Targeting Broker-Dealer Compliance Examination (PDF), Audit No. 394

TARGETING BROKER-DEALER COMPLIANCE EXAMINATIONS EXECUTIVE SUMMARY We conducted an audit of the Commission’s targeting of Broker-Dealer (BD) examinations. The BD Examination program (BD program) consists of the Office of Compliance Inspections and Examinations (OCIE) and the BD examination staff in the field offices. The BD program has been incorporating the Commission’s increased emphasis on risk into its processes (e.g., conducting risk workshops, increasing the use of sweeps and mini-sweeps, etc.). We found that the BD program’s targeting process was generally effective and efficient. We are making several recommendations to enhance the BD targeting process by increasing the likelihood that issues are identified timely. The recommendations include: automating and integrating risk-based information, assessing and documenting the risk level assigned to BDs by the Self Regulatory Organizations (SROs), reviewing the goal for conducting oversight examinations, developing a timeliness performance measure, improving how investor complaints are used, and preparing financial information. During the audit, we also discussed other issues with senior management. Commission management generally concurred with our recommendations. SCOPE AND OBJECTIVES Our audit objectives were to determine the effectiveness and efficiency of the BD targeting process (i.e., which BDs are selected for examination, and the scope of the individual examination). During ...