United States: SEC Division of Examinations Announces 2023 Examination Priorities

By: Hayley Trahan-Liptak and Anna E. L’Hommedieu

On February 7, 2023, the U.S. Securities and Exchange Commission (SEC) Division of Examinations (the Division) announced its 2023 examination priorities.[1]  The timing of the announcement, over a month earlier than the Division’s examination priority announcements in the prior two years, suggests a return to normal following pandemic-era examinations.

The Division announced it intends to focus examinations on new forms of risk brought about by changing technology while ensuring compliance with new SEC rules.  Richard Best, the Director of Examinations, highlighted this theme in noting that the Division “will emphasize 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.”

As anticipated, the Division expects to evaluate whether registered investment advisers (RIAs) are in compliance with the requirements of the new Marketing Rule (Advisers Act Rule 206(4)-1). The Division also intends to focus on other areas of perceived risk, including conflicts of interests, portfolio management, highly leveraged funds, cybersecurity issues, and risks associated with emerging technologies. Following several enforcement actions in 2022, the Division also stated that examinations will review policies and procedures for recordkeeping of electronic communication for both RIAs and broker-dealers.

In its press release, the Division highlighted six areas of priority for 2023[2]:

  1. New Investment Advisor and Investment Company Rules, including the Marketing Rule, Derivatives Rule (Investment Company Act Rule 18f-4) and Fair Valuation Rule (Investment Company Act Rule 2a-5).
  2. RIAs to Private Funds, including RIA conflicts of interest and disclosures, allocation of fees and expenses, and compliance with new rules.
  3. Retail Investors and Working Families, specifically evaluating if broker-dealers and RIAs are acting in their best interest.
  4. Environmental, Social, and Governance Investing (ESG), considering if funds are operating in the manner set forth in their disclosures and if advisors are making ESG-related recommendations in the best interest of investors.
  5. Information Security and Operational Resiliency, focusing on RIA and broker-dealer’s policies and procedures in the event of cyber-related events.
  6. Emerging Technologies and Crypto-Assets, including the offer and recommendation of crypto-related assets and relevant standards of compliance and risk management practices.

Due to the Division’s focus on new regulations and on emerging technologies, firms should be mindful of these priorities and be diligent in keeping up to date on guidance in these areas to ensure compliance.

[1] “2023 Examination Priorities,” Division of Examinations (Feb. 7, 2023), https://www.sec.gov/files/2023-exam-priorities.pdf; Press Release, “SEC Division of Examinations Announces 2023 Priorities,” (Feb. 7, 2023), https://www.sec.gov/news/press-release/2023-24.

[2] Press Release, “SEC Division of Examinations Announces 2023 Priorities,” (Feb. 7, 2023), https://www.sec.gov/news/press-release/2023-24

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