2021 Examinations Division Areas of intervention | Dorsey & Whitney LLP

The Examinations Division plans to continue prioritizing traditional areas while improving their holistic approach, building on previous work and interactions with investors and industry players, according to the 2021 exam priorities, published March 3, 2021. The program continues to focus on risks related to its four core pillars: 1) Compliance; 2) fraud prevention; 3) risk monitoring; and 4) inform policy. At the same time, the Division will focus on emerging areas while taking into account environmental, social and governance issues in view of the evolution of the market.

Individual investors, seniors and individuals saving for retirement continue to be a key area of ​​focus. The standards of conduct for the field are the Best Interest Regulation – the new standard for broker-dealers – the CRS Relationship Summary form and the standard for investment advisers.

Disclosure standards, including those regarding fees and expenses and conflicts of interest, are essential in this area. The focus will be on recommendations and advice provided to retail investors “with particular emphasis on: (1) the elderly. . . (2) teachers, (3) military personnel and (4) people saving for retirement. One area that will be prioritized is the use of turnkey asset management platforms. Another is when the RIA has failed to “consolidate certain accounts for the purpose of calculating fee rebates in accordance with the disclosures.” And some investments will be targeted such as mutual funds, ETFs, municipal and other fixed income securities and securities of microcap companies. “

Information security and operational resilience is another area of ​​interest for the Division. The impact of a successful breach or cyberattack can be significant. The Division will therefore review the following steps: 1) secure customer accounts and prevent intrusions; 2) supervise vendors and service providers; 3) to combat malicious email activity; 4) to respond to incidents such as ransomware attacks; and 5) to manage the operational risk resulting from the dispersion of employees in a home work environment. The key lies in the steps taken to focus on the controls surrounding online and mobile applications.

Building on the experience of previous years, the Division will review business continuity and disaster recovery plans. However, the focus this year will be on the current and growing risks associated with physical disasters such as storms and climate change.

FinTech is a rapidly evolving and innovative field. Here, the Division will focus on whether the company is complying with its statements to clients. At the same time, the Division will assess whether the technology used for compliance – RegTech – is being used correctly.

AMLA is another critical area that the Division will prioritize. In this area, programs maintained by brokers and registered investment firms for compliance must assess and verify the identity of clients and beneficial owners of corporate clients. They must also assess due diligence with respect to customers under the due diligence rule and, where appropriate, the company must file suspicious activity reports.

LIBOR the shutdown can have a significant impact on regulated entities. Preparing for the transition away from LIBOR is “essential to minimize the potential adverse effects associated with stopping LIBOR,” the statement noted. Accordingly, the readiness and readiness of registrants will be assessed as part of the exam.

RIA are another key area for the Division. In this area, the division will focus on one or more key areas, including the relevance of account selection, portfolio management practices, custody and custody, best execution and similar issues. The Division will also review RIA compliance programs.

Funds and ETFs, the division will look at governance practices “with a focus on investor disclosures, valuations, board filings, personal trading activities, and contracts and agreements.” Liquidity and risk will also be taken into account, as will funds that have not been previously inspected.

Finally, given that around 36% of RIAs also manage private discoveries, the Division will examine these areas for issues such as preferential lending, portfolio valuations, impact of fees, adequacy of disclosures and questions. similar. The Division will further focus on funds that have a higher concentration of structured products to determine if they present a higher risk of holding non-performing loans. Overall, the division’s goal is “to adapt, innovate, work to ensure strong compliance and investor protection,” the statement said.

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