by Jackson Siegal
The National Examination Program (“NEP”) published its 2014 examination priorities on January 9. The priorities are based upon an assessment of information varying from reports by registrants in required filings with the SEC to industry and media publications. Understanding the priorities that the NEP outlines in its publication might be helpful to anticipating the SEC’s activities in the year ahead, particularly for investors, the legal community, and broker-dealers. The report is can be found here.
For example, the report included what InvestmentNews’ correspondents Mason Braswell and Mark Schoeff Jr. called “some surprising topics” including the fact that the SEC “will work to uncover different ways that business models, practices and products may provide incentive for financial advisers to act outside their clients’ best interests.” The report unsurprisingly continued to focus on these conflicts of interest. You can view their article here.
The focus on conflicts of interest should be obvious to those who have been following the SEC for the past several years. For example, in July 2010, Goldman Sachs and the SEC agreed to a $550 million settlement over claims that the company misled investors in its Abacus CDO. Goldman Sachs failed to disclose information about a third party’s role in selecting underlying securities or that Henry Paulson, former Secretary of Treasury, had taken a short position against the CDO, according to the SEC.
The report indicated that the SEC will focus on fraud detection and prevention, corporate governance, conflicts of interest, enterprise risk management, technology changes, and dual registrants in the year ahead. Technological oversight will continue to be a focus given that markets operate efficiently when there is trust in the system, and no such trust in financial exchange system is possible when individuals believe that the system is vulnerable to data breaches and frequent outages. Retirement rollovers are a concern as advisers and broker-dealers have incentives to recommend that employer-sponsored 401(k) plans be moved into higher cost investments such as IRAs issued by their firm. Here is a link to a detailed look at the report.