Regulatory analytics: Keeping pace with the SEC

5 insights into compliance

As 2016 drew to a close, the US Securities and Exchange Commission (SEC) touted its “vastly increased use of data and data analytics to detect and investigate misconduct.”1 The increasing scope and sophistication of analytics employed by regulators compel financial services firms to examine how they can use analytics, both in retrospective “look-back” manner and proactively, to address growing scrutiny and enforcement. Below are five insights that can be helpful in formulating a regulatory analytics strategy.

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Exam priorities for securities firms in 2017

The Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) recently released their annual examination priorities for 2017.  Although the regulators independently develop their areas of focus, there are six overlapping priorities that securities firms may want to address in the near term.

The SEC’s priorities are organized around three thematic areas (two of which, the first and third, were included in 2015 and 2016):  (1) protecting retail investors; (2) focusing on risks specific to elderly and retiring investors; and (3) analyzing issues related to market-wide risks.

FINRA’s high-level focus will be on:  (1) high-risk and recidivist brokers; (2) sales practices; (3) financial risks, including liquidity risk and compliance with recently effective amendments to Rule 4210 (Margin Requirements); (4) operational risks, including cybersecurity; and (5) market integrity.

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SEC approves the CAT National Market System Plan

On November 15, 2016, the Securities and Exchange Commission (SEC) approved the National Market System (NMS) Plan governing the creation and operation of the Consolidated Audit Trail (CAT), capping four years of development by the 21 self-regulatory organizations (SROs) responsible for implementing the CAT.1 The CAT NMS Plan will require broker-dealers conducting business in the US equity and options markets to report all transactions—including orders, quotes, executions, cancels, allocations, and sensitive customer and account information—to a central repository.

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T+2 – Shortened Settlement Cycle: Notice of the SEC moving forward

Overview

One year ago, Deloitte began the journey with the industry and our clients to prepare for shortening of the trade settlement cycle to trade date plus two days (T+2). This work began with the creation of the T+2 Industry Playbook as a guide for financial firms to follow as they prepared for implementing T+2. Deloitte is working closely with SIFMA, ICI and DTCC in the T+2 Command Center function and continues to advance the messages of the shortened settlement cycle by facilitating T+2 workshops for our clients and the industry.

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SEC publishes CAT National Market System Plan for public comment

Columns

On April 27, 2016, the Securities and Exchange Commission (SEC) unanimously approved a proposal to implement the Consolidated Audit Trail (CAT) National Market System (NMS) plan for public comment. This milestone reflects a multi-year commitment by the US national securities exchanges and the Financial Industry Regulatory Authority (FINRA) (collectively, the self-regulatory organizations, or SROs). The SROs, with the support of Deloitte, have developed this NMS plan to govern the creation and operation of the CAT Central Repository, which will contain information about all transactions conducted within the US equities and options markets.

The CAT will require market participants to capture, retain, and report granular trade detail at the beneficial owner level across multiple asset classes and the trade order life cycle.
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FSOC issues update on potential systemic risks in asset management

100 dollar bill

On April 18, 2016, the Financial Stability Oversight Council (FSOC or the Council) issued an update1 on its review of potential systemic risks arising from asset management products and activities.

The FSOC’s review—including its December 2014 notice seeking public comment on asset management-related issues—has focused on five areas:  liquidity and redemption, leverage, operational risk, securities lending, and resolvability and transition planning.

In conducting its analysis, the FSOC utilized publicly available data, confidential data reported on the Securities and Exchange Commission’s (SEC) Form PF, input from member agencies with supervisory authority, academic studies, and submissions in response to the request for public comment.

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Exam Priorities for Securities Firms in 2016

The Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) recently released their annual examination priorities for 2016. Although the regulators independently develop their areas of focus, there are seven overlapping priorities that securities firms may want to address in the near term.

The SEC’s priorities are organized around the same three thematic areas as the 2015 priorities: (1) protecting retail investors, especially investors saving for retirement; (2) analyzing issues related to market-wide risks; and (3) using data analytics to identify registrants that may be engaged in illegal activities.

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Key takeaways: 2015 National Compliance Outreach Program for Broker-Dealers

2015 National Compliance Outreach Program for Broker-Dealers

Posted by Marjorie Forestal, Mike Jamroz and Vishal Kumar on August 31, 2015.

On July 14, 2015, the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) hosted the National Compliance Outreach Program in Washington, D.C., to help compliance, audit, and risk officers of broker-dealers better understand how they can improve their firms’ compliance with laws and regulations. Speakers and panelists included SEC and FINRA leaders and compliance executives from leading firms. Below are some of the key takeaways:

Accountability of firm senior executives and compliance officers
Panelists emphasized that C-level executives and the board should commit to their firm’s compliance frameworks, including creation of procedures for dealing with conflicts of interest and proper escalation to senior management to help deter potential actions for violations of policy, laws, or regulations. The panelists noted that while the SEC does not intend to target compliance professionals, there will be an increased focus on the duties of compliance professionals and Chief Compliance Officers (CCOs).

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Exam priorities for securities firms in 2015

FINRA and SEC

The SEC and FINRA recently announced their examination priorities for 2015. Although each regulatory body has its own distinct focus areas, there are seven common priorities that securities firms may want to put at the top of their to-do lists.

Broadly speaking, the SEC will be focusing on three high level areas: protecting retail investors; assessing market-wide risks; and using data analytics. FINRA’s high level focus will be on addressing recurring challenges within its member firms, including: putting customer interests first, firm culture, supervision, risk management and controls, product and service complexity, and management of conflicts of interest.

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