Last week, the Securities and Exchange Commission (SEC) announced its examination priorities for 2023. Each year, the SEC’s Division of Examinations (the “Division”) publishes its examination priorities. These generally include the areas the Division believes present potential risks to investors and the U.S. markets. At Joot, we like to cover the risk areas and ensure you know what to focus on as you review your compliance programs this year.
This year, the SEC’s risk area focuses are:
New Investment Adviser and Investment Company Rules
RIAs to Private Funds
Retail Investors and Working Families
Environmental, Social, and Governance (ESG)
Information Security and Operational Resiliency
Emerging Technologies and Crypto-Assets
Looking back at our coverage of last year's exam priorities, we can see that five out of the six priorities are the same with the newcomer being “New Investment Adviser and Investment Company Rules”. Last year we saw the SEC’s implementation of three new and consequential rules:
The Marketing Rule (Advisers Act Rule 206(4)-1)
The Derivatives Rule (Investment Company Act Rule 18f-4)
The Fair Valuation Rule (Investment Company Act Rule 2a-5)
These three rules provided new regulation and governance to both registered investment advisers (RIA) and investment companies so it’s no surprise that these three rules will be a main priority for the SEC in 2023. Given its recent implementation, we know the Division will be looking closely at RIAs to make sure they have adopted and implemented the necessary written policies and procedures for the Marketing Rule. The Derivatives and Fair Valuation Rules will bring a magnifying glass to investment companies as they deal with how to implement these rules. Given that the SEC is repeating priorities from previous years, it’s safe to say that their regulatory team will have all hands on deck to enforce these priorities and regulations.2022 was a record year for the SEC and enforcement actions, with the SEC filing 760 actions at almost $6.5 billion ordered. These actions showed those in the financial industry that the SEC was absolutely keeping a watchful eye on regulations and investor protections.
As a record number of examinations are filed, it’s important to look back at the recurring focuses and themes of the SEC’s examination priorities of the last few years. We’ve broken down the priorities from 2020 to 2023 to see where similarities lie and what core items the SEC has consistently focused on.
Looking back at previous years, we see there are four key priorities the SEC has been focusing on since 2020:
RIAs to Private Funds
Retail Investor Protections
Information Security
Emerging Tech & Crypto Assets
The consistency of these priorities and the recent crackdown in SEC enforcement actions signal that the Division may be leaning heavily into enforcement actions surrounding these priorities in the coming year.
In previous blogs and newsletters, the FinTech Law team has provided expert tips and advice on the SEC's Marketing Rule, information security, crypto and emerging tech, and more to keep you up to date on how to manage these various SEC decisions. Don’t hesitate to reach out to the FinTech team for assistance in managing your compliance obligations and needs.
