US regulator the Securities and Exchange Commission (SEC) has put variable annuities and exchange-traded funds (ETFs) in the spotlight, as it gears up to investigate the financial sector in 2016.
With specialist unit the Office of Compliance Inspections and Examinations (OCIE) set to carry out the required legwork, the two product types have been earmarked among the SEC’s top priorities.
Other industry areas that will receive particularly close attention include liquidity controls and how financial products are promoted – together with ongoing sources of risk, such as cybersecurity, microcap fraud, fee selection and reverse churn.
ETFs and annuities will be examined as part of the regulator’s plans to bolster protection for retail investors. Indeed, the organisation announced that it would explore not just the structure of ETFs, but the trading practices around them, plus recommendations and disclosure in the variable-annuities market.
“To help fulfil the SEC’s mission of maintaining fair, orderly and efficient markets,” the regulator announced, “OCIE will continue its focus on cybersecurity controls at broker-dealers and investment advisers.”
All-new initiatives for 2016, it said, would include an evaluation of liquidity-related risk-management practices among broker-dealers and investment advisers, and firms’ compliance with the SEC’s Regulation Systems Compliance and Integrity – a protocol implemented early last year to boost technology infrastructures in the US securities market.
In addition, the OCIE will employ big data techniques to assist examiners’ ongoing initiatives for assessing anti-money-laundering compliance, detecting microcap fraud and reviewing instances of excessive trading.
Data analytics, the regulator stressed, will also “help [OCIE] examinations focused on the promotion of new, complex and high-risk products.”
SEC chair Mary Jo White said: “These new areas of focus are extremely important to investors and financial institutions across the spectrum.
“Through information sharing and conducting comprehensive examinations, OCIE continues to promote compliance with the federal securities laws to better protect investors and our markets.”
OCIE director Marc Wyatt added: “For the past four years, OCIE’s transparency and information sharing has helped inform the industry. We hope that registrants will use this information to inform the evaluation of their own compliance programmes in these key areas.”