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The SEC Intends to Focus its Adviser Exams on Robo-advisers and Digital Assets - 21 February 2020

In its annual examination priority report, the Securities and Exchange Commission unveiled that it intends to prioritize investigating each of digital assets and automated investment advice existing in the securities industry.

The agency staff has shifted the focus of its examinations in 2020 to technology.  In addition to other priorities mentioned in its annual examination priority report, the agency put a special emphasis on each of digital assets and automated investment advisers.

The agency staff intends to analyze changes in financial technology through assessing the suitability of digital assets as investments, in addition to reviewing trading practices, safety of client assets and pricing and valuation.

The agency staff will also examine automated investment advice, commonly referred to as “robo-advisers”. Robo-advisers function through the use of algorithms. To utilize a robo-adviser, investors input requested information on a company’s online platform, which in turn is processed by the rober-adviser’s algorithm to decide on and provide certain investment options and advice to the investor. In its examination of robo-advisers, the agency staff will pay close attention to the registration requirements, fiduciary duty, marketing and disclosure.