Thursday, March 18, 2021

Time For A Compliance Review! - The SEC Enforcement Priorities Report

The SEC has released its report of its 2021 examination priorities. Brokers, Advisors and Financial professionals are well-advised to review the report, and their internal procedures. Find out now if you have issues that are on their list, and they will be sure to be asking about these items in an upcoming examination.

The report is 42 pages long, but here are the highlights. If you need assistance addressing any of these issues, contact Sallah Astarita & Cox, LLC, a national securities law firm comprised of former SEC Senior Enforcement Attorneys and Outside Counsel to dozens of RIAs and BDs. Call 212-509-6544 to schedule an appointment.

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 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.

RIA Fiduciary Duty 

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.

Fraud, Sales Practices, and Conflicts 

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.

Retail-Targeted Investments 

The Division will continue to prioritize examinations of issues regarding  products that are important to retail investors, including Mutual Funds and Exchange-Traded Funds (ETFs), Municipal Securities and Other Fixed Income Securities and  Microcap Securities, 

Anti-Money Laundering

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 broker-dealers and registered investment companies have adequate policies and procedures in place that are reasonably designed to identify suspicious activity and illegal money laundering activities.

Sallah Astarita & Cox, LLC is a national securities law firm comprised of former SEC and Broker-dealer attorneys, representing firms and brokers in SEC Examinations and Investigations across the country. For more information contact the firm at 212-509-6544 or send an email to

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