Bates Research - 01-18-17

SEC 2017 Priorities: Increased Scrutiny of Advisers Announced

By Alex Russell, Director - Institutional and Complex Litigation

The SEC has released its examination priorities for 2017, which contain a continuation of many priorities from last year, as well as some new areas of focus.  Just as we did last week when we covered FINRA’s 2017 priorities, this week we will concentrate largely on new SEC initiatives, with some attention to those initiatives which are continuations of earlier priorities.

Interestingly, the SEC has removed a section from its priorities letter this year: “Using Data Analytics to Identify Signals of Potential Illegal Activity” does not appear in this year’s letter.  This is potentially interesting, mainly due to the context provided by FINRA’s priorities letter which, for the first time, includes a focus on using data to surveil firms and bring enforcement actions.  This may indicate that the SEC believes it has reached a saturation point on what it can do (and does) with its myriad of data-driven programs, contrasted with the relatively untapped use of big data analytics at FINRA.  With that said, as recently as November of last year, Stephanie Avakian, Deputy Director of the Division of Enforcement for the SEC, had mentioned the use of big data analytics for complex product reviews and to uncover insider trading, so there may still be some programs looking to increase their use of data analytics.


Investment Advisers and Recidivist Representatives

In parallel with FINRA’s continued focus on high-risk and recidivist brokers, the SEC will keep its attention on never-before-examined investment advisers and recidivist representatives.  It will also add a new initiative to deal with multi-branch advisers, which may pose unique risks when monitored only through the typical branch office model.  Just like FINRA, the SEC will also place an emphasis on providing protections for senior investors (you can find links to our work in this important space on last week’s blog).


Mutual Funds and Money Markets

Investments in mutual funds and money market funds are newly named as priorities this year as well.  The SEC will be reviewing share class selection to ensure that conflicts do not exist that would incentivize a registered representative or broker-dealer to recommend share classes with higher loads or distribution fees.  The SEC will also turn its attention to money market funds to ensure compliance with new rules passed in 2014, which became effective in October of 2016 (we’ve blogged previously about money market reform here, here and here).


Scrutiny of Robo-Advisors

The SEC has also listed platforms delivering electronic investment advice, which will be targeted for a comprehensive review including an examination of the compliance programs governing those programs, marketing of those programs, the formation of recommendations (and oversight over the algorithms that generate the recommendations), as well as data security protections and disclosures of conflicts.  We have blogged previously about the challenges that so called “robo-advisors” create for regulators (see here, here and here for example), and it is unsurprising, especially in light of Commissioner Piwowar’s recent comments that the SEC is turning its attention to this area.

Bates Research will continue to provide expert commentary on the new and legacy priorities outlined by both FINRA and the SEC, as new enforcement actions are brought and as we gain more understanding of what the regulatory landscape in general will look like under President elect Trump.


SEC Priority Comparison

(source: Bates Research)
For additional information and assistance please contact any of the following Bates Group practice area leaders:

Bates Compliance Solutions – Ben Pappas  971.250.4329 or

Regulatory and Internal Investigations – Scott Lucas  971.250.4344 or

Retail Litigation and Consulting – Julie Johnstone  971.250.4319 or

Institutional and Complex Litigation – Alex Russell  971.250.4353 or

Fraud and Forensics – Geoff Winkler  971.250.4323 or


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