National Exam Program:
Offices and Program Areas
The Office of Compliance Inspections and Examinations (OCIE) conducts the SEC’s National Examination Program (“NEP”). OCIE’s mission is to protect investors, ensure market integrity and support responsible capital formation through risk-focused strategies that: (1) improve compliance; (2) prevent fraud; (3) monitor risk; and (4) inform policy. The results of OCIE’s examinations are utilized by the Commission to inform rule-making initiatives, to identify and monitor risks, to improve industry practices and to pursue misconduct.
The staff promotes compliance with the federal securities laws through outreach, publications, examinations, and, where appropriate, referrals to the Commission’s Division of Enforcement. The NEP has implemented, and continues to improve, a risk-based inspection and examination program that continually collects and analyzes a wide variety of data about all registrants using modern quantitative techniques. This risk analysis assists in the selection of registrants for on-site examination, which provides the most timely, accurate, and reliable information to assist the NEP in fulfilling its mission. On-site examinations also help the NEP to maintain a critical presence with market participants.
Investment Adviser / Investment Company
The Investment Adviser/ Investment Company examination program is responsible for the examination of over 10,000 investment advisers ("IAs") with more than $48 trillion of assets under management and more than 800 registered investment company complexes ("ICs") to determine their compliance with the federal securities laws, particularly the Investment Advisers Act and the Investment Company Act.
IAs typically provide advice, for compensation, about securities. For the most part, IAs who manage $100 million or more in client assets must register with the SEC. Advisers to hedge funds, private equity funds and other private funds that were previously exempt from SEC registration were recently required to register for the first time. Advisers located outside the United States may also be required to register with the SEC depending on the extent of their U.S. client base and assets under management. Generally, an IC is a company that issues securities and is primarily engaged in the business of investing in securities. IC assets are invested on a collective basis, and each investor shares in the profits and losses in proportion to the investor’s interest in the IC. The most popular type of IC is the open-end IC, known as a mutual fund, which offers shareholders the right to redeem their shares at their approximate net asset value on a daily basis.
There are approximately 450 examiners, accountants and lawyers located throughout the 12 SEC offices dedicated to the examination of IAs and ICs for compliance with federal securities laws.
Broker / Dealer
The Broker-Dealer Examinations program is responsible for examining the approximately 4,500 broker-dealers in the United States. The Office strives to ensure that broker-dealers comply with the federal securities laws, with a particular emphasis on the Securities Exchange Act. Broker-dealers may deal directly with the investing public and may sell a variety of different products. Through investigation of tips and complaints, routine and special risk-targeted examinations and monitoring industry trends and developments, the Office works to assess whether broker-dealers are upholding their duties to the investing public.
The Broker-dealer program also coordinates with the New York Stock Exchange, NASD, and other SROs on broker-dealer regulatory issues.
This program currently emphasizes broad themes to provide a risk-based focus to the program and also to assist in selecting particular broker-dealers for examination. Since broker-dealer examinations may involve activities by enterprises with related entities registered in multiple capacities and acting in concert (e.g., broker-dealer, investment adviser, transfer agent, etc.), examination activities are coordinated as appropriate.
Self-regulation is a key component of securities regulation in the United States. Self-Regulatory Organizations (“SRO”) promulgate and enforce rules governing the securities business of their member firms. The Market Oversight program conducts risk-based examinations of securities exchanges and other SROs to ensure that they and their member firms comply with applicable federal securities laws and rules, as well as SRO rules.
Examples of Market Oversight risk-based examination areas include: governance, regulatory funding, trading regulation, member firm examination programs, disciplinary programs for member firms, arbitration programs and exchange programs for listing compliance. The SROs overseen by Market Oversight include the registered national securities exchanges, such as the New York Stock Exchange, NASDAQ and BATS; FINRA; and the MSRB. In addition, Market Oversight conducts risk-based oversight examinations of the Public Company Accounting Oversight Board (PCAOB) and the Securities Investor Protection Corporation (SIPC).
Clearance and Settlement
The Clearance and Settlement examination program is responsible for examining clearing agencies and coordinating with the eleven regional offices the examination program for approximately 450 transfer agents in the United States. The group examines these entities consistent with the authority under the Exchange Act of 1934.
As self regulatory organizations, clearing agencies must file with the Commission any proposed rule or changes to organization’s rules as well as ensure compliance by its participants with these rules. To ensure the efficiency and effectiveness of the marketplace, clearing agencies may perform key functions, for example, trade comparison/confirmation, acting as a counterparty and netting, and providing settlement, custodial, and recordkeeping services.
Transfer agents help facilitate the prompt and accurate clearance and settlement of securities transactions. Transfer agents may perform key functions that include but are not limited to changes of ownership, maintain the issuer's security holder records, safeguard, issue and cancel securities’ certificates, and distribute funds (e.g. dividends, principal, interest).
Office of Chief Counsel
Legal. The Office of Chief Counsel provides advice on law, policy, operations, and ethics to examination staff in Washington, DC and in the regional offices. The Office's initiatives generally focus on new or emerging issues, involve the coordination of multiple domestic and international regulators, or require expertise that is new to the program. The Office frequently presents memoranda to the Commission on legal and policy matters that impact the national examination program. The Office also reviews and comments on proposed legislation and rules that impact the exam program, prepares guidance on new laws or rules, and helps to prepare testimony for the OCIE Director and other senior staff. The Office also responds to specific exam questions from the field and drafts, reviews and comments on proposed examination program policies and procedures. The Office also is a liaison for investigations and audits of the Exam Program by the SEC’s Office of Inspector General, Congress and the Government Accountability Office, among others. The Office also reviews and comments on draft Enforcement actions and reviews subpoena and FOIA requests.
Compliance and Ethics. The Office also assists the examination program in achieving its mission by developing, implementing, and maintaining an effective compliance program. Among other things, the Office carries out this function by assessing standardized written policies and procedures established to address program risk areas; promoting awareness of and compliance with policies and procedures by providing training and education to exam staff; establishing methods and an environment in which staff feel comfortable communicating compliance related issues; engaging in reasonable audit and monitoring activities to find out whether the program is compliant; and reporting and tracking the correction of compliance issues.