be reviewing supervision of independent contractor reps. in remote offices, as well as supervision of reps. in large branch offices. They will also be reviewing how firms supervise to prevent selling away violations.
Investment adviser. For RIAs, the SEC continues to be concerned about compliance with the custody rule. Additionally, they will focus on marketing as it relates to investment objectives and performance data. Also, they hope to examine many RIA firms that have never before been examined.
These are just some highlights of the NEP letter. Read more by clicking on the link above.