The SEC’s Division of Examinations (“DOE”) has issued its exam priorities for 2022. Once again, FINRA’s dispute resolution program isn’t included.
The 32-page DOE Report was announced in a March 30 Press Release. Division of Examinations Acting Director Richard R. Best articulates these objectives: “In this time of heightened market volatility, our priorities are tailored to focus on emerging issues, such as crypto-assets and expanding information security threats, as well as core issues that have been part of the SEC’s mission for decades – such as protecting retail investors. Our priorities cover a broad landscape of potential risks to investors that firms should consider as they review and strengthen their compliance programs.”
The specific priorities within the main categories are nicely summarized in the Release, which establishes several key exam priority categories: “The Division will focus on private funds, environmental, social and governance (ESG) investing, retail investor protections, information security and operational resiliency, emerging technologies, and crypto-assets. The Division publishes its examination priorities annually to provide insights into its risk-based approach, including the areas it believes present potential risks to investors and the integrity of the U.S. capital markets.”
FINRA is covered for the most part starting on page 23 as the sixth of nine Exam Priorities: “EXAMS conducts risk-based oversight examinations of FINRA. It selects areas within FINRA to examine through a risk assessment process designed to identify those aspects of FINRA’s operations important to the protection of investors and market integrity, including FINRA’s implementation of new investor protection initiatives.” This section also has a description of the Authority: “FINRA oversees approximately 3,400 brokerage firms, 153,000 branch offices, and 618,000 registered representatives through examinations, enforcement, and surveillance.”
And Dispute Resolution?
Dispute resolution was again not included in DOE’s exam priorities. It is, however, mentioned in passing on page 23, where the Report describes FINRA at a high level using the same language it did last year: “In addition, FINRA, among other things, provides a forum for securities arbitration and mediation ….” (emphasis added). The scant references to dispute resolution are not necessarily a bad thing; if there were perceived problems with the program, we’re sure it would be a focus area. Of course, with FINRA having retained outside counsel to investigate the “rigged panels” allegation, the arbitration program now is a de facto priority. Perhaps DOE intends to examine Dispute Resolution Services where the Report states that the Division: “… conducts risk-based oversight examinations of FINRA. It selects areas within FINRA to examine through a risk assessment process designed to identify those aspects of FINRA’s operations important to the protection of investors and market integrity, including FINRA’s implementation of new investor protection initiatives.”
(ed: *As usual, DOE warns that the list is not exhaustive and that priorities may change as the year unfolds. **Last year’s Report was 42 pages long, and was dominated by COVID-19. This year, the pandemic is mentioned just four times. ***The Bates Group published an excellent April 14 Report and chart, SEC 2022 Exam Priorities and Chart: Retail Investor Protection, Private Funds, ESG, Cybersecurity and Crypto-Assets Top this Year’s List.)