OCIE has announced its 2020 exam priorities as part of its risk-based approach to protecting investors. As in the past, key risk areas that are prioritized impacting SROs, clearing firms, investment advisers and other market participants include:
- Retail Investors, Including Seniors and Those Saving for Retirement
- Market Infrastructure related to capital markets, including clearing agencies, national securities exchanges, alternative trading systems and transfer agents
- Cyber and information security risks
- Examining RIAs, including investment companies, ETFs, private funds that have never been examined, including new RIAs and RIAs never examined and oversight practices of their boards of directors
- AML requirements
Fintech and innovation, including digital assets and electronic advice
- Oversight of FINRA and MSRB operations, programs and their examinations of broker-dealers and municipal advisors
OCIE makes clear that the above risk areas is not exhaustive and will be dependent on risk-based approaches employed by OCIE and its staff. A copy of the 2020 exam priorities can be found here.
Does the CFP Board’s recent creation of the position and appointment of a new director of investigations create yet another level of securities enforcement scrutiny for financial planners? On the surface, it sure looks like it.
A recent Advisor One article entitled “CFP Board’s Keller Says New ‘Top Cop” Will Beef Up Investigations” quotes CFP Board CEO Kevin Keller stating that the reason for the position was not because of an increase in the number of compliance cases or violations of CFP rules but to “to build our capacity to achieve our mission of benefiting the public.”
Translation. What this means is that given its membership growth expect number of enforcement cases to rise. More recently, the Board’s enforcement efforts have focused on bringing cases against members who have had bankruptcies or who have disclosures in FINRA or SEC matters that involve claims of misrepresentation or fraud. Also, the number of cases the CFP Board opened in 2011 (1,569 cases) increased from the 1,472 cases opened in 2010. Although most CFP investigations do not result in enforcement actions, expect a continued increase in the number of investigations with the new appointment.
As a follow up to our post of December 15, where we asked whether settling enforcement actions might become harder after Judge Jed Rakoff rejected the recent settlement between the SEC and Citigroup, one thing is clear, it will certainly be harder for the SEC to settle cases before federal judges like Rakoff who may be troubled by settlements in which a defendant is allowed to neither admit nor deny liability when accused of securities fraud.
The Washingon Post story on Judge Rakoff’s order accusing the SEC of misleading him and the federal appeals court, by among other things, failing to give him notice of the SEC’s emergency request to the appeals court to stop the judge from rejecting the Citigroup settlement, may have gotten for the SEC the opposite kind of attention it wanted when it first announced what it thought was a great settlement. If Rakoff turns out to be right, this new and unwanted attention may come from federal judges who may begin to question more thoroughly both the SEC’s motives and tactics in settling such cases. For the SEC, this could mean having to conduct longer investigations with an eye toward expecting to have a long trial, or, alternatively, foregoing court actions and opting for administrative actions. In the future, to avoid federal judges questioning such settlements, the SEC may decide its easier to take the latter route.