The Securities and Exchange Commission’s (SEC’s) division of examinations has published its annual report on examination priorities for the year ahead. The annual report identifies potential risks to investors and US capital market integrity.
The first area that the SEC draws attention to is new investment adviser and investment company rules. This includes monitoring the adoption and implementation of written policies and procedures by registered investment advisors (RIAs), and conducting similar surveillance on rules for investment companies such as the derivatives and fair valuation rules.
Issues under the Advisers Act will also be reviewed, such as an adviser’s fiduciary duty, compliance programme risks and the use of alternative data. There will be a focus on RIAs to private funds with specific risk characteristics.
Considering ESG-related advisory services and fund offerings, the SEC will continue to monitor companies’ compliance with their disclosures and the accuracy of ESG product labelling.
Registrants, including broker dealers and RIAs, will be subject to a review of their practices with the goal of preventing service disruption and ensuring the safety of client data. This area will particularly focus on cybersecurity concerns around the use of third-party vendors.
Broker-dealers and RIAs using emerging technologies and engaging in crypto asset trading will be assessed for their standards of care and process of review for compliance, disclosures and risk management operations.
Further topics are listed in the report, with the SEC stating that “the published priorities are not exhaustive of the focus areas of the division in its examinations, risk alerts, and outreach.”
Richard Best, director of the division of examinations, comments: "Our priorities reflect the changing landscape and associated risks in the securities market and are the product of a risk-based approach to examination selection that balances our resources across a diverse registrant base. We will emphasise compliance with new SEC rules applicable to investment advisers and investment companies as well as continue our focus on emerging issues and rules aimed at protecting retail investors.”
Gary Gensler, SEC chair, says: “In a time of growing markets, evolving technologies, and new forms of risk, our division of examinations continues to protect investors. In executing against the 2023 priorities, the division will help ensure compliance with the federal securities laws and rules.”
