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Fraudulent sales practices of broker/dealers, alternative investments, elder financial abuse, private placements, unsuitable recommendations of high-yield investment products, and hybrid securities are among the examination priorities on the radar of the Securities Exchange Commission (SEC) in 2013. The SEC released the new priorities list on Feb. 21.
The list, which offers guidance on what the SEC views as some of its bigger areas of concern, addresses issues spanning the entire market, as well as those that relate specifically to particular business models and organizations.
The SEC’s marketwide priorities include fraud detection and prevention; corporate governance and enterprise risk management; conflicts of interest; and technology controls.
Priorities in each program area include:
•For investment advisers and investment companies – Presence exams for newly registered private fund advisers, and payments by advisers and funds to entities that distribute mutual funds.
•For broker/dealers – Sales practices and fraud, and compliance with the new market access rule.
•For market oversight – Risk-based examinations of securities exchanges and FINRA, and order-type assessment.
•For clearing and settlement – For transfer agent exams, timely turnaround of items and transfers, accurate recordkeeping, and safeguarding of assets. For clearing agencies designated as systemically important, conduct annual examinations as required by the Dodd-Frank Act.
The SEC noted several new and emerging risk areas in its 2013 list, including investment advisers to private-equity and hedge funds and those who are dually registered as broker/dealers. As reported in a recent story by Investment News, the SEC is putting an emphasis on reviewing investment advisers who are dually registered as brokers because of the convergence of the two practices. Specifically, the agency is concerned that investors could be harmed as the lines between the two blur.
“For example, it is not uncommon for a financial professional to conduct brokerage business through a registered broker/dealer that she does not own or control and to conduct investment advisory business through a registered investment adviser that she owns and controls, but that is not overseen by the broker/dealer,” the SEC’s document states. ”This business model presents multiple conflicts.”
The SEC oversees about 11,000 investment advisers and 800 investment companies that together have about $50 trillion in assets under management. In conjunction with the Financial Industry Regulatory Authority (FINRA), the SEC regulates about 4,600 broker/dealers with more than 630,000 registered representatives.
The complete SEC 2013 Examination Priorities List can be viewed here.