Highlights from the SEC’s 2021 Exam Priorities
SEC’s Division of Examinations (formerly OCIE) has released their Examination Priorities Report for 2021.
While the release is not much of a departure from recent years, some of the older topics have been re-framed to include newer risks and practices.
Among “relatively new” topics, the Division will be focusing on Fintech and Innovation, including Digital Assets. In an era where Fintech is expanding, expect the SEC to look closely at how well the underlying technology matches the claims. Likewise, as digital assets continue to dominate the headlines, we expect that regulatory curve to steepen.
The Commission will continue to prioritize retail investors, but will now do so through the lens of Reg BI. The SEC reiterates their focus on the Reg BI updates concerning the standards of conduct for both broker-dealers and registered investment advisors. The report includes reminders of some of the basic principles to which all financial services firms are now expected to adhere.
The regulator’s new focus on Information Security and Operational Resiliency represents a fusion of the existing cybersecurity and business continuity/disaster recovery (“DR”) imperatives against a backdrop of disaster and current cyber-threats trends. The Commission speaks at length to the DR challenges from the pandemic, as well as the ways bad actors exploited cybersecurity weaknesses during this challenging period.
If you’ve kept up on the Risk Alerts and other SEC publications, there won’t be a lot in this release to surprise you. The good news is that if you haven’t kept up, one of the notable features in this particular edition of the Examination Priorities Report is that they highlight those and other releases, organized by topic. This edition also does an especially good job of describing the Commission’s methods and expectations around examinations, the risk scoring that helps inform the commissions decisions about who to examine, and the results and trends which the exam program uncovered over the course of 2020.
Overall, the 2021 Examination Priorities Report is another step forward for the SEC in providing transparency around their expectations, methods, and findings. When the SEC tells you what they’re thinking, it’s always a good idea to listen.
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About the Author: As a Director at Oyster, Lance Whittemore has designed, implemented and maintained compliance programs for SEC- and State-registered investment advisors, and has served as CCO for several of them. He has also worked in multiple engagements of varying scope with Registered Investment Advisors, broker-dealers and clearing firms, performing examinations, audits, and remediations of various aspects of their control and supervisory programs. Lance began his more than 20 years in the financial services industry at NationsBanc Capital Markets (now Banc of America Securities) in municipal fixed-income trading and underwriting. His extensive experience also includes bond sales for Bank of America, retail investor financial consultant for UBS, and just prior to joining Oyster, Lance was in fixed income trading at Wachovia Securities (now Wells Fargo Advisors) where he traded high yield corporate, emerging market, international, and non-dollar credit securities.