U . S . S E C U R I T I E S A N D 

EXCHANGE COMMISSION

2020

EXAMINATION PRIORITIES

Office of Compliance Inspections and Examinations

CONTENTS

Message From OCIE’s Leadership Team......................................................................................................1

Importance of Compliance .................................................................................................................1

FY 2019 Results ..................................................................................................................................1

Registered Investment Adviser Coverage ..........................................................................................3

Anticipated Impact of Significant Rulemaking....................................................................................4

Risk, Technology, and Industry Trends...............................................................................................5

Firm and Investor Outreach and Risk Alerts.......................................................................................6

Introduction......................................................................................................................................................8

Retail Investors, Including Seniors and Individuals Saving for Retirement................................................9

Fraud, Sales Practices, and Conflicts.................................................................................................9

Retail-Targeted Investments..............................................................................................................10

Standards of Care .............................................................................................................................12

Information Security ......................................................................................................................................13

Financial Technology (FINTECH) and Innovation, Including Digital Assets and 

Electronic Investment Advice .......................................................................................................................14

Digital Assets.....................................................................................................................................14

Electronic Investment Advice............................................................................................................14

Additional Focus Areas Involving RIAs and Investment Companies ........................................................15

RIA Compliance Programs................................................................................................................15

Never-Before and Not Recently-Examined RIAs...............................................................................15

Mutual Funds and ETFs ....................................................................................................................16

RIAs to Private Funds........................................................................................................................16

Additional Focus Areas Involving Broker-Dealers and Municipal Advisors .............................................16

Broker-Dealer Financial Responsibility .............................................................................................16

Trading and Broker-Dealer Risk Management .................................................................................16

Municipal Advisors ............................................................................................................................17

AML Programs ...............................................................................................................................................17

Market Infrastructure .....................................................................................................................................18

Clearing Agencies .............................................................................................................................18

National Securities Exchanges .........................................................................................................19

Regulation Systems Compliance and Integrity (SCI).......................................................................19

Transfer Agents .................................................................................................................................20

Focus on FINRA and MSRB..........................................................................................................................21

FINRA ................................................................................................................................................21

MSRB.................................................................................................................................................21

Conclusion................................................................................................................................................................................22

DISCLAIMER: This statement represents the views of the staff of the Office of Compliance Inspections and Examinations. 

It is not a rule, regulation, or statement of the U.S. Securities and Exchange Commission (Commission). The Commission 

has neither approved nor disapproved its content. This statement, like all staff guidance, has no legal force or effect: it 

does not alter or amend applicable law, and it creates no new or additional obligations for any person.

2020 EXAMINATION PRIORITIES | 1

MESSAGE FROM OCIE’S LEADERSHIP TEAM

The Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and 

Exchange Commission (SEC) is pleased to announce our examination priorities for fiscal 

year (FY) 2020, marking the 8th year of their publication. We hope you find our discussion 

of key risks, trends, and examination priorities valuable in overall efforts to promote and 

improve compliance and ultimately protect investors.

Importance of Compliance

As a threshold matter, we would like to emphasize that compliance programs, chief 

compliance officers, and other compliance staff play critically important roles at firms. 

Indeed, culture and tone from the top are key. In the course of conducting thousands 

of examinations of many different types of firms, the hallmarks of effective compliance 

become apparent. One such hallmark includes compliance’s active engagement in most 

facets of firm operations and early involvement in important business developments, such 

as product innovation and new services. Another is a 

knowledgeable and empowered chief compliance officer 

with full responsibility, authority, and resources to develop 

and enforce policies and procedures of the firm. And 

perhaps most importantly, a commitment to compliance 

from C-level and similar executives to set a tone from 

the top that compliance is integral to the organization’s 

success and that there is tangible support for compliance 

at all levels of an organization.

FY 2019 Results

For OCIE, quality is the most important aspect of the work we perform. Examiners ask 

themselves: Did our risk scoping correctly capture the highest risks at a firm? Did we 

appropriately expand our scope as we identified significant risks not initially scoped? 

Did we spend sufficient time and devote appropriate staffing resources (both in technical 

experience and team size) to ensure an effective examination? Did we promote compliance? And ultimately, did we identify errors, fraud or misappropriation at the firm, if 

present? Examiners ask these and countless other questions before closing an examination, 

all with the primary purpose of achieving OCIE’s investor protection mission.

DID YOU KNOW?

A hallmark of effective compliance is a 

commitment from senior executives to 

set the tone that compliance is integral 

to the organization's success.
2 | U.S. SECURITIES AND EXCHANGE COMMISSION

OCIE is mindful that numbers never tell the complete story of our effectiveness and 

efficiency. While certain statistics are discussed below, they do not completely capture 

or measure the quality of our examination program. Statistics do, however, convey 

certain reference points that provide some insights into our examination program. OCIE 

completed 3,089 examinations in FY 2019, which is a 2.7 percent decrease from FY 

2018. This relatively minor decrease, when viewed in light of an approximate month-long 

suspension of virtually all examination activity due to a lapse in appropriations, is illustrative of the OCIE staff's hard work, continued improved efficiency, resiliency and dedication to the SEC’s and OCIE’s mission to protect investors. Examinations of registered 

investment advisers (RIAs) in FY 2019 remained strong at approximately 2,180, covering 

15 percent of this population. Examinations of investment companies increased this year 

to over 150, increasing by approximately 12 percent, driven primarily by the six initiatives 

OCIE announced in November 2018.1 OCIE completed over 350 examinations of brokerdealers, 110 examinations of national securities exchanges, and over 90 examinations of 

municipal advisors and transfer agents. OCIE also completed over 160 examinations of 

the Financial Industry Regulatory Authority (FINRA), including examinations of critical 

FINRA program areas as well as oversight reviews of FINRA examinations. Finally, OCIE 

completed 15 examinations of clearing agencies. 

Through its examinations, OCIE is promoting compliance 

and making a difference for investors and our securities 

markets. For example, during FY 2019, OCIE issued more 

than 2,000 deficiency letters, with many firms taking direct 

corrective actions in response to those letters, including 

by amending compliance policies and procedures or a regulatory filing; enhancing their 

disclosures; or, returning fees back to investors, among other things. To fight against 

fraud and misappropriation of investor assets, OCIE also commits significant resources 

to verify the existence of investor assets at custodians and to ensure that they are valued 

properly, a process called asset verification. In FY 2019, OCIE verified over 3.1 million 

investor accounts, totaling over $1.5 trillion. Similarly, when RIAs have access to client 

funds or securities, OCIE prioritizes examination for compliance with the Custody Rule 

(Rule 206(4)-2 under the Investment Advisers Act of 1940 (Advisers Act)), which includes 

important client safeguards like third party audits and surprise examinations. For brokerdealers, OCIE reviews for compliance with the Customer Protection Rule (Rule 15c3-3 

under the Securities Exchange Act of 1934 (Exchange Act)) and the Net Capital Rule (Rule 

15c3-1 under the Exchange Act) to help ensure that customer securities and assets exist 

and are protected from misappropriation and that firms are adequately capitalized. 

1 https://www.sec.gov/ocie/announcement/ocie-risk-alert-registered-investment-company-initiative

DID YOU KNOW?

The quality of examinations is the 

most important aspect of OCIE’s work. 
2020 EXAMINATION PRIORITIES | 3

Another way OCIE promotes compliance and protects investors is by encouraging firms to 

make investors whole when fees have been improperly calculated and charged. Examinations closed in FY 2019 have so far resulted in firms returning more than $70 million to 

investors. When its findings are significant with respect to such improper charges or other 

issues, however, OCIE may refer these matters to the Division of Enforcement. 

Many important Enforcement matters have resulted from OCIE examinations and referrals, including, for example: the SEC’s first two settled Enforcement actions with clearing 

agencies; two settled matters involving Regulation SCI; dozens of settled matters involving 

RIAs’ selection of higher cost mutual fund share classes for clients when lower cost options 

were available; the first settled actions brought against providers of electronic investment 

advice; dozens of settled actions against advisers to private funds; and settled actions 

against broker-dealers that misappropriated retail client funds. More than 150 enforcement referrals from FY 2019 examinations have been made so far, and we anticipate more 

to come. Recoveries and referral metrics may lag fiscal year reporting as OCIE continues 

to work to get results for harmed investors, which, for example, included 30 additional 

referrals and $13 million in recoveries in FY 2019 from examinations that were completed 

in FY 2018.

Registered Investment Adviser Coverage

OCIE reports annually the percentage of the population of RIAs examined each year. This 

metric is important as OCIE is the primary, and often only, regulator responsible for supervising this segment of financial firms. The population of RIAs 

has grown significantly in recent years, as has the amount of 

assets those RIAs manage. More specifically, in just the last 

five years, the number of RIAs OCIE oversees increased from 

about 11,500 to 13,475, and the assets under management of 

RIAs increased from approximately $62 trillion to $84 trillion. 

In addition to this significant growth, the financial industry and marketplace are constantly 

evolving and responding to investor needs, regulatory changes, technology, and competition. RIAs’ complexity, interconnectivity, and dependency on a variety of market participants also continue to grow: more than 3,700 RIAs manage over $1 billion in assets; 

approximately 36 percent of RIAs manage a private fund; more than 55 percent of RIAs 

have custody of client assets; more than 60 percent of RIAs are affiliated with other 

financial industry firms; and approximately 12 percent of RIAs provide advisory services 

to a mutual fund, exchange-traded fund, or other registered investment company.

DID YOU KNOW?

In FY 2019, OCIE completed 

over 3,000 examinations. 
4 | U.S. SECURITIES AND EXCHANGE COMMISSION

Despite this significant growth and complexity, OCIE has made significant strides over 

the past several years to increase its RIA coverage, including through: (1) implementation of program efficiencies, both through process and technology; (2) realignment of 

internal staffing to address the coverage rates for RIAs; and (3) continued investment in 

our human capital, through ongoing training of staff and the onboarding of experienced 

subject matter experts, among other things. These efforts are paying dividends: OCIE has 

increased its examination coverage of RIAs over the past several years from 10 percent 

in FY 2014 to a high of 17 percent in FY 2018. OCIE’s coverage of RIAs in FY 2019, a 

year in which the RIA population continued to increase and the SEC experienced a 35-day 

lapse in appropriations, was 15 percent.

While OCIE will continue to make improvements in efficiency, there remains a significant 

risk that, in light of industry growth and increased complexity and other factors, it does 

not have sufficient resources to adequately cover the RIA space. OCIE’s coverage rates will 

likely not keep pace with the continued growth in the population and complexity, without 

corresponding staffing increases. While OCIE has made great strides to improve the coverage 

rate, the risks of diminished coverage, quality, and effectiveness are possible without further 

support. Ultimately, this trend is concerning and a focus for OCIE and Chairman Clayton. 

Anticipated Impact of Significant Rulemaking

The Commission finalized many new rules and interpretations in FY 2019 that will impact 

firms and OCIE. The most significant is the package of rulemakings and interpretations 

designed to enhance the quality and transparency of retail investors’ relationships with 

RIAs and broker-dealers, bringing the legal requirements and mandated disclosures in 

line with reasonable investor expectations, while preserving access, in terms of choice and 

cost, to a variety of investment services and products. Specifically, these actions include 

new Regulation Best Interest, the new Form CRS Relationship Summary, and two separate 

interpretations under the Advisers Act, which will be FY 2020 examination priorities. 

OCIE recognizes that these new rules will require various market participants to make 

changes to their operations, including to required disclosures, marketing materials and 

compliance programs. In order to assist firms with planning for compliance with these 

new rules, the SEC established an inter-Divisional Standards of Conduct Implementation 

Committee—of which staff across OCIE are members. We encourage firms to actively 

engage with OCIE and other SEC staff as they plan for implementation. Questions may be 

submitted by email to: IABDQuestions@sec.gov.
2020 EXAMINATION PRIORITIES | 5

Risk, Technology, and Industry Trends

In FY 2020, OCIE will continue to monitor industry developments and market events to 

assess impact on retail investors and SEC-registered firms, and continue to tailor its riskbased program to respond. The footprint of registered entities has become more global and 

diverse, often with an increased dependency on services and operations worldwide. And the 

use of third-party service providers and other vendors by registrants continues to increase, 

which can bring improved expertise and effectiveness, but also additional challenges and 

risks to organizations. OCIE will continue to focus on third-party risk management in FY 

2020. OCIE will also closely track and evaluate the impact of several major risk themes 

affecting its registrant population, including information security and resiliency risks, 

geopolitical events, and the industry’s transition away from LIBOR. OCIE, in coordination 

with other SEC Divisions and Offices, will engage with firms on these risks, among others, 

to better assess impact and what, if any, compliance challenges develop.

OCIE continues to make investments in human capital, technology and data analytics. In 

FY 2019, OCIE added over twenty-seven new staff positions, and it anticipates that these 

hires will each bring a wealth and variety of experience and knowledge to the examination 

program. OCIE’s technology tools and data analytics work also continue to mature and help 

drive many of its risk identification efforts, initiatives and examination processes. All of these 

resources help OCIE identify potential stresses on compliance programs and operations, 

conflicts of interest, and conduct issues that may ultimately harm investors. 

As OCIE continues to advance its use of technology and data analytics, it is mindful of its 

responsibility to ensure that information requested during an examination is appropriately 

calibrated and, once information is provided, is protected. During an examination, staff 

may request certain books and records that include sensitive information such as customer 

transactions, communications and other personal data to assess whether firms are complying 

with the federal securities laws. OCIE strives to appropriately tailor its requests for data and 

encourages dialogue with staff where a registrant may have a preferred or alternative data 

solution that would meet examination objectives. 

While balancing the importance of data protection with effectively protecting investors, 

OCIE has experienced challenges with examining non-U.S. registrants that are increasingly subject to laws on data protection and privacy, among others, that may impact the 

cross-border transfers of certain information. These challenges are particularly acute with 

the growing population of off-shore RIAs that now number close to 1,000, managing 
6 | U.S. SECURITIES AND EXCHANGE COMMISSION

over $10 trillion in investor assets. U.S. securities laws, SEC rules, and registration forms 

require non-U.S. RIAs to certify that they will provide to the SEC required records necessary for inspection. In light of this conflict of law, OCIE is seeking additional information 

from non-U.S. applicants for RIA registration to ensure these firms can comply with 

inspection requirements of U.S. securities laws, which are designed to protect impacted 

investors. The SEC continues to work with both industry and its counterparts in other 

countries to address this challenge.

Firm and Investor Outreach and Risk Alerts

OCIE’s priorities provide an overview of key areas where it intends to focus its limited 

resources. That said, the stated priorities and other examinations OCIE conducts do not 

encompass all of OCIE’s efforts to improve compliance. To promote compliance, and 

to further the effective and efficient allocation of examination resources, OCIE proactively engages with registrants through outreach events, including national and regional 

compliance seminars. In FY 2019, OCIE staff participated in or held more than 100 such 

outreach events. OCIE staff also conducted outreach to investors, including specific efforts 

directed toward members of the military and teachers, designed to inform them about 

retirement planning and investment basics. 

OCIE also engaged with and informed the industry through risk alerts in efforts to raise 

awareness of compliance and industry risks. During FY 2019, OCIE published the following eight risk alerts, which represent the most risk alerts in a year since it began publishing 

them in FY 2011.

• Investment Adviser Compliance Issues Related to the Cash Solicitation Rule;

• Risk-Based Examination Initiatives Focused on Registered Investment Companies;

• Observations from Investment Adviser Examinations Relating to Electronic Messaging;

• Transfer Agent Safeguarding of Funds and Securities;

• Investment Adviser and Broker-Dealer Compliance Issues Related to Regulation 

S-P—Privacy Notices and Safeguard Policies;

• Safeguarding Customer Records and Information in Network Storage—Use of Third 

Party Security Features;

• Observations from Examinations of Investment Advisers: Compliance, Supervision, 

and Disclosure of Conflicts of Interest; and

• Investment Adviser Principal and Agency Cross Trading Compliance Issues.
2020 EXAMINATION PRIORITIES | 7

OCIE will continue its publication of risk alerts that both describe its national initiatives 

as well as outline findings from examinations in key areas with the hopes that sharing this 

information will further promote compliance within registered firms and ultimately further 

protect the investing public. 

Finally, please know that OCIE is always interested in hearing more about new and 

emerging risk areas and products as well as how it can be more effective in its mission. 

OCIE’s contact information can be found at: https://www.sec.gov/contact-information/

sec-directory. Please engage with our staff. If you suspect or observe activity that may 

violate the federal securities laws or otherwise operates to harm investors, please notify 

SEC staff at https://www.sec.gov/tcr. And thank you for doing your part to protect investors and promote compliance.

Peter B. Driscoll

Director

Daniel S. Kahl

Co-Deputy Director, 

Chief Counsel

Kristin A. Snyder

Co-Deputy Director, 

National Investment 

Adviser/Investment 

Company Director
8 | U.S. SECURITIES AND EXCHANGE COMMISSION

INTRODUCTION

In 2020, OCIE will prioritize the examination of certain practices, products, and services 

that it believes present potentially heightened risks to investors or the integrity of the U.S. 

capital markets. Examinations of these priority areas are designed to support the SEC’s 

mission to protect investors, facilitate capital formation, and maintain fair, orderly, and 

efficient markets. 

Many of the themes noted below are perennial risk areas OCIE routinely covers in its 

examinations. Their importance to retail investors, the seriousness and frequency of prior 

years’ examination findings, or both, demonstrate the need for OCIE to continue to be 

vigilant in these significant areas. Moreover, the priorities described below are not exhaustive and will not be the only issues OCIE addresses in its examinations, published risk 

alerts, and investor and industry outreach. 

While the priorities drive many of OCIE’s examinations, 

the selection of firms to examine and the related scoped risk 

areas of focus are determined through OCIE’s risk-based 

analysis. OCIE’s risk-based approach varies depending on 

the type of registered firm and the nature of its business. 

For RIAs and broker-dealers, OCIE considers dozens of 

potential risk factors, which can include: products and services offered, including certain 

products identified as higher risk; compensation and funding arrangements; prior examination observations and conduct; disciplinary history of associated individuals and affiliates 

of a registered firm; changes in firm leadership or other personnel; and, whether a firm has 

access to investor assets, i.e., custody. While the aforementioned characteristics and factors 

are not exhaustive, they provide insight into criteria that OCIE considers in its risk assessment process. OCIE’s risk-based approach results in examinations that are focused on key 

aspects of the SEC’s regulatory oversight, such as the adequacy of disclosures concerning 

services, fees and expenses; firms’ management and handling of conflicts of interest for 

RIAs; and sales practice, trading and execution quality issues for broker-dealers. 

OCIE’s analytic efforts and examinations remain firmly grounded in its four pillars: 

promoting compliance, preventing fraud, identifying and monitoring risk, and informing 

policy. The risk-based approach, both in selecting registrants as examination candidates 

and in scoping risk areas to examine, provides OCIE with greater flexibility to cover 

emerging and exigent risks to investors and the marketplace as they arise. For example, 

as our registrants and other market participants transition away from LIBOR as a widely 

DID YOU KNOW?

In FY 2019, OCIE achieved examination 

coverage of approximately 15 percent 

of registered investment advisers. 
2020 EXAMINATION PRIORITIES | 9

used reference rate in a number of financial instruments to an alternative reference rate, 

OCIE will be reviewing firms’ preparations and disclosures regarding their readiness, 

particularly in relation to the transition’s effects on investors. Some registrants have already 

begun this effort and OCIE encourages each registrant to evaluate its organization’s and 

clients’ exposure to LIBOR, not just in the context of fallback language in contracts, but 

its use in benchmarks and indices; accounting systems; risk models; and client reporting, 

among other areas. Insufficient preparation could cause harm to retail investors and significant legal and compliance, economic and operational risks for registrants. 

RETAIL INVESTORS, INCLUDING SENIORS 

AND INDIVIDUALS SAVING FOR RETIREMENT

OCIE will again emphasize the protection of retail investors, particularly seniors and those 

saving for retirement. Concentrated in our two largest program areas, the Investment 

Adviser-Investment Company (IAIC) and Broker-Dealer and Exchange programs, OCIE 

will prioritize examinations:

• Of intermediaries that serve retail investors, namely RIAs, broker-dealers, and duallyregistered firms, and

• Focused on investments marketed to, or designed for retail investors, such as mutual 

funds and exchange-traded funds (ETF), municipal securities and other fixed income 

securities, and microcap securities.

Fraud, Sales Practices, and Conflicts

It is critically important that registered firms provide investors with the disclosures 

required by the federal securities laws, including those relating to fees and expenses, and 

conflicts of interest, which will help enable the investing public to make better informed 

choices. Registered firms must effectively implement controls 

and systems to ensure those disclosures are made as required 

and that a firm’s actions match those disclosures.

Examinations will focus on recommendations and advice 

given to retail investors, with a particular focus on: (1) seniors, 

including recommendations and advice made by entities 

and individuals targeting retirement communities; and (2) teachers and military personnel. 

Additionally, OCIE will focus on higher risk products—including private placements and 

DID YOU KNOW?

In FY 2019, OCIE verified over 3.1 

million investor accounts, totaling 

over $1.5 trillion.
10 | U.S. SECURITIES AND EXCHANGE COMMISSION

DID YOU KNOW?

In FY 2019, OCIE completed over 

150 examinations of investment 

companies (IC) and conducted six 

national IC initiatives. 

securities of issuers in new and emerging risk areas—such as those that: (1) are complex or 

non-transparent; (2) have high fees and expenses; or (3) where an issuer is affiliated with 

or related to the registered firm making the recommendation. Examinations will relatedly 

focus on registered firms’ disclosures and supervision of outside business activities of its 

employees and associated persons, and any conflicts that may arise from those activities. 

OCIE will also continue to examine RIAs to assess whether, as fiduciaries, they have 

fulfilled their duties of care and loyalty. This will include assessing, among other things, 

whether RIAs provide advice in the best interests of their 

clients and eliminate, or at least expose through full and 

fair disclosure, all conflicts of interest which might incline 

an RIA, consciously or unconsciously, to render advice 

which is not disinterested. That RIAs are acting in a manner 

consistent with their fiduciary duty and meeting their 

contractual obligations to their clients is paramount to 

maintaining investor confidence in the markets and investment professionals. OCIE, therefore, will continue to focus on risks associated with fees 

and expenses, and undisclosed, or inadequately disclosed, compensation arrangements.

Fee and compensation-based conflicts of interest may take many forms, including revenue 

sharing arrangements between a registered firm and issuers, service providers, and others, 

and direct or indirect compensation to advisory personnel for executing client transactions. In addition, duty of care concerns may arise when an RIA does not aggregate certain 

accounts for purposes of calculating fee discounts in accordance with its disclosures. These 

potential breaches of fiduciary duty may adversely impact portfolio management costs, 

reduce investor returns, and inappropriately influence investment decision-making.

Retail-Targeted Investments

Certain securities products can pose elevated risks when marketed or sold to retail investors, whether as a result of the characteristics of those securities, the dynamics in the 

markets, or due to the significant amount or concentration of assets retail investors have 

invested in a product. As in past years, OCIE will continue to prioritize examinations 
2020 EXAMINATION PRIORITIES | 11

of issues focused on retail investors, including those related to mutual funds and ETFs, 

municipal securities and other fixed income securities, and microcap securities.

Mutual Funds and ETFs

Mutual funds and ETFs are the primary investment vehicle for many retail investors. In addition to the other mutual fund and ETF priorities identified below, 

OCIE will continue to prioritize the examination of financial incentives provided 

to financial services firms and professionals that may influence the selection of 

particular mutual fund share classes. OCIE also will review for mutual fund fee 

discounts that should be provided to investors as a result of policies, contractual 

or disclosed breakpoints, such as discounts provided based on achieving managed 

investments of a specific size.

Municipal Securities and Other Fixed Income Securities

OCIE will examine broker-dealer trading activity in municipal and corporate 

bonds for compliance with best execution obligations; fairness of pricing, markups and mark-downs, and commissions; and confirmation disclosure requirements, 

including retail disclosures relating to mark-ups and mark-downs. 

Microcap Securities

OCIE will examine broker-dealers and transfer agents to review for those that 

may be engaged in, or aiding and abetting, pump and dump schemes, market 

manipulation, and illegal distributions of securities of smaller market capitalization companies—i.e., companies with a market capitalization under $250 million. 

Broker-dealers may be selected for examination based on factors such as employing 

registered representatives with disciplinary history, engaging in significant trading 

activity in unlisted securities, and making markets in unlisted securities. Focus 

areas for examinations will include: transfer agent handling of microcap distributions and share transfers; broker-dealer sales practices; broker-dealer supervision 

of high risk registered representatives; and broker-dealer compliance with certain 

regulatory requirements, including those concerning quotations under Rule 

15c2-11 Exchange Act, the locate requirement of Regulation SHO, and the obligation to file suspicious activity reports (SARs).
12 | U.S. SECURITIES AND EXCHANGE COMMISSION

Standards of Care

The Commission’s June 2019 adoption of Regulation Best Interest, the Interpretation 

Regarding Standard of Conduct for Investment Advisers, and the Form CRS Relationship 

Summary will have a direct impact on the retail investor experience with broker-dealers 

and RIAs.2 Regulation Best Interest requires broker-dealers, or a natural person who is an 

associated person of a broker or dealer, among other things, to act in the best interest of their 

retail customers when making a recommendation of any securities transaction or investment 

strategy involving securities without placing their financial or other interests ahead of the 

interests of the retail customer. The standard of conduct draws from key fiduciary principles 

and cannot be satisfied through disclosure alone. The Interpretation Regarding Standard of 

Conduct for Investment Advisers reaffirms, and in some cases clarifies, aspects of an RIA’s 

fiduciary duty that comprises duties of care and loyalty to their clients.

In order to assist firms with planning for compliance with the new rules, the SEC established an inter-Divisional Standards of Conduct Implementation Committee, of which 

OCIE representatives are members.3To further assist broker-dealers before the June 30, 

2020 compliance date for Regulation Best Interest and Form CRS, OCIE will engage 

with broker-dealers during examinations on their progress on implementing the new rules 

and questions they may have regarding the new rules. After the compliance dates, OCIE 

intends to assess implementation of the requirements of Regulation Best Interest, including policies and procedures regarding conflicts disclosures, and for both broker-dealers 

and RIAs, the content and delivery of Form CRS. Moreover, OCIE has already integrated 

the Interpretation Regarding Standard of Conduct for Investment Advisers into the IAIC 

examination program. 

2 See Regulation Best Interest: The Broker-Dealer Standard of Conduct, Rel. No. 34-86031 (June 5, 2019), available 

at https://www.sec.gov/rules/final/2019/34-86031.pdf. Commission Interpretation Regarding Standard of 

Conduct for Investment Advisers, Rel. No. IA-5248 (June 5, 2019), available at https://www.sec.gov/rules/

interp/2019/ia-5248.pdf; Form CRS Relationship Summary; Amendments to Form ADV, Rel. No 34-86032 (June 5, 

2019), available at https://www.sec.gov/rules/final/2019/34-86032.pdf. 

3 The SEC encourages firms to actively engage with this committee as questions arise in planning for 

implementation. You may send your questions by email to IABDQuestions@sec.gov.
2020 EXAMINATION PRIORITIES | 13

INFORMATION SECURITY

Information security is critical to the operation of the financial markets and the confidence 

of its participants. The impact of a breach in information security, including a successful 

cyber-attack, may have consequences that extend beyond 

the firm compromised to other market participants and 

retail investors, who may not be well informed of these 

risks and the potential consequences. OCIE is focused on 

working with firms to identify and address information 

security risks, including cyber-related, and to encourage 

market participants to actively and effectively engage 

regulators and law enforcement in this effort.

OCIE will continue to prioritize information security in each of its five examination 

programs. Examinations will focus on, among other things, proper configuration of 

network storage devices, information security governance generally, and retail trading 

information security. Specific to RIAs, OCIE will continue to focus its examinations on 

assessing RIAs’ protection of clients’ personal financial information. Particular focus areas 

will include: (1) governance and risk management; (2) access controls; (3) data loss prevention; (4) vendor management; (5) training; and (6) incident response and resiliency.

In the area of third-party and vendor risk management, OCIE will also focus on oversight 

practices related to certain service providers and network solutions, including those leveraging cloud-based storage. OCIE will continue to conduct examinations of registrants to 

review for compliance with Regulations S-P and S-ID. OCIE also will focus on the controls 

surrounding online access and mobile application access to customer brokerage account 

information. Finally, OCIE will examine for the safeguards around the proper disposal of 

retired hardware that may contain client information and potential network information 

that could create an intrusion vulnerability.

DID YOU KNOW?

OCIE prioritized information security 

in each of its five examination 

programs in FY 2019.
14 | U.S. SECURITIES AND EXCHANGE COMMISSION

FINANCIAL TECHNOLOGY (FINTECH) AND INNOVATION, 

INCLUDING DIGITAL ASSETS AND ELECTRONIC 

INVESTMENT ADVICE

Innovations and advancements in financial technologies, methods of capital formation, 

market structures, and investor interfaces continue to grow at a rapid pace. For example, 

registered firms are increasingly using new sources of data, often referred to as “alternative 

data” by the industry that, among other things, may drive investment decision-making. 

OCIE remains focused on keeping abreast of these developments, and examinations will 

focus on firms’ use of these data sets and technologies to interact with and provide services 

to investors, firms, and other service providers and assess the effectiveness of related 

compliance and control functions. 

Digital Assets

The digital assets market has grown rapidly and presents various risks, including for retail 

investors who may not adequately understand the differences between these assets and 

more traditional products. Due to these risks, OCIE will continue to identify and examine 

SEC-registered market participants engaged in this space. Examinations will assess the 

following: (1) investment suitability, (2) portfolio management and trading practices, 

(3) safety of client funds and assets, (4) pricing and valuation, (5) effectiveness of compliance programs and controls, and (6) supervision of employee outside business activities. 

Electronic Investment Advice

In addition, OCIE will continue its focus on RIAs that provide services to their clients 

through automated investment tools and platforms, often referred to as “robo-advisers.” 

Areas of focus include, among others: (1) SEC registration eligibility, (2) cybersecurity 

policies and procedures, (3) marketing practices, (4) adherence to fiduciary duty, including 

adequacy of disclosures, and (5) effectiveness of compliance programs. 
2020 EXAMINATION PRIORITIES | 15

ADDITIONAL FOCUS AREAS INVOLVING RIAS 

AND INVESTMENT COMPANIES

OCIE typically assesses compliance programs of RIAs in one or more core areas, including 

the appropriateness of account selection, portfolio management practices, custody and 

safekeeping of client assets, best execution, fees and expenses, and valuation of client assets 

for consistency and appropriateness of methodology. In addition, OCIE will often assess 

the adequacy of disclosures and governance practices in the core areas reviewed.

RIA Compliance Programs

OCIE will continue to review the compliance programs of RIAs, including whether 

those programs and their policies and procedures, are reasonably designed, implemented, 

and maintained.

OCIE will continue to prioritize examinations of RIAs that are dually registered as, or are 

affiliated with, broker-dealers, or have supervised persons who are registered representatives 

of unaffiliated broker-dealers. Areas of focus will include 

whether the firms maintain effective compliance programs to 

address the risks associated with best execution, prohibited 

transactions, fiduciary advice, or disclosure of conflicts regarding such arrangements. OCIE will also prioritize examining 

firms that utilize the services of third-party asset managers to 

advise clients’ investments to assess, among other things, the 

extent of these RIAs’ due diligence practices, policies, and procedures. 

OCIE has a particular interest in the accuracy and adequacy of disclosures provided 

by RIAs offering clients new types or emerging investment strategies, such as strategies 

focused on sustainable and responsible investing, which incorporate environmental, social, 

and governance (ESG) criteria.

Never-Before and Not Recently-Examined RIAs

OCIE will continue to conduct risk-based examinations of RIAs that have never been 

examined, including new RIAs and RIAs registered for several years that have yet to be 

examined. OCIE will also prioritize examinations of RIAs that were previously examined 

but have not been examined for a number of years to focus on whether the RIAs’ compliance programs have been appropriately adapted in light of any substantial growth or 

change in their business models. 

DID YOU KNOW?

OCIE staff participated in or held 

more than 100 compliance 

outreach events in FY 2019.
16 | U.S. SECURITIES AND EXCHANGE COMMISSION

Mutual Funds and ETFs

As retail assets continue to flow into investment companies, OCIE will prioritize examinations of mutual funds and ETFs, the activities of their RIAs, and oversight practices 

of their boards of directors. Examinations will assess industry practices and regulatory 

compliance in various areas, including a focus on: (1) RIAs that use third-party administrators to sponsor the mutual funds they advise or are affiliated with; (2) mutual funds 

or ETFs that have not previously been examined; and (3) RIAs to private funds that also 

manage a registered investment company with a similar investment strategy.

RIAs to Private Funds

OCIE will continue to focus on RIAs to private funds that have a greater impact on retail 

investors, such as firms that provide management to separately managed accounts sideby-side with private funds. Moreover, OCIE will review RIAs to private funds to assess 

compliance risks, including controls to prevent the misuse of material, non-public information and conflicts of interest, such as undisclosed or inadequately disclosed fees and 

expenses, and the use of RIA affiliates to provide services to clients. 

ADDITIONAL FOCUS AREAS INVOLVING 

BROKER-DEALERS AND MUNICIPAL ADVISORS

In addition to the aforementioned areas focusing on sales practices, broker-dealer examinations will also focus on the safety of customer cash and securities, risk management, 

certain types of trading activity, the effects of evolving commissions and other cost structures, best execution, and payment for order flow arrangements. 

Broker-Dealer Financial Responsibility

Broker-dealers that hold customer cash and securities have a responsibility to ensure that 

those assets are safeguarded in accordance with the Customer Protection Rule and the Net 

Capital Rule. Examinations of broker-dealers will continue to 

focus on compliance with these rules, including the adequacy of 

internal processes, procedures, and controls. 

Trading and Broker-Dealer Risk Management

OCIE will also examine firms’ trading and risk management 

practices. For example, OCIE will examine firms’ trading and 

other activities in “odd lots,” that is, orders under 100 shares. 

These orders often represent retail interest and require special 

treatment by broker-dealers to ensure compliance with applicable 

DID YOU KNOW?

OCIE will continue to publish Risk 

Alerts describing its national 

initiatives and outlining findings 

from examinations in key areas. 

We believe sharing this information further promotes compliance 

and protects investors. 
2020 EXAMINATION PRIORITIES | 17

laws and regulations, including best execution. OCIE will also continue to examine for 

controls around the use of automated trading algorithms by broker-dealers. Algorithmic 

trading has expanded into multiple asset classes and is subject to SEC and FINRA rules 

governing trading activity. Poorly designed trading algorithms have the potential to adversely 

impact market and broker-dealer stability. OCIE will, therefore, examine how broker-dealers 

supervise algorithmic trading activities, including the development, testing, implementation, 

maintenance, and modification of the computer programs that support their automated 

trading activities and controls around access to computer code. Finally, OCIE will examine 

registered firms’ use of internal procedures, practices, and controls to manage trading risk.

Municipal Advisors

Municipal advisors provide advice to, or on behalf of, a municipal entity or obligated 

person with respect to municipal financial products or the issuance of municipal securities 

or municipal financial products. OCIE will continue to conduct examinations of municipal 

advisors, concentrating on whether they have satisfied their registration, professional 

qualification, and continuing education requirements. OCIE will prioritize the review of 

municipal advisor fiduciary duty obligations to municipal entity clients, fair dealing with 

market participant requirements, and the disclosure of conflicts of interest. OCIE will also 

focus on the conduct of municipal advisors when faced with conflicts while representing 

their clients, and compliance with recently-effective Municipal Securities Rulemaking 

Board (MSRB) Rule G-40 concerning advertisements. 

AML PROGRAMS

The Bank Secrecy Act requires financial institutions, including broker-dealers and investment companies, to establish anti-money laundering (AML) programs. These programs 

must, among other things, include policies and procedures reasonably designed to identify 

and verify the identity of customers and beneficial owners of legal entity customers, 

perform customer due diligence (as required by the Customer Due Diligence rule), monitor 

for suspicious activity, and, where appropriate, file SARs with the Financial Crimes 

Enforcement Network. SARs are used to detect and combat terrorist financing, public 

corruption, market manipulation, and a variety of other fraudulent behavior. 

Given the importance of these requirements, OCIE will continue to prioritize examining 

broker-dealers and investment companies for compliance with their AML obligations in 

order to assess, among other things, whether firms have established appropriate customer 

identification programs and whether they are satisfying their SAR filing obligations, conducting due diligence on customers, complying with beneficial ownership requirements, and 

conducting robust and timely independent tests of their AML programs. The goal of these 
18 | U.S. SECURITIES AND EXCHANGE COMMISSION

examinations is to ensure that broker-dealers and investment companies have adequate 

policies and procedures in place that are reasonably designed to identify suspicious activity 

and illegal money-laundering activities. 

MARKET INFRASTRUCTURE

Clearing Agencies

Title VIII of the Dodd-Frank Act requires the SEC to examine, at least once annually, 

registered clearing agencies that the Financial Stability Oversight Council has designated 

as systemically important and for which the SEC serves as the 

supervisory agency (SEC SIFMU Clearing Agencies). Pursuant 

to Section 807 of the Dodd-Frank Act, the Commission must 

conduct exams of SEC SIFMU Clearing Agencies in order to 

assess, among other things: (1) the financial and operational 

risks borne and presented by them to financial institutions, 

critical markets and the financial system; (2) their resources and 

capabilities to monitor and control such risks; (3) the safety and 

soundness of the organization; and (4) their compliance with 

the Exchange Act, the rules and regulations promulgated under 

the Exchange Act, and the Dodd-Frank Act. OCIE fulfills the SEC’s requirements under the 

Dodd-Frank Act through examinations conducted by its Office of Clearance and Settlement 

and its Technology Controls Program. 

OCIE will conduct risk-based exams focusing on SEC SIFMU Clearing Agency’s core risks, 

processes, and controls which touch on each requirement of the Dodd-Frank Act. OCIE 

will also conduct risk-based examinations of other registered clearing agencies.

The Standards for Covered Clearing Agencies are codified in the Exchange Act, and 

require most registered clearing agencies to, among other things, maintain sufficient 

financial resources, protect against credit risks, manage member defaults, and manage 

operational and other risks. Examinations of SEC registered clearing agencies will focus 

on, where applicable: (1) compliance with the SEC’s Standards for Covered Clearing 

Agencies and other federal securities laws applicable to registered clearing agencies; 

(2) whether clearing agencies have taken timely appropriate corrective action in response 

to prior examinations; and (3) other areas identified in collaboration with the SEC’s 

DID YOU KNOW?

OCIE encourages market 

participants to actively and 

effectively engage regulators 

and law enforcement in 

identifying and addressing 

information security risks.
2020 EXAMINATION PRIORITIES | 19

Division of Trading and Markets and with other regulators. Areas of focus will include 

liquidity risk management, collateral and investment risk management, default risk 

management, cyber security and resiliency, and recovery and wind down procedures more 

generally, among other things. 

As part of its examinations, OCIE will also examine registered clearing agencies’ governance, legal, compliance and risk management frameworks by reviewing these entities’ 

efforts to escalate deficiencies identified by OCIE and internal auditors and whether they 

have taken timely and appropriate action to correct those deficiencies and mitigate the 

risks associated with those deficiencies. 

Finally, OCIE consults with the Federal Reserve Board each year on the scope and methodology of the SEC’s Dodd-Frank examinations, as required by that Act, and routinely 

consults with the SEC’s Division of Trading and Markets concerning risks it observes in 

its supervisory role over the above clearing agencies. These risks are incorporated into the 

risk-based planning of the examinations discussed above. 

National Securities Exchanges

National securities exchanges provide marketplaces for facilitating securities transactions 

and, under the federal securities laws, serve as self-regulatory organizations responsible for 

enforcing compliance by their members with the federal securities laws and rules and the 

exchanges’ own rules. OCIE will examine the operations of national securities exchanges, 

especially how they react to market disruptions. OCIE will also examine how the national 

securities exchanges monitor member activity for compliance with the federal securities 

laws and rules and will focus on exchange efforts concerning abusive, manipulative, and 

illegal trading practices to protect the integrity of the marketplace. 

Regulation Systems Compliance and Integrity (SCI)

Regulation SCI was adopted by the Commission to strengthen the technology infrastructure of the U.S. securities markets. Among other things, it requires SCI entities, which 

include national securities exchanges, registered and certain exempt clearing agencies, 

FINRA, MSRB, plan processors, and alternative trading systems that meet certain volume 

thresholds, to establish, maintain, and enforce written policies and procedures designed to 

ensure that their systems’ capacity, integrity, resiliency, availability, and security is adequate 

to maintain their operational capability and promote the maintenance of fair and orderly 
20 | U.S. SECURITIES AND EXCHANGE COMMISSION

markets. When certain personnel at these entities have a reasonable basis to conclude 

that certain events have occurred, these entities are required to begin to take appropriate 

corrective action to remedy the event as soon as reasonably practicable and immediately 

notify the SEC of the occurrence. 

OCIE will continue to evaluate whether SCI entities have established, maintained, and 

enforced written SCI policies and procedures as required. Areas of focus will include IT 

inventory management, IT governance, incident response, and third party vendor management, including the utilization of cloud services. OCIE will also continue to perform 

examinations to review whether SCI entities have taken appropriate action in response to 

past examinations. 

Transfer Agents

Transfer agents serve as agents for securities issuers and play a critical role in the settlement of securities transactions. Among their key functions, transfer agents are responsible 

for maintaining issuers’ securityholder records, recording changes of ownership, canceling 

and issuing certificates, distributing dividends and other payments to securityholders, and 

facilitating communications between issuers and securityholders. 

OCIE will continue to examine transfer agents’ core functions, including: the timely 

turnaround of items and transfers, recordkeeping and record retention, and safeguarding 

of funds and securities. OCIE examinations will also focus on the requirement for transfer 

agents to annually file a report by an independent accountant concerning the transfer 

agent’s system of internal accounting controls, as well as compliance with obligations to 

search for lost securityholders and provide notice to unresponsive payees. 

Examination candidates will include transfer agents that serve as paying agents for issuers, 

transfer agents developing blockchain technology, and transfer agents that provide services 

to issuers of microcap securities, private offerings, crowdfunded securities, or digital assets.
2020 EXAMINATION PRIORITIES | 21

FOCUS ON FINRA AND MSRB

FINRA

FINRA oversees approximately 3,600 brokerage firms, 156,000 branch offices, and 630,000 

registered representatives through examinations, enforcement, and surveillance. In addition, 

FINRA, among other things, provides a forum for securities arbitration and mediation, 

conducts market regulation, including by contract for a majority of national securities 

exchanges, reviews broker-dealer advertisements, administers the testing and licensing of 

registered persons, and operates industry utilities such as Trade Reporting Facilities.

OCIE conducts risk-based oversight examinations of FINRA. It selects areas within 

FINRA to examine through a risk assessment process designed to identify those aspects 

of FINRA’s operations important to the protection of investors and market integrity. The 

analysis is informed by collecting and analyzing extensive information and data, regular 

meetings with key functional areas within FINRA, and outreach to various stakeholders, 

including broker-dealers and investor groups. Based on the outcome of this risk-assessment 

process, OCIE conducts inspections of FINRA’s major regulatory programs. OCIE also 

conducts oversight examinations of the examinations FINRA conducts of certain brokerdealers and municipal advisors. From its observations during all of these inspections and 

examinations, OCIE makes detailed recommendations to improve FINRA’s programs, its 

risk assessment processes, and its future examinations. 

MSRB

MSRB regulates the activities of broker-dealers that buy, sell, and underwrite municipal 

securities, and municipal advisors. MSRB establishes rules for municipal securities dealers 

and municipal advisors, supports market transparency by making municipal securities 

trade data and disclosure documents available, and conducts education and outreach 

regarding the municipal securities market. OCIE, along with FINRA, conducts examinations of registered firms to ensure compliance with MSRB rules. OCIE also applies a 

risk assessment process, similar to the one it uses to oversee FINRA, to identify areas to 

examine at MSRB. Examinations of MSRB evaluate the effectiveness of MSRB’s policies, 

procedures, and controls.
22 | U.S. SECURITIES AND EXCHANGE COMMISSION

CONCLUSION

These priorities reflect OCIE’s assessment of certain risks, issues, and policy matters arising 

from market and regulatory developments, information gathered from examinations, 

and other sources, including tips, complaints, and referrals, and coordination with other 

Divisions and Offices at the SEC as well as other regulators. OCIE welcomes comments and 

suggestions regarding how it can better fulfill its mission to promote compliance, prevent 

fraud, identify and monitor risk, and inform SEC policy. Our contact information is available at https://www.sec.gov/ocie. If you suspect or observe activity that may violate the 

federal securities laws or otherwise operates to harm investors, please notify SEC Staff at 

https://www.sec.gov/tcr.

U.S. Securities and 

Exchange Commission

100 F Street NE

Washington, DC 20549

SEC.gov