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

EXCHANGE COMMISSION

2021

EXAMINATION PRIORITIES

Division of Examinations
DISCLAIMER: This statement represents the views of the staff of the Division of Examinations. It is not a rule, 

regulation, or statement of the U.S. Securities and Exchange Commission (SEC). 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.
CONTENTS

Message from the Leadership Team............................................................................................................ 1

Global Pandemic: Observations and Impacts ................................................................................... 2

Regulation Best Interest and Form CRS............................................................................................. 4

Importance of Compliance ................................................................................................................ 5

FY2020 Results ................................................................................................................................... 6

Impact of Examinations....................................................................................................................... 8

Risk, Technology, and Industry Trends............................................................................................. 10

Firm and Investor Outreach and Risk Alerts..................................................................................... 12

Informing Policy................................................................................................................................. 13

The Division of Examinations is a Resource..................................................................................... 14

THE DIVISION OF EXAMINATIONS FY2021 EXAMINATION PRIORITIES............................................... 15

Introduction .................................................................................................................................................17

Retail Investors, Including Seniors and Individuals Saving for Retirement............................................. 19

Standards of Conduct....................................................................................................................... 19

Fraud, Sales Practices, and Conflicts............................................................................................... 21

Retail-Targeted Investments.............................................................................................................. 22

Information Security and Operational Resiliency...................................................................................... 24

Financial Technology (FINTECH) and Innovation, Including Digital Assets............................................ 25

Anti-Money Laundering .............................................................................................................................. 27

The London Inter-Bank Offered Rate (LIBOR) Transition ......................................................................... 27

Additional Focus Areas Involving RIAS and Investment Companies ..................................................... 28

RIA Compliance Programs................................................................................................................ 28

Registered Funds, Including Mutual Funds and ETFs ..................................................................... 29

RIAs to Private Funds ....................................................................................................................... 30

Additional Focus Areas Involving Broker-Dealers and Municipal Advisors ............................................ 30

Broker-Dealer Financial Responsibility ............................................................................................. 30

Broker-Dealer Trading Practices ....................................................................................................... 31

Municipal Advisors ............................................................................................................................ 31

Market Infrastructure .................................................................................................................................. 32

Clearing Agencies ............................................................................................................................. 32

National Securities Exchanges ......................................................................................................... 33

Regulation Systems Compliance and Integrity (SCI) ...................................................................... 33

Transfer Agents ................................................................................................................................. 34

Focus on FINRA and MSRB ....................................................................................................................... 35

FINRA ................................................................................................................................................ 35

MSRB ................................................................................................................................................ 35

Conclusion .................................................................................................................................................36

2021 EXAMINATION PRIORITIES | 1

MESSAGE FROM THE LEADERSHIP TEAM

This year marks the 25th anniversary of the creation of the U.S. Securities and Exchange 

Commission (SEC) Office of Compliance Inspections and Examinations (OCIE). During 

that time, we have grown in size and share of the SEC’s workforce to become the second 

largest office or division at the SEC—with more than 1,000 employees across all 11 regional 

offices and the Washington, DC, headquarters. Over the past 25 years, our examination 

responsibilities have substantially increased with the organic growth in the securities 

markets and industry and with the introduction of many new types of registered firms, all 

highlighting the growing breadth and complexity of our mission.

To better reflect the important contributions of the 

examination program and our overall role at the SEC, we 

are honored and proud that on December 17, 2020, the 

Commission unanimously supported the decision to rename 

OCIE the “Division of Examinations.”1

 This significant 

step recognizes the important role we have, both within the 

SEC, as well as externally, to promote a strong culture of 

compliance within the financial services industry. 

The Division of Examinations (the Division or EXAMS) is pleased to announce our 

examination priorities for fiscal year (FY) 2021, marking the 9th 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. 

DID YOU KNOW?

On December 17, 2020, the Commission 

unanimously supported the decision to 

rename OCIE the “Division of Examinations.”

1 https://www.sec.gov/news/public-statement/joint-statement-division-examinations.
2 | U.S. SECURITIES AND EXCHANGE COMMISSION

Global Pandemic: Observations and Impacts 

The past year has been unprecedented in the markets, our careers, and our lives. The 

pandemic has impacted everyone in different, and in some cases profound ways—including 

health and medical concerns, care for family members, financial stresses, virtual schooling, 

and social distancing. The year 2020 ushered in many challenges and changes. 

There has been change in almost every facet of our lives, including in the delivery of financial 

services and the operations of the financial services industry. Generally, we observed that the 

financial markets’ operations and systems continued to work as designed, with exchanges, 

clearing agencies, investment advisers, broker-dealers, and other market participants adapting 

to significant remote work and continuing to operate largely without incident. While there 

certainly were challenges, and we observed adjustments to many processes, particularly those 

that involved manual processing or were not automated, overall, the delivery of financial 

services continued in the pandemic environment as it should have and as investors and other 

market participants have come to rely and depend upon. 

Early on in the pandemic, we issued a statement on our own operations noting the shift 

to correspondence examinations and our outreach efforts to registered firms to assess 

pandemic-related operational resiliency challenges.2 The Division pivoted to focus on the 

most pressing risks—including examining whether registered firms’ business continuity plans 

were updated, operational and effective, and addressing increased cybersecurity risks facing 

firms and investors. We published a COVID-19 Risk Alert to share observations from this 

work and provided observations and recommendations to assist firms’ pandemic response.3

2 https://www.sec.gov/ocie/announcement/ocie-statement-operations-health-safety-investor-protection-andcontinued.

3 https://www.sec.gov/files/Risk%20Alert%20-%20COVID-19%20Compliance.pdf.
2021 EXAMINATION PRIORITIES | 3

In addition to the cybersecurity recommendations in the COVID-19 Risk Alert, we 

published two cyber-specific risk alerts in conjunction with the Division’s heightened 

focus in this area since the onset of the pandemic. First, our Ransomware Risk Alert 

highlights the risk and provides observations regarding ransomware attacks, which are 

when perpetrators typically hack into a victim’s computer system, seizing control and 

encrypting data, then demand compensation (a ransom) in exchange for maintaining the 

integrity and/or confidentiality of customer data, or for the return of control over the 

firm’s systems.4 Second, our Credential Compromise Risk Alert highlights observations 

and responses to credential stuffing attacks, which exploit the tendency for people to 

reuse their passwords across multiple websites and systems, by cyber attackers who 

obtain lists of previously compromised usernames, email addresses, and corresponding 

passwords from the dark web in an attempt to log in and gain unauthorized access to 

a customer account.5 These risk alerts built on a special report published early in 2020 

on Cybersecurity and Resiliency Observations that highlighted the importance of strong 

cyber-hygiene and protections.6

As we look beyond the pandemic, although uncertainties remain, we know that both firms 

and the Division will continue to adapt, innovate, and work to ensure strong compliance 

and investor protection. 

4 https://www.sec.gov/files/Risk%20Alert%20-%20Ransomware.pdf.

5 https://www.sec.gov/files/Risk%20Alert%20-%20Credential%20Compromise.pdf.

6 https://www.sec.gov/files/OCIE-Cybersecurity-and-Resiliency-Observations-2020-508.pdf.
4 | U.S. SECURITIES AND EXCHANGE COMMISSION

Regulation Best Interest and Form CRS

This past year saw the implementation of Regulation Best Interest7 and over 13,000 Form 

CRS filings. EXAMS, working closely with the SEC’s other divisions and offices, carefully 

developed new examination approaches to both promote compliance and inspect firms 

in both our broker-dealer and investment adviser/investment company programs. To 

do so, we began by communicating our intentions. In April, we issued two risk alerts: 

Examinations that Focus on Compliance with Regulation Best Interest8

 and Examinations 

that Focus on Compliance with Form CRS.

9

 These risk alerts provided firms and their 

chief compliance officers (CCOs) with sample request lists and identified key areas we 

planned to focus on in our initial examinations. 

We also communicated our results. In October, after completing many initial 

examinations, we shared preliminary observations at a Roundtable on Regulation Best 

Interest and Form CRS.

10 This public roundtable highlighted to firms and CCOs initial 

observations on Regulation Best Interest and Form CRS implementation. For Regulation 

Best Interest, we observed that firms generally responded by updating their written 

supervisory procedures (WSPs) and conducted training. Some firms’ WSPs incorporated 

specific processes to comply with the requirements of Regulation Best Interest, whereas 

we noted potential concerns with WSPs that simply restated the standards, but did not 

provide any meaningful guidance as to how these should be implemented. 

For Form CRS, we saw a wide variety of approaches that firms used to comply with the 

requirements of Form CRS, and generally observed firms complying with the Form’s 

requirements. Many firms appeared to make effective use of hyperlinks in their digital 

Form CRSs. We also observed that many firms are generally 

avoiding legalese and generic boilerplate language, but we 

also noted the readability of some Form CRSs could still 

be improved. Some firms did not adequately respond to the 

Form CRS disciplinary disclosure requirements, an area all 

firms should ensure they address. In addition, we identified 

and notified hundreds of firms that they had failed to timely 

file a Form CRS. 

DID YOU KNOW?

EXAMS identified and notified 

hundreds of firms that they had failed 

to timely file a Form CRS.

7 https://www.sec.gov/rules/final/2019/34-86031.pdf.

8 https://www.sec.gov/files/Risk%20Alert-%20Regulation%20Best%20Interest%20Exams.pdf.

9 https://www.sec.gov/files/Risk%20Alert%20-%20Form%20CRS%20Exams.pdf.

10 https://www.sec.gov/video/webcast-archive-player.shtml?document_id=102620-best-interest-roundtable.
2021 EXAMINATION PRIORITIES | 5

In December, staff from the Division issued a Statement on Recent and Upcoming 

Regulation Best Interest Examinations.

11 The statement identified components 

of Regulation Best Interest that may be the subject of focus in the next phase of 

examinations, including how firms have considered costs in making a recommendation 

and the processes firm personnel have used to recommend complex products. 

EXAMS continues to participate in the agency’s Inter-Divisional Standards of Conduct 

Implementation Committee, and would also like to remind market participants and other 

members of the public that they are encouraged to send questions to IABDQuestions@sec.gov. 

In addition, staff FAQs have been issued on Regulation BI (FAQs on Regulation Best Interest) 

and Form CRS (FAQs on Form CRS). 

Importance of Compliance 

We continue to believe it is important to emphasize that compliance programs, CCOs 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 CCOs with full responsibility, 

authority, and resources to develop and enforce policies and procedures of the firm. In a 

November speech, Director Driscoll highlighted his views on what it means to have an 

empowered CCO in a position of sufficient seniority and with the necessary authority.12

The speech also addressed firms’ continued need to address compliance, such that it has 

adequate resources commensurate with the role. And 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. 

11 https://www.sec.gov/news/public-statement/examinations-regulation-best-interest-2020-12-21.

12 https://www.sec.gov/news/speech/driscoll-role-cco-2020-11-19.
6 | U.S. SECURITIES AND EXCHANGE COMMISSION

FY2020 Results

The Division of Examinations 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. The Division completed 2,952 examinations in FY2020, which is a 4.4 percent 

decrease from FY2019. This small decrease, when viewed in light of the impact of the 

pandemic, is illustrative of the staff’s hard work, resiliency and dedication to the SEC’s and 

the Division’s mission to protect investors. 

The Investment Adviser/Investment Company (IA/IC) Program

The Division of Examinations reports annually the percentage of the population of 

registered investment advisers (RIAs) examined each year. This metric is important as the 

Division is the primary, and often only, regulator responsible for examining this segment 

of our registered firm population. 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 the Division oversees increased 

from about 12,000 to more than 13,900, and the assets under 

management of RIAs increased from approximately $67 

trillion to $97 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 3,900 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 11 percent of RIAs provide advisory services 

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

this significant growth and complexity, the Division 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. These efforts continue to pay dividends: The Division has increased its examination 

DID YOU KNOW?

In the last five years, the number of 

RIAs the Division oversees increased 

from about 12,000 to more than 13,900, 

and the assets under management of 

RIAs increased from approximately 

$67 trillion to $97 trillion.
2021 EXAMINATION PRIORITIES | 7

coverage of RIAs over the past several years from 10 

percent in 2014 to a high of 17 percent in 2018. The 

Division’s coverage of RIAs in 2020, a year in which the 

RIA population continued to increase and the pandemic 

necessitated a mid-year shift to remote examining, was 

15 percent. 

The Division also prioritizes the examinations of 

investment company complexes, which will remain a 

core focus for examinations in FY2021. In FY2020, the Division completed more than 

100 examinations of investment company complexes, as well as conducting hundreds of 

outreach calls to both investment company complexes and RIAs to assess market impacts 

from the pandemic.

While the Division 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. The Division’s 

coverage rates will likely not keep pace with the continued growth in the population 

and complexity, without corresponding staffing increases. While the Division 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 the Division of Examinations. 

Broker-Dealer and Exchange (BDX) Program

BDX devoted significant time to preparing for the implementation, and conducting its first 

examinations, of Regulation Best Interest. This involved working in close coordination 

both within the Commission as well as with the Financial Industry Regulatory Authority 

(FINRA) to develop examination materials such as toolkits and other resources to provide 

guidance and extensive training to examination staff. BDX also began preparations for the 

security-based swap regulations through the development of examination materials and 

evaluation of necessary data sources. Even with these significant work-streams and the 

disruptions caused by the pandemic, BDX completed over 330 examinations of brokerdealers, over 110 examinations of national securities exchanges, and over 90 examinations 

of municipal advisors and transfer agents. 

DID YOU KNOW?

The Division’s coverage of RIAs in 2020, a 

year in which the RIA population continued 

to increase and the pandemic necessitated 

a mid-year shift to remote examining, was 

15 percent.
8 | U.S. SECURITIES AND EXCHANGE COMMISSION

Other Program Areas

The FINRA and Securities Industry Oversight group (FSIO) completed over 150 

examinations of FINRA, including inspections of critical FINRA program areas and 

oversight reviews of FINRA’s examinations. FSIO also held frequent monitoring meetings 

with FINRA departments to assess the effectiveness of FINRA’s programs, including 

monitoring FINRA’s exam program transformation and the many adjustments to 

approaches and operations that were necessary across FINRA due to the pandemic. 

In addition, FSIO completed examinations and similar monitoring of the Municipal 

Securities Rulemaking Board (MSRB). 

The Clearance and Settlement Examination Program (CS), working with the Technology 

Controls Program (TCP), completed 28 examinations of clearing agencies, nearly double 

the number completed in FY2019. TCP completed over 70 examinations in addition to 

providing technical support to all other program areas within EXAMS as well as to other 

Commission divisions and offices. Leveraging its expertise in information security, business 

continuity and incident response, TCP staff supported efforts ranging from responding to 

account take-overs to contributing to the development of international cybersecurity best 

practices, and enhancing domestic and international cyber incident response. Finally, while 

not widely known, the Office of Risk and Strategy (ORS) houses the registrations team, 

which processed and reviewed over 50,000 filings from registered firms in 2020, including 

over 13,000 Forms CRS.

Impact of Examinations

Through its work, the Division is promoting compliance and making a difference for 

investors and our securities markets. For example, during FY2020, the Division 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, the Division 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 

FY2020, the Division verified over 4.8 million investor accounts, totaling over $3.4 trillion 

in assets—an increase of more than 50 percent of investor accounts, and more than twice 

the value of assets verified in FY2019. Similarly, when RIAs have access to client funds 

DID YOU KNOW?

In FY2020, the Division verified over 4.8 

million investor accounts, totaling over 

$3.4 trillion in assets.
2021 EXAMINATION PRIORITIES | 9

or securities, the Division 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, the Division 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.

Another way we promote compliance and protect investors 

is by encouraging firms to make investors whole when 

we identify during an examination that fees have been 

improperly calculated and charged. Examinations closed in 

FY2020 have so far resulted in firms returning more than 

$32 million to investors. We may refer certain matters to the 

Division of Enforcement when findings are significant with 

respect to such improper charges or other issues. 

Many important Enforcement matters have resulted from our Division’s exams and 

referrals, including, for example: numerous settled matters involving RIAs’ selection of 

higher cost mutual fund share classes for clients when lower cost options were available; 

settled actions against advisers for failing to disclose conflicts of interest, fraudulently 

inflating net asset values and performance results of managed funds, and violating the 

Custody Rule; settled actions against broker-dealers for net capital deficiencies, violating 

Regulation SHO, failing to report suspicious activity reports, and failing to supervise 

registered representatives who made unsuitable recommendations to retail customers; and 

a settled matter with a large fintech firm who misrepresented that it provided essentially 

cost free trading and obtained execution equal to or better than its competitors, when in fact 

customers received inferior execution due, in part, to the firm receiving substantial payment 

for order flow. More than 130 Enforcement referrals from FY2020 exams were made so far, 

and we anticipate more to come from our 2020 examinations. Recoveries and referral metrics 

may lag fiscal year reporting as we continue to work to get results for harmed investors, 

which, included more than 20 additional referrals in FY2020 from examinations that were 

completed in FY2019.

DID YOU KNOW?

Examinations closed in FY2020 have so far 

resulted in firms returning more than $32 

million to investors.
10 | U.S. SECURITIES AND EXCHANGE COMMISSION

Risk, Technology, and Industry Trends

In FY2021, the Division of Examinations will focus on, and respond to, market events 

and adjust its risk-based examination program as new and emerging risk areas develop. 

The Division has already had to adjust course this fiscal year to respond to market 

events. For example, examination staff across the country and across all of the Division’s 

program areas have, and continue to be, engaged with registrants reviewing and assessing 

operations, federal securities law compliance, and assessing risk regarding the wide-spread 

compromise of commonly used network management software and activities around the 

so called “meme stocks.” 

The Division has expanded its ability to respond to new and emerging risk areas with 

the newly created Event and Emerging Risks Examination Team (EERT). The Division 

will leverage this new team to proactively engage with registered firms and other market 

participants about emerging threats and current market events and quickly mobilize 

to provide expertise and resources to the SEC's regional offices when critical matters 

arise. The EERT will help ensure, through examinations and other firm engagement and 

monitoring activities, firms are better prepared to address exigent threats, incidents, and 

emerging risks. The EERT will also work with Division staff to provide expertise and 

support in response to significant market events that could have a systemic impact or that 

place investor assets at risk. As always, EXAMS will coordinate closely with other SEC 

divisions and offices, as well as other domestic and foreign regulatory authorities to better 

assess impact and mitigate burden on firms. 

With an increasing number of staff of registered firms working remotely, additional emphasis 

also will be focused on compliance and operational challenges that may arise, especially in the 

area of supervision. Prior to the pandemic, firms were already adapting their business models 

to better meet customer needs, lower costs, look to new revenue streams, and help manage 

their clients’ overall financial wellbeing. The pandemic may have slowed some of these efforts, 

but also accelerated other activities. Firms will continue to have a large remote footprint 

and thus may increasingly utilize new communication technologies, develop new workflows 

around onboarding customers, as well as expand (and in some cases close) business lines, 

or offer different products and services. As with any change, certain activities may result 

in conflicts of interest, which could require new disclosures and mitigation. Newly offered 

products or strategies could involve new regulatory obligations or necessitate compliance 

enhancements to systems, including order and portfolio management frameworks. As a result, 

the Division will carefully evaluate the impact of these types of firm activities. 
2021 EXAMINATION PRIORITIES | 11

More globally, we will continue to focus on several key themes and topics. As the financial 

service industry transitions away from the London Inter-Bank Offered Rate (LIBOR), the 

Division will continue to engage with firms around their preparedness and related transition 

activities. EXAMS will also engage with firms to understand the impact to operations, 

their business activities, and their customers relating to the United Kingdom’s exit from the 

European Union. Firms should ensure their compliance programs and controls environment 

continue to adapt and provide strong protections even as business units and offerings change. 

EXAMS continues to enhance its use of new technology and advanced data analytics to 

prioritize examination candidates and further analyze information collected during our 

inspections. Working with our partners in the Division of Economic and Risk Analysis 

(DERA), we plan to build upon existing work in predictive modeling and text-based 

analytics to improve our examination processes and identify risks and outlier activities 

correlated with compliance and control risks. 

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

the Division has experienced challenges examining non-U.S. based registered firms that are 

increasingly subject to laws on data protection and privacy, among others, that may impact 

the cross-border transfers of certain information to the SEC. These challenges are particularly 

acute with the growing population of offshore RIAs that now number over 900 RIAs, 

managing nearly $12 trillion in investor assets. Under U.S. securities laws and implementing 

rules, RIAs are required to provide their records to SEC staff for inspection, and must 

certify as to this ability to comply on Form ADV. As a result, the Division in conjunction 

with the Office of International Affairs has been seeking additional information regarding 

laws that may impact the cross-border transfer of records from offshore registered firms 

to the SEC through various channels in order to determine whether they can comply with 

these inspection requirements. Notably, the United Kingdom’s data protection authority has 

provided guidance that SEC-registered firms based in the United Kingdom can rely on the 

public interest derogation under the local data protections law to transfer records containing 

personal data to SEC staff during examinations. We continue to work with both industry and 

our counterparts in other countries to address these challenges. 
12 | U.S. SECURITIES AND EXCHANGE COMMISSION

Firm and Investor Outreach and Risk Alerts

The Division of Examinations priorities provide an overview of key areas where it intends 

to focus its resources. That said, the stated priorities and other examinations the Division 

conducts do not encompass all of our efforts to improve 

compliance. To promote compliance, and to further the 

effective and efficient allocation of examination resources, the 

Division proactively engages with registered firms through 

outreach events, including national and regional compliance 

seminars. In FY2020, EXAMS staff participated in or held 

more than 300 such outreach events, including specific efforts 

directed toward teachers, vulnerable adults and seniors, and 

members of the military. 

The Division also engaged with and informed the industry through publications designed 

to raise awareness of compliance and industry risks. During FY2020, the Division 

published a report on Cybersecurity and Resiliency Observations13 and eight risk alerts.14

The risk alerts include:

• Top Compliance Topics Observed in Examinations of Investment Companies and 

Observations from Money Market Fund and Target Date Fund Initiatives

• Examinations that Focus on Compliance with Form CRS

• Examinations that Focus on Compliance with Regulation Best Interest

• Examination Initiative: LIBOR Transition Preparedness

• Observations from Examinations of Investment Advisers Managing Private Funds

• Cybersecurity: Ransomware Alert

• Select COVID-19 Compliance Risks and Considerations for Broker-Dealers and 

Investment Advisers

• Cybersecurity: Safeguarding Client Accounts against Credential Compromise

The Division will continue its publication of risk alerts that both describe its national 

initiatives as well as outline findings and observations 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. 

DID YOU KNOW?

In FY2020, EXAMS staff participated 

in or held more than three hundred 

outreach events, including specific 

efforts directed toward teachers, 

vulnerable adults and seniors, and 

members of the military.

13 https://www.sec.gov/files/OCIE-Cybersecurity-and-Resiliency-Observations-2020-508.pdf.

14	 All Division of Examinations Risk Alerts are available at: https://www.sec.gov/exams.
2021 EXAMINATION PRIORITIES | 13

Informing Policy

In addition to our other work, we wanted to take a moment to discuss our important role 

in informing policy. This function represents a significant amount of important internal 

work that is not always visible, or obvious in our reported metrics. Although the Division 

of Examinations itself does not create policy, nearly all our work helps to inform, support, 

and shape policy discussions and decisions made throughout the Commission. This year, 

our Division’s ability to inform others was never more evident, and never more important. 

We are immensely proud of the Division’s performance during the market events this past 

spring, which was particularly noteworthy in light of the pandemic’s impact. The Division 

used its expertise, experience, process, and initiative to respond to the events and to serve 

investors. During that time, the Division provided others within the Commission as well as 

other regulators, real-time updates of registered firms and market participant information 

on an expedited basis to provide the Commission at large with a robust view of the 

situation at the time. 

Our ability to inform policy is driven by the knowledge that the Division gains from both 

the thousands of examinations it does each year, and the feedback we receive from other 

engagements. We collect observations from examinations, track certain risk themes within 

those exams, work on targeted national and local subject matter initiatives, including 

recent examples of inquiries focused on environmental, social, and governance investing, 

LIBOR transition, and pandemic-related business continuity planning assessments to 

over 800 firms, and accept feedback from countless engagements with registered firms, 

self-regulatory organizations, other regulators and market participants. Based on this 

large, robust, and strategic set of data points EXAMS thoughtfully cultivates and analyzes, 

we are uniquely able to provide the Commission and other SEC divisions and offices with 

current insight and valuable feedback about the practical aspects of the Commission’s 

regulatory mandates and the real-world impacts of regulation. 

The Division then uses its observations to inform others throughout the Commission. One 

of the most significant ways is in rulemaking. EXAMS’ input is routinely provided to the 

SEC’s rulemaking divisions and offices as they consider whether to amend current rules, 

draft new ones, or provide guidance. In fact, the Division of Examinations has contributed 

to more than 30 recent rulemakings related to the registrants that we examine. 
14 | U.S. SECURITIES AND EXCHANGE COMMISSION

The Division of Examinations also shares its highly technical and programmatic 

knowledge to inform areas beyond rulemaking. For example, TCP not only provides 

technical expertise to the exam staff, but also informs others throughout the Commission 

on the ever-increasing cybersecurity issues that firms face, and provides critical analyses of 

the technology-related tips, complaints and referrals the Commission receives. Similarly, 

our BDX program informs views of other Divisions’ evaluation of requests by registered 

firms for transaction approvals, and CS uses clearing data to inform others of potential 

financial stress on firms, which was particularly critical during spring 2020. Likewise, ORS 

routinely informs policy by sharing information on risks and emerging issues it identifies, 

including through its Office of Large Firm Monitoring, which holds recurring and ad 

hoc engagements with some of the largest financial firms in the country. These efforts 

provided incredibly valuable information and insight to the Commission as it assessed and 

responded to market events through the pandemic.

The Division of Examinations is a Resource

Finally, please know that the Division of Examinations 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. The Division’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. 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
THE DIVISION OF 

EXAMINATIONS FY2021 

EXAMINATION PRIORITIES

2021 EXAMINATION PRIORITIES | 17

INTRODUCTION

During FY2021, the Division of Examinations (the Division or EXAMS) will continue 

to prioritize the examination of certain practices, products, and services that it believes 

present 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 discussed below are perennial risk areas the Division routinely 

covers in its examinations. Their importance to investors, the seriousness and frequency 

of prior years’ examination findings, or both, demonstrate the need for the Division, 

and registrants, to continue to be vigilant in these significant areas, including continued 

consideration of environmental, social, and governance (ESG) matters in light of market 

developments and increasing awareness in this space. The Division will also prioritize 

emerging risks, including those relating to climate and ESG that are described more fully 

below. Moreover, these priorities are not exhaustive and will not be the only issues we 

address in our examinations, published risk alerts, and investor and industry outreach.

While the priorities drive many of the Division’s examinations, we select firms for 

examination and the areas of focus covered during examinations according to a risk-based 

analysis, which varies depending on the type of firm and its business activities. For 

registered investment advisers (RIAs) and broker-dealers, the Division considers dozens 

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

identified as having higher risk characteristics; compensation and funding arrangements; 

disclosures and representations made to customers; prior 

examination observations and regulatory history; whether 

the firm has never been examined, is newly registered, or 

has not been examined in many years; material changes 

in firm leadership or other key 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 the Division 

considers in its risk-based analysis.

DID YOU KNOW?

The Division selects firms for examination 

and the areas of focus covered during 

examinations according to a risk-based 

analysis, which varies depending on the 

type of firm and its business activities. 
18 | U.S. SECURITIES AND EXCHANGE COMMISSION

Our analytic efforts and examinations remain firmly grounded in the Division’s four 

pillars: promoting compliance, preventing fraud, identifying and monitoring risk, and 

informing policy. The Division’s risk-based approach, both in selecting registrants as 

examination candidates and in scoping risk areas to examine, allows the Division to 

be flexible and capable of covering emerging and exigent risks to investors and the 

marketplace as they arise. For example, since March 2020, the Division has actively 

engaged in ongoing dialogue and outreach efforts with many registrants to assess the 

impacts of the pandemic on their businesses, employees, and customers. Additionally, the 

Division has gathered information about, among other things, challenges with operational 

resiliency and the implementation and effectiveness of registrants’ business continuity 

plans. The Division undertook these efforts in the interests of 

protecting investors and the integrity of the markets, which 

helped inform observations in a published risk alert relating 

to Select COVID-19 Compliance Risks and Considerations 

for Broker-Dealers and Investment Advisers.

15 Finally, to 

improve our ability to respond to emerging and exigent 

risks, the Division established the Event and Emerging 

Risks Examination Team (EERT), which has recently 

become operational.16

DID YOU KNOW?

To improve our ability to respond 

to emerging and exigent risks, 

the Division established the Event and 

Emerging Risks Examination Team 

(EERT), which began operating this year.

15 See OCIE Risk Alert, Select COVID-19 Compliance Risks and Considerations for Broker-Dealers and Investment

Advisers (August 12, 2020) available at https://www.sec.gov/files/Risk%20Alert%20-%20COVID-19%20

Compliance.pdf.

16 See Press Release, SEC Announces Creation of the Event and Emerging Risk Examination Team in the Office of

Compliance Inspections and Examinations and the Appointment of Adam D. Storch as Associate Director (July 

28, 2020) available at https://www.sec.gov/news/press-release/2020-165.
2021 EXAMINATION PRIORITIES | 19

RETAIL INVESTORS, INCLUDING SENIORS AND 

INDIVIDUALS SAVING FOR RETIREMENT

The Division will again emphasize the protection of retail investors, particularly seniors 

and individuals saving for retirement. EXAMS’ two largest program areas—Investment 

Adviser/Investment Company (IA/IC) and Broker-Dealer and Exchange (BDX)—will 

continue to prioritize examinations of RIAs, broker-dealers, and dually-registered or 

affiliated firms, as more and more individuals rely on these financial intermediaries to gain 

access to the financial markets. EXAMS will focus on investments and services marketed 

to retail investors, such as mutual funds and exchange-traded products, municipal 

securities and other fixed income instruments, and microcap securities, such as those 

traded over-the-counter.

Standards of Conduct

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

Relationship Summary (Form CRS), and the Interpretation Regarding Standard of 

Conduct for Investment Advisers will have a direct impact on the retail investor experience 

with broker-dealers and RIAs.17

Regulation Best Interest

Regulation Best Interest established a new 

standard of conduct for broker-dealers and 

associated persons of a broker-dealer. Regulation 

Best Interest requires broker-dealers and natural 

persons who are associated persons of a broker 

or dealer 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. This 

general obligation is satisfied only if a broker-dealer complies with four component 

obligations: a Disclosure Obligation, a Care Obligation, a Conflict of Interest 

Obligation, and a Compliance Obligation. The standard of conduct draws from 

DID YOU KNOW?

Regulation Best Interest established a new 

standard of conduct for broker-dealers and 

associated persons of a broker-dealer. 

17 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.
20 | U.S. SECURITIES AND EXCHANGE COMMISSION

key fiduciary principles and cannot be satisfied through disclosure alone. The 

Division will prioritize examinations to assess compliance with Regulation Best 

Interest.18 Initial examinations previously undertaken focused on the processes 

broker-dealers relied on to implement Regulation Best Interest.

In 2021, the Division will expand the scope of examinations to focus on assessing 

whether broker-dealers are making recommendations that they have a reasonable 

basis to believe are in customers’ best interests and evaluating broker-dealer 

processes for compliance and alterations made to product offerings. The Division 

will also conduct enhanced transaction testing as part of these examinations, and 

will evaluate firm policies and procedures designed to meet additional elements 

of Regulation Best Interest, the recommendation of rollovers and alternatives 

considered, complex product recommendations, assessment of costs and 

reasonably available alternatives, how sales-based fees paid to broker-dealers and 

representatives impact recommendations, and policies and procedures regarding 

how broker-dealers identify and address conflicts of interest.

RIA Fiduciary Duty

The Interpretation Regarding Standard of Conduct for RIAs reaffirms, and in 

some cases clarifies, aspects of an RIA’s fiduciary duty that comprises duties of care 

and loyalty to its clients. The Division will continue to examine RIAs to assess 

whether, as fiduciaries, they have fulfilled their duty of care and duty of loyalty. 

This will include assessing, among other things, whether RIAs provide advice, 

including whether account or program types continue to be, in the best interests 

of their clients, based on their clients’ objectives, and eliminate or make full and 

fair disclosure of all conflicts of interest which might incline RIAs—consciously or 

unconsciously—to render advice which is not disinterested such that their clients 

can provide informed consent to the conflict. The Division will continue to focus 

on risks associated with fees and expenses, complex products, best execution, and 

undisclosed or inadequately disclosed, compensation arrangements.

18 See OCIE Risk Alert, Examinations that Focus on Compliance with Regulation Best Interest (April 7, 2020)

available at https://www.sec.gov/files/Risk%20Alert-%20Regulation%20Best%20Interest%20Exams.pdf.
2021 EXAMINATION PRIORITIES | 21

Form CRS

Form CRS and its related rules require broker-dealers and RIAs to deliver to 

retail investors a brief customer or client relationship summary that provides 

information about the firm. Firms must also file their relationship summaries 

(and any amendments) with the Commission, using the Web Central Registration 

Depository or Investment Adviser Registration Depository, as applicable, and post 

the current relationship summary on the firm’s public website, if the firm has one. 

The Division will prioritize examinations of broker-dealers and RIAs to assess 

compliance with Form CRS.19

Fraud, Sales Practices, and Conflicts

It is critically important that broker-dealers, investment companies, and RIAs 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. Conflicts of interest, particularly those with the 

prospect of financial gain, can improperly influence a firm’s fundamental obligation to act 

in investors’ best interest. Recent market volatility and industry pressures have impacted 

fees and other revenues collected by firms. These conditions may cause increased financial 

stress on firms and their personnel, which may, in turn, lead to increased instances of 

fraudulent conduct.

Against the backdrop of the standards of conduct described above, examinations will 

focus on the appropriateness of recommendations and advice provided to retail investors, 

with a particular emphasis on: (1) seniors, including recommendations and advice made 

by entities and individuals targeting retirement communities; (2) teachers; (3) military 

personnel; and (4) individuals saving for retirement.

Additionally, the Division will concentrate on recommendations regarding account type, 

conversions, and rollovers, as well as the sales practices used by firms for various product 

types, such as structured products, exchange-traded products, real estate investment trusts, 

private placements, annuities, digital assets, municipal and other fixed income securities, 

and microcap securities. In addition to the recommendation of complex products, the 

Division will examine broker-dealers to assess whether they are meeting their legal and 

compliance obligations when providing retail customers access to complex strategies, 

such as options trading, and complex products. The Division will also focus on how 

firms are complying with the recent changes to the definition of accredited investor when 

recommending and selling certain private offerings.

19 See OCIE Risk Alert, Examinations that Focus on Compliance with Form CRS (April 7, 2020) available at 

https://www.sec.gov/files/Risk%20Alert%20-%20Form%--00--%20Exams.pdf.
22 | U.S. SECURITIES AND EXCHANGE COMMISSION

The Division’s examinations will review firms’ disclosures regarding their conflicts of 

interest, including those related to fees and expenses. 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 personnel for executing client transactions. One particular area the 

Division will prioritize is the examination of RIAs operating and utilizing turnkey asset 

management platforms. Such platforms provide RIAs with technology, investment 

research, portfolio management and other outsourcing services, and the Division’s 

examinations will seek to assess whether such fees and revenue sharing arrangements 

are adequately disclosed.

In addition, concerns may arise when an RIA does not aggregate certain accounts for 

purposes of calculating fee discounts in accordance with its disclosures. In reviewing fees 

and expenses, the staff will review for: (1) advisory fee calculation errors, including, but 

not limited to, failure to exclude certain holdings from management fee calculations; 

(2) inaccurate calculations of tiered fees, including failure to provide breakpoints and 

aggregate household accounts; and (3) failures to refund prepaid fees for terminated accounts.

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 the significant amount or concentration of assets retail investors have invested 

in a product. The Division will continue to prioritize examinations of issues regarding 

these products given their importance to retail investors.

Mutual Funds and Exchange-Traded Funds (ETFs)

Mutual funds and ETFs are the primary investment vehicle for many retail investors. 

In addition to the other registered investment company priorities identified below, 

the Division will focus on financial intermediaries’ recommendations and disclosures 

involving ETFs, including adequacy of risk disclosure, and suitability, particularly 

in niche or leveraged/inverse ETFs. The Division will also continue to prioritize the 

examination of incentives provided to financial services firms and professionals that 

may influence the selection of particular higher cost mutual fund share classes when 

lower cost classes are available.
2021 EXAMINATION PRIORITIES | 23

Municipal Securities and Other Fixed Income Securities

The importance of timely and accurate municipal issuer disclosure has become 

even greater as a result of the potentially significant effects of the pandemic on the 

finances and operations of many municipal issuers. The Division will examine the 

activities of broker-dealers, underwriters, and municipal advisors to assess whether 

these firms are meeting their respective obligations, as and to the extent applicable, 

in relation to municipal issuer disclosure. In addition, the Division will examine 

broker-dealer trading activity in municipal and corporate bonds for compliance 

with best execution obligations; fairness of pricing, mark-ups and mark-downs, 

and commissions; and confirmation disclosure requirements, including disclosures 

relating to mark-ups and mark-downs.

Microcap Securities

The Division remains committed to deterring microcap fraud, or fraud in 

connection with securities of companies with a market capitalization under 

$250 million. During the pandemic, several issuers of microcap securities made 

questionable claims regarding testing, treatments, and vaccines, among other 

things. The Commission suspended trading in certain securities, including 

certain microcap securities, due to concerns about the adequacy and accuracy 

of information in the marketplace about the issuers. The Division will continue 

to prioritize examinations of broker-dealers and transfer agents for compliance 

with their obligations in the offer, sale, and distribution of microcap securities. 

Focus areas for examinations will include: transfer agent handling of microcap 

distributions and share transfers; broker-dealer sales practices and their 

consistency with Regulation Best Interest; and broker-dealer compliance with 

certain regulatory requirements, including the locate requirement of Regulation 

SHO, penny stock disclosures under Rules 15g-2 through 15g-6 of the Securities 

Exchange Act of 1934, and the obligation to monitor for and report suspicious 

activity and other anti-money laundering (AML) obligations.
24 | U.S. SECURITIES AND EXCHANGE COMMISSION

INFORMATION SECURITY AND OPERATIONAL 

RESILIENCY

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. The Division is acutely focused on working with firms 

to identify and address information security risks, including cyber-attack related risks, 

and encourages market participants to actively and effectively engage regulators and law 

enforcement in this effort.

Over the past year, the increase in remote operations in response to the pandemic has 

increased concerns about, among other things, endpoint security, data loss, remote access, 

use of third-party communication systems, and vendor management. The Division will 

review whether firms have taken appropriate measures to: (1) safeguard customer accounts 

and prevent account intrusions, including verifying an investor’s identity to prevent 

unauthorized account access; (2) oversee vendors and service providers; (3) address 

malicious email activities, such as phishing or account 

intrusions; (4) respond to incidents, including those related 

to ransomware attacks; and (5) manage operational risk 

as a result of dispersed employees in a work-from-home 

environment. In particular, EXAMS will also focus on 

controls surrounding online and mobile application access 

to investor account information, the controls surrounding 

the electronic storage of books and records and personally 

identifiable information maintained with third-party cloud 

service providers, and firms’ policies and procedures to 

protect investor records and information.

DID YOU KNOW?

The increase in remote operations 

in response to the pandemic has 

increased concerns about, among 

other things, endpoint security, data 

loss, remote access, use of third-party 

communication systems, and vendor 

management. 
2021 EXAMINATION PRIORITIES | 25

In light of substantial disruptions to normal business operations in the past year, the 

Division will again be reviewing registrants’ business continuity and disaster recovery 

plans. Building on the efforts noted above concerning our business continuity plan 

outreach related to the pandemic, the Division will shift its focus to whether such plans, 

particularly those of systemically important registrants, account for the growing physical 

and other relevant risks associated with climate change. The scope of these examinations 

will be similar to the post-Hurricane Sandy work of the Division and other regulators,20

with a heightened focus on the maturation and improvements to these plans over the 

intervening years. As climate-related events become more frequent and more intense, we 

will review whether systemically important registrants are considering effective practices to 

help improve responses to large-scale events.

FINANCIAL TECHNOLOGY (FINTECH) AND INNOVATION, 

INCLUDING DIGITAL ASSETS

Innovations in financial technology and capital formation continue at a rapid pace. This 

transformation has dramatically changed the way firms interact with their customers 

and clients. The Division remains committed to staying informed about how these 

developments impact registrants and investors. Some firms (new and existing) are 

providing financial services to clients or customers in innovative and evolving ways, such 

as firms providing advice to clients through automated investment tools and platforms 

(often referred to as “robo-advisers”) or firms offering automated asset allocation, 

fractional share purchases, customized portfolios, and mobile applications. Among other 

areas, examinations will focus on evaluating whether firms are operating consistently with 

their representations, whether firms are handling customer orders in accordance with 

customer instructions, and review compliance around trade recommendations made in 

mobile applications.

The use of technology to facilitate compliance with regulatory requirements (RegTech) has 

experienced immense growth in recent years. RegTech, when implemented appropriately, 

may increase the efficiency of compliance staff, reduce manual processes, and 

exponentially increase transaction review capabilities. However, misused or improperly 

configured RegTech may lead to compliance program deficiencies. Examinations will focus 

on the implementation and integration of RegTech in firms’ compliance programs.

20 See Joint SEC, FINRA, and CFTC Business Continuity Planning Observations (August 7, 2013) available at

https://www.sec.gov/about/offices/ocie/jointobservations-bcps08072013.pdf.
26 | U.S. SECURITIES AND EXCHANGE COMMISSION

Alternative data, or data gleaned from non-traditional sources, is increasingly being used 

by firms, including advisers to private funds and registered investment companies, as 

part of their business and investment decision-making processes. Reviews will include 

examining whether firms are implementing appropriate controls and compliance around 

the creation, receipt, and use of such information.

The digital asset market continues to evolve, and so too does 

the adoption of distributed ledger technology in financial 

services and market infrastructure. Examinations of market 

participants engaged with digital assets will continue to 

assess the following: (1) whether investments are in the best 

interests of investors; (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 representatives’ outside 

business activities.

DID YOU KNOW?

Examinations of market participants 

engaged with digital assets will continue 

to assess the following: (1) whether 

investments are in the best interests 

of investors; (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 representatives’ 

outside business activities.
2021 EXAMINATION PRIORITIES | 27

ANTI-MONEY LAUNDERING

The Bank Secrecy Act requires financial institutions, including broker-dealers and registered 

investment companies, to establish AML programs that are tailored to address the risks 

associated with the firm’s location, size, and activities, including the type of products and 

services offered to customers or investors, and the means by which those products and services 

are offered. 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 Suspicious 

Activity Reports (SARs) with the Financial Crimes Enforcement Network (FinCEN). SARs 

are used to detect and combat terrorist financing, public corruption, market manipulation, 

and a variety of other fraudulent behaviors.

Given the importance of these requirements, the Division will continue to prioritize 

examinations of broker-dealers and registered 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 examinations is to evaluate whether brokerdealers and registered investment companies have adequate policies and procedures 

in place that are reasonably designed to identify suspicious activity and illegal moneylaundering activities.

THE LONDON INTER-BANK OFFERED RATE (LIBOR) 

TRANSITION

The discontinuation of LIBOR could have a significant impact on the financial markets 

and may present a material risk for certain market participants, including RIAs, brokerdealers, investment companies, municipal advisors, transfer agents and clearing agencies. 

Preparation for the transition away from LIBOR is essential for minimizing any potential 

adverse effects associated with LIBOR discontinuation. EXAMS intends to engage with 

registrants through examinations to assess their understanding of any exposure to LIBOR, 

their preparations for the expected discontinuation of LIBOR and the transition to an 

alternative reference rate, in connection with registrants’ own financial matters and those 

of their clients and customers.
28 | U.S. SECURITIES AND EXCHANGE COMMISSION

ADDITIONAL FOCUS AREAS INVOLVING RIAS 

AND INVESTMENT COMPANIES 

RIA Compliance Programs

EXAMS 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, business 

continuity plans, and valuation of client assets for consistency and appropriateness of 

methodology. In evaluating the effectiveness of a compliance program, the Division 

frequently reviews whether RIAs appear to have sufficient resources to perform core 

compliance responsibilities.

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

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

and maintained. The Division will continue to prioritize examinations of RIAs that have 

not been examined for a number of years to focus on whether the compliance programs of 

RIAs have been appropriately adapted in light of any substantial growth or change in their 

business models. As part of its risk-based examination approach, the Division will also 

continue to conduct examinations of RIAs that have never been examined, including new 

RIAs and RIAs registered for several years that have yet to be examined, with a particular 

focus on firms’ compliance programs.

Due to investor demand, RIAs are increasingly offering 

investment strategies that focus on sustainability. These 

strategies may include products and services that are 

referred to by a variety of terms such as sustainable, socially 

responsible, impact, and ESG conscious. The Division will 

focus on products in these areas that are widely available 

to investors such as open-end funds and ETFs, as well 

as those offered to accredited investors such as qualified 

opportunity funds.21 The Division will review the consistency 

and adequacy of the disclosures RIAs and fund complexes 

provide to clients regarding these strategies, determine 

whether the firms’ processes and practices match their 

disclosures, review fund advertising for false or misleading 

statements, and review proxy voting policies and procedures 

and votes to assess whether they align with the strategies.

DID YOU KNOW?

Due to investor demand, RIAs are 

increasingly offering investment 

strategies that focus on sustainability. 

These strategies may include products 

and services that are referred to by a 

variety of terms such as sustainable, 

socially responsible, impact, and ESG 

conscious. The Division will focus on 

products in these areas that are widely 

available to investors.

21 See IRS, Opportunity Zones Frequently Asked Questions available at https://www.irs.gov/credits-deductions/

opportunity-zones-frequently-asked-questions#designated (A QOZ is an economically distressed community

where new investments, under certain conditions, may be eligible for preferential tax treatment); see also SEC,

Spotlight on Opportunity Zones available at https://www.sec.gov/page/spotlight-opportunity-zones.
2021 EXAMINATION PRIORITIES | 29

In addition, the Division 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 RIAs maintain effective compliance programs to address the risks associated with 

these business models, including conflicts of interest that arise from certain compensation 

arrangements and outside business activities, best execution, and prohibited transactions.

Registered Funds, Including Mutual Funds and ETFs

During examinations of registered investment companies, EXAMS often reviews funds’ 

compliance programs and governance practices, with a focus on disclosures to investors, 

valuation, filings with the Commission, personal trading activities, and contracts and 

agreements. The Division will review mutual fund filings and reports to funds’ boards for 

compliance with regulatory requirements and for valuation issues. In focusing on valuation 

and the resulting impact on fund performance, liquidity and risk-related disclosures, the 

Division will review for investments in market sectors that experienced, or continue to 

experience, stress due to the pandemic, such as energy, real estate, or products such as 

bank loans and high yield corporate and municipal bonds. The Division will also review 

funds’ and advisers’ disclosures and practices related to securities lending.

The Division will also prioritize examinations of mutual funds or ETFs that have not 

previously been examined or have not been examined in a number of years, and will 

generally focus on funds’ compliance programs and financial condition, particularly 

where funds have instituted advisory fee waivers. In addition, the Division will focus on 

compliance with exemptive relief, including for the newly created non-transparent actively 

managed ETFs.

Given the high degree of customization and the diversity of data analytics practices and 

methodologies, liquidity risk management programs (LRMPs) will be a focus area for 

the Division. As part of its review of funds’ compliance programs, the Division will focus 

on mutual funds’ LRMPs to determine whether they are reasonably designed to assess 

and manage the funds’ liquidity risk. The Division will also review the implementation of 

required liquidity classifications, particularly in light of the recent stresses in the market 

due to the pandemic.

Money market funds remain an important part of the registered fund industry to retail 

and institutional investors for cash management. Given their importance to investors, 

the Division intends to review money market funds’ compliance with stress-testing 

requirements, website disclosures and board oversight. 
30 | U.S. SECURITIES AND EXCHANGE COMMISSION

RIAs to Private Funds 

Over 36 percent of RIAs manage private funds, which frequently have significant 

investments from pensions, charities, endowments, and families. EXAMS will continue 

to focus on advisers to private funds, and will assess compliance risks, including a focus 

on liquidity and disclosures of investment risks and conflicts of interest. 

Specifically, the Division will review for, among other things: preferential treatment of 

certain investors by advisers to private funds that have experienced issues with liquidity, 

including imposing gates or suspensions on fund withdrawals; portfolio valuations and 

the resulting impact on management fees; adequacy of disclosure and compliance with 

any regulatory requirements of cross trades, principal investments, or distressed sales; 

and conflicts around liquidity, such as adviser led fund restructurings, including stapled 

secondary transactions where new investors purchase the interests of existing investors 

while also agreeing to invest in a new fund. 

The Division will also focus on advisers to private funds that have a higher concentration 

of structured products, such as collateralized loan obligations and mortgage backed 

securities, to assess whether the funds are at a higher risk for holding non-performing 

loans and having loans with higher default risk than that disclosed to investors. In 

addition, the Division will examine advisers to private funds where there may have been 

material impacts on portfolio companies owned by the private fund (e.g., real estate 

related investments) due to recent economic conditions.

ADDITIONAL FOCUS AREAS INVOLVING BROKERDEALERS AND MUNICIPAL ADVISORS

In addition to the areas focusing on Regulation Best Interest, sales practices and retailtargeted investments already discussed, the Division’s broker-dealer examinations will also 

focus on the safety of customer cash and securities, best execution in light of the effects of 

evolving commissions and other cost structures, certain types of trading activity, and the 

operations of alternative trading systems. The Division’s municipal advisor examinations 

will also focus on the areas described below. 

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, and compliance 
2021 EXAMINATION PRIORITIES | 31

with requirements for borrowing securities from customers. In light of the COVID-19 

pandemic, examiners may also assess broker-dealer funding and liquidity risk management 

practices to assess whether firms have sufficient liquidity to manage stress events. 

Broker-Dealer Trading Practices

The Division will continue to examine broker-dealer trading practices. Examinations 

will focus on broker-dealer compliance with best execution obligations in a zero 

commission environment and compliance with the recently amended Rule 606 order 

routing disclosure rules. The Division will continue its 

prior initiative in the area of payment for order flow and 

its possible effect on order routing and best execution 

obligations. Examinations will also focus on market 

maker compliance with Regulation SHO, including the 

rules regarding aggregation units and locate requirements. 

The Division will also examine the operations of certain 

alternative trading systems for consistency with their 

disclosures provided in Form ATS-N. 

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. The COVID-19 pandemic has affected the finances 

and operations of many municipal issuers. Consequently, the importance of timely and 

accurate municipal disclosure is critical to investors. The Division will examine, in light of 

the COVID-19 pandemic and its potential impacts on municipal advisors and their clients, 

how municipal advisors adjusted their practices, if at all. The Division will also examine 

whether municipal advisors have met their fiduciary duty obligations to municipal entity 

clients, including but not limited to disclosing and managing conflicts of interest and 

documentation of the scope of their client engagements. The Division will also examine 

whether municipal advisors have satisfied their registration, professional qualification, 

continuing education, and supervision requirements and whether municipal advisors have 

relied on relief from Form MA annual update filing requirements,22 or the temporary 

broker exemptive order permitting certain activities in connection with direct placements 

of municipal securities.23

DID YOU KNOW?

The Division will continue its prior initiative 

in the area of payment for order flow and 

its possible effect on order routing and best 

execution obligations. 

22 See Order Under Section 15B of the Securities Exchange Act of 1934 Granting an Exemption for Municipal

Advisors from Specified Provisions of the Securities Exchange Act and Rule15Ba1-5(a)(1) Thereunder (March 26,

2020) available at https://www.sec.gov/rules/exorders/2020/34-88491.pdf.

23 See Order Granting a Temporary Conditional Exemption from the Broker Registration Requirements of Section

15(a) of the Securities Exchange Act of 1934 for Certain Activities of Registered Municipal Advisors (June 16,

2020) available at https://www.sec.gov/rules/exorders/2020/34-89074.pdf. 
32 | U.S. SECURITIES AND EXCHANGE COMMISSION

MARKET INFRASTRUCTURE 

Clearing Agencies

EXAMS will conduct, as required by law, at least one risk-based exam of each clearing 

agency designated as systemically important and for which the SEC serves as the 

supervisory agency.24 These exams will focus on core risks, processes, and controls and 

will cover the specific areas required by statute, including assessment of financial and 

operational risk.25 The Division will also conduct risk-based examinations of other 

registered clearing agencies and entities exempt from registration as clearing agencies. 

The Standards for Covered Clearing Agencies are rules that require covered clearing 

agencies to, among other things, have policies and procedures that address maintaining 

sufficient financial resources, protecting against credit risks, managing member defaults, 

and managing 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 Division of Trading and Markets and other regulators. Areas of focus may 

include compliance, legal, recovery and wind down, margin, back-testing, settlement and 

operations, liquidity risk management, effect of the LIBOR transition, and cybersecurity 

and resiliency, among other things.

As part of its examinations, the Division will also examine registered clearing agencies’ 

governance, legal, compliance, and risk management frameworks by reviewing these 

entities’ efforts to escalate deficiencies identified by the Division and internal auditors and 

whether they have taken timely and appropriate action to correct and mitigate the risks 

associated with those deficiencies. 

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

agency that the Financial Stability Oversight Council has designated as systemically important and for which the

SEC serves as the supervisory agency. 

25	 EXAMS consults with the Federal Reserve Board each year on the scope and methodology of the SEC’s DoddFrank examinations, as required by the Dodd-Frank 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.
2021 EXAMINATION PRIORITIES | 33

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. The Division will examine the national securities exchanges to assess 

whether they are meeting their obligations under the federal securities laws. Examinations 

will focus on exchange operations to monitor, investigate, and enforce member and listed 

company compliance with, as applicable, exchange rules and the federal securities laws. 

Regulation Systems Compliance and Integrity (SCI) 

The Commission adopted Regulation SCI to strengthen the technology infrastructure 

of the U.S. securities markets. Among other things, Regulation SCI requires designated 

entities (SCI entities), which include national securities exchanges, registered and certain 

exempt clearing agencies, the Financial Industry Regulatory Authority (FINRA), the 

Municipal Securities Rulemaking Board (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 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. 

EXAMS 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 

governance, IT asset management, cyber threat management/incident response, business 

continuity planning, and third-party vendor management, including utilization of cloud 

services. EXAMS may also review whether SCI entities have taken appropriate action in 

response to past examination findings.
34 | U.S. SECURITIES AND EXCHANGE COMMISSION

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. 

The Division will continue to examine transfer agents’ core functions: the timely 

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

of funds and securities. In light of the COVID-19 pandemic, transfer agent examinations 

will also consider a firm’s business continuity and disaster recovery programs, as well as 

their cybersecurity measures and account takeover precautions. Examination candidates 

will include those transfer agents that present the greatest possible risks to investors 

and investment channels (i.e., where/how retail investors are more likely to invest), and 

will include transfer agents that service microcap or municipal bond issues, use novel 

technological applications (e.g., blockchain or online crowdfunding portal applications), 

or engage in significant paying agent activity. 
2021 EXAMINATION PRIORITIES | 35

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.

EXAMS 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, EXAMS conducts inspections of FINRA’s major regulatory programs. EXAMS 

also conducts oversight examinations of FINRA’s examinations of certain broker-dealers 

and municipal advisors. From its observations during all of these inspections and 

examinations, EXAMS 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 broker-dealers 

(including registered 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. 

EXAMS, along with FINRA and the federal banking regulators, conducts examinations 

of registered firms to assess compliance with MSRB rules. EXAMS 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.
36 | U.S. SECURITIES AND EXCHANGE COMMISSION

CONCLUSION 

These priorities reflect the Division’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 regulators. The Division 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/exams. 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