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SEC Compliance Exam and Inspection Priorities for 2019

On December 20, 2018, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“OCIE”) announced its 2019 examination priorities. OCIE publishes its exam priorities annually to promote transparency of its examination program and provide insights into the areas it believes present potentially heightened risk to investors or the integrity of the U.S. capital markets.

As noted by the SEC in this report, in 2019 “particular emphasis” will be on “matters of importance to retail investors” including the protection of retail investors in the following areas of concern:

Senior Investors and Retirement Accounts and Products: OCIE will conduct examinations that review “how broker-dealers oversee their interactions with senior investors, including their ability to identify financial exploitation of seniors. In examinations of investment advisers, OCIE will continue to review the services and products offered to seniors and those saving for retirement. These examinations will focus on, among other things, compliance programs of investment advisers, the appropriateness of certain investment recommendations to seniors, and the supervision by firms of their employees and independent representatives.”

Proper Disclosure of Fees & Expenses: OCIE will conduct examinations that review “firms with practices or business models that may create increased risks of inadequately disclosed fees, expenses, or other charges. With respect to mutual fund share classes, OCIE will continue to evaluate financial incentives for financial professionals that may influence their selection of particular share classes. In addition, OCIE remains focused on investment advisers participating in wrap fee programs, which charge investors a single bundled fee for both advisory and brokerage services. Continued areas of interest include the adequacy of disclosures and brokerage practices.”

Conflicts of Interest: OCIE will conduct examinations that review firms that “provide incentives for financial professionals to recommend certain types of products and services” and advisers who “in some cases utilize services or products provided by affiliated entities.”

Mutual Funds and Exchange Traded Funds: OCIE will conduct examinations that review “mutual funds and exchange traded funds (ETFs) which are the primary investment vehicles for many retail investors” and “will assess industry practices and regulatory compliance in various areas that may have significant impact on retail investors” including “risks” that are associated with “index funds that track custom-built or bespoke indexes; ETFs with little secondary market trading volume and smaller assets under management; funds with higher allocations to certain securitized assets; and funds with aberrational underperformance relative to their peer groups.”

If you are an individual or institutional investor who has any concerns about your accounts or investments with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

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