April 7, 2022
On March 30, 2022, the SEC’s Division of Examinations (Division) announced its 2022 examination priorities (Examination Priorities). The Division will focus on private funds, environmental, social, and governance (ESG) investing, standards of conduct issues for broker-dealers and registered investment advisers (RIAs), information security and operational resiliency, emerging technologies, and crypto-assets. These priorities are described in further detail below.
Registered Investment Advisers who Manage Private Funds. Reviews will focus on issues under the Advisers Act, including a RIA’s fiduciary duty, an assessment of risks including fees and expenses, custody, conflicts of interest and controls relating to material nonpublic information, and addressing practices, controls and investor reporting regarding risk management and trading for systemically important funds.
Environmental, Social, and Governance. The Division will key on whether RIAs and registered funds are accurately disclosing their ESG investing practices and have implemented appropriate ESG policies, procedures and practices in connection with their ESG-related disclosures, including a review of portfolio management processes and practices.
Standards of Conduct Issues for Broker-Dealers and RIAs. Reviews will assess whether broker-dealers and RIAs are satisfying their obligations under Regulation Best Interest and the Advisers Act fiduciary standard to act in the best interests of retail investors and to not put their own interests ahead of retail investors’ interests.
Information Security and Operational Resiliency. The Division will review whether registrants have taken appropriate measures to prevent operational interruptions and to protect investor information, records, and assets. Examinations will include a review of registrants’ business continuity and disaster recovery plans with a particular focus on the impact of climate risk and substantial disruptions to normal business operations.
Emerging Technologies and Crypto-Assets. Examinations will focus on broker-dealers and RIAs who use developing financial technologies (e.g., “robo-advisers”) and whether the unique risks these technologies pose were considered by the firms when designing their regulatory compliance programs. Examinations of market participants engaged with crypto-assets will address, among other items, the custody arrangements of these assets and will assess the offer, sale, recommendation, advice, and trading of crypto-assets.
In addition to the focus areas described above, the Division will continue to prioritize examinations of registered investment companies (including mutual funds and ETFs), given their importance to retail investors. Each year, the Division identifies certain areas for heightened review, including: disclosures to investors, accuracy of reporting to the SEC, and compliance with new rules and exemptive orders. This year, examinations will also prioritize money market funds and business development companies. The Division is also prioritizing examination of mutual funds that invest in private funds to assess risk disclosure and valuation issues. Additionally, the Division will prioritize examination of certain fund practices, including a focus on advisory fee waivers to assess the sustainability of services for firms that provide such waivers, and trading activities of portfolio managers that may be designed to inflate fund performance.
The 2022 Examination Priorities memo can be found here.
March 22, 2023
March 21, 2023
March 6, 2023
February 28, 2023
February 15, 2023
February 10, 2023
February 6, 2023
January 25, 2023
January 11, 2023
December 29, 2022
December 14, 2022
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
One Battery Park Plaza
New York, NY 10004
Phone (212) 574-1200
Fax (212) 480-8421
901 K Street, NW
Washington, DC 20001
Phone (202) 737-8833
Fax (212) 480-8421
General/Media Inquiries – firstname.lastname@example.org
Legal Recruiting – email@example.com
Staff Recruiting – firstname.lastname@example.org