Last week, the Securities and Exchange Commission’s newly renamed Division of Examinations (formerly known as the Office of Compliance Inspections and Examinations) published its 2021 Examination Priorities (“Exam Priorities”). This annual guidance reports on the Division’s accomplishments and rates of examinations for the prior year, and seeks to promote compliance, prevent fraud, identify and monitor risk, and inform policy. It provides industry participants with a road map to plugging any gaps in their compliance.
Many of the Exam Priorities are perennials—for example, those related to broker-dealer sales practices and treatment of seniors, and registered investment adviser compliance programs—but these are supplemented by the Division’s focus on risks that have emerged in recent years, including information security, digital assets, and operational resiliency in light of climate-change related risks. This Alert will highlight those announced Exam Priorities for which industry members should prepare in the event that they are visited—perhaps virtually—by the Division’s examiners. Certain priorities—including fintech, LIBOR transition, operational resiliency, and information security—are the result of recent technological, economic or environmental trends, and firms should use the Division’s report as an opportunity to ensure that their compliance in these areas is on pace with the evergreen compliance concerns. Unfortunately, it is those emerging areas that can often lead to findings of deficiencies in examinations.
Implementing a robust compliance program, with a focus on the areas outlined above, will help firms under examination protect themselves from findings of deficiencies. The Exam Priorities provide a survey of the perennial and emerging risks that firms should be prepared to address, but firms should also not lose sight of the hallmarks of an effective compliance program—adequate resources, a knowledgeable and empowered CCO, a strong tone from the top and compliance’s active involvement in different aspects of the firm’s operations. A legal compliance strategy has never been more important.