On 16 October 2023, the Division of Examinations (the Division) of the US Securities and Exchange Commission (SEC) released its examination priorities for the 2024 fiscal year. In an interesting twist, the SEC released the examination priorities early, changing the timing to correspond to the beginning of its new fiscal year.
Notably, the Division’s 2024 priorities omit any mention of environmental, social, or governance issues, which had been highlights of its 2022 and 2023 priorities. However, the SEC’s other priorities are largely unchanged from its 2023 examination priorities, which it released only eight months ago.
The Division will continue evaluating the risks associated with emerging financial technology, (such as automated investment tools, artificial intelligence, and trading algorithms). Of course, crypto and crypto-related products continue to be a high priority.
Compliance with fiduciary duty and Regulation Best Interest remains at the forefront for investment advisers and broker-dealers, along with identifying and managing conflicts of interest. Examinations of investment advisers will continue to focus on all manner of economic incentives and indirect compensation, as well as compliance with the Marketing Rule.
Maintaining its focus on private fund advisers, the Division will examine the valuation of illiquid assets, calculation and allocation of private fund fees and expenses, and due diligence of prospective portfolio companies. Consistent with past years’ priorities, the Division will review investment company oversight of advisory fees and any associated fee waivers and reimbursements, as well as derivatives risk management.
Across all registrants, the Division continues to prioritize managing operational risk by reviewing controls related to cybersecurity, third-party service providers, and data protection.