by Qontigo
In December 2018, the SEC released its examination priorities for 2019, which are issued annually and intended to “promote transparency of its examination program and provide insights into the areas it believes present potentially heightened risk to investors or the integrity of the U.S. capital markets.”
The priorities provide context for how the SEC will likely operate in the year ahead, along with key areas of focus. Operational transparency is one of those areas in 2019, with the goal of helping to guide compliance methods in the private space. The usual vulnerabilities of the retail sector—with a focus on older investors—is visited, with a keen emphasis on the appropriateness of risk appetite.
Digital assets and cybersecurity continue to dominate the headlines, but the SEC consistently delivers the message that traditional market risks, such as fraud and liquidity management, remain at the forefront. With Form N-PORT coming fully online this year, the mutual fund and ETF spaces will be paying close attention to the near-term guidance, as it relates to both fixed income and securitized assets, and the depths of those markets.
Execution of fixed income securities will be another area of focus for the SEC. With much of the marketplace allowing for public knowledge of pricing, the opaque fixed income world continues to draw SEC scrutiny, especially as it relates to retail investors. While there may be explanations for increased price disparities due to the liquidity provided by dealers for odd lots, the message has been sent that the SEC is watching.
As this year’s priorities demonstrate, the SEC continues to use technology and human capital to stay ahead of not only systemic risks, but the risks to which all investors large and small are exposed. As Form N-PORT has shown the marketplace, the SEC is willing to engage with, and learn from, the investment community in order to achieve its desired results. Regulators and market participants alike increasingly recognize that costs associated with regulation and enforcement are on the rise, and the best way forward is collaboration.
