SEC, FINRA REPORT ON NATIONAL SENIOR INVESTOR INITIATIVE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Staff and FINRA Issue Report on National Senior Investor Initiative
04/15/2015 01:00 PM EDT

With the Social Security Administration estimating that each day for the next 15 years, an average of 10,000 Americans will turn 65, the staff of the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) issued a report to help broker-dealers assess, craft, or refine their policies and procedures for investors as they prepare for and enter into retirement.  

The National Senior Investor Initiative report includes observations and practices identified in examinations that focused on how firms conduct business with senior investors.  The examinations by the SEC’s Office of Compliance Inspections and Examinations (OCIE) and FINRA focused on the types of securities purchased by senior investors, the suitability of recommended investments, training of brokerage firm representatives, marketing, communications, use of designations such as “senior specialist,” account documentation, disclosures, customer complaints, and supervision.

According to the most recent U.S. Census Bureau data, in 2011, more than 13 percent of those living in the United States, or more than 41 million people, were 65 or older.  By 2040, that number is expected to exceed 79 million, more than twice as many as in the year 2000.  Given that, OCIE and FINRA staff are keenly focused on issues related to senior investors and regard compliance with laws, rules, and regulations applicable to senior investors to be a high regulatory priority.  At a time of historically low yields on traditional savings accounts and more conservative investments, OCIE and FINRA staff are concerned that some broker-dealers may be recommending riskier and possibly unsuitable securities to senior investors looking for higher returns and may be failing to adequately disclose the terms and risks of the securities they recommend.

Andrew J. Bowden, OCIE’s Director, said, “Seniors are more dependent than ever on their own investments for retirement.  Broker-dealers are developing and offering a variety of new products and services that are intended to generate higher yields in a low interest rate environment.  It is imperative that firms are recommending suitable investments and providing proper disclosures regarding the related terms and risks.”

“With the dramatic increase in the population of our nation’s seniors, it is critical that securities regulators work collaboratively to make sure that senior investors are treated fairly. The culture of compliance at firms is key to ensuring that seniors receive suitable recommendations and proper disclosures of the risks, benefits, and costs of any investments they are purchasing,” said Susan Axelrod, FINRA Executive Vice President, Regulatory Operations.

SEC ANNOUNCES IT'S 2015 EXAMINATION PRIORITIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Announces 2015 Examination Priorities

The Securities and Exchange Commission today announced its Office of Compliance Inspections and Examinations’ (OCIE) priorities for 2015 which focus on three areas: protecting retail investors, especially those saving for or in retirement; assessing market-wide risks; and using data analytics to identify signs of potential illegal activity.

“Our examination program collects information for the Commission on a range of important trends, issues, and risks,” said SEC Chair Mary Jo White. “OCIE helps us to maintain a strong presence with SEC registrants and to make a positive impact for the benefit of investors and our markets.”

“We share our annual examination priorities to promote compliance,” said Andrew J. Bowden, OCIE’s Director.  “We have observed that when we share our areas of focus, many industry participants independently review their controls in the areas we have identified.”

The 2015 examination priorities address issues across a variety of financial institutions, including investment advisers, investment companies, broker-dealers, transfer agents, clearing agencies, and national securities exchanges.  Areas of examination include:

Retail Investors – Retail investors are being offered products and services that were formerly characterized as alternative or institutional, including private funds, illiquid investments, and structured products.  Additionally, financial services firms are offering a broad array of information, advice, products, and services to help retail investors plan for and live in retirement.  OCIE will assess risks to retail investors that can arise from these trends.

Market-Wide Risks – OCIE will examine for structural risks and trends that involve multiple firms or entire industries, including: monitoring large broker-dealers and asset managers in coordination with the SEC’s policy divisions, conducting annual examinations of clearing agencies as required by the Dodd-Frank Act, assessing cybersecurity controls across a range of industry participants, and examining broker-dealers’ compliance with best execution duties in routing equity order flow.

Data Analytics – Over the last several years, OCIE has made significant enhancements that enable exam staff to analyze large amounts of data efficiently and effectively. OCIE will use these capabilities to focus on registrants and registered representatives that appear to be potentially engaged in illegal activity.

The published priorities for 2015 are not exhaustive and may be adjusted in light of market conditions, industry developments, and ongoing risk assessment activities.  OCIE selected the priorities in consultation with the Commission, the SEC’s policy divisions and regional offices, the enforcement division, the SEC’s Investor Advocate, and other regulators.