On March 30, 2022, the Security and Exchange Commission’s Division of Examinations announced its fiscal year 2022 examination priorities. This year’s theme is empowering compliance officers. Once again, the Division’s priorities fit into several broad categories:
- Significant Focus Areas: Private Funds, ESG Investing (disclosure and proxy voting), Standards of Conduct (including Regulation Best Interest, Fiduciary Duty, and Form CRS), Information Security and Operational Resiliency, and Emerging Technologies and Crypo-Assets (focusing on SEC-registered investment advisers to private funds, as well as issues under the Investment Advisers Act of 1940, fiduciary duties, risk assessment, and disclosure and compliance of fees, expenses, custody, audits, and conflicts of interest)
- Other Areas of Note:
- Investment Adviser and Investment Company Examination Program (focusing on compliance of fiduciary duties and oversight)
- Broker-Dealer and Exchange Examination Program (focusing on deterring microcap fraud, operational changes, municipal issuer disclosures, and trading activities)
- Clearance and Settlement Examination
- Regulation Systems Compliance and Integrity
- The LIBOR Transition
- Anti-Money Laundering (focusing on broker dealer and registered investment company compliance with AML programs)
In FY 2021, the Division completed 3,040 examinations, which was up 3% from FY 2020 and roughly in line with pre-Covid examination totals. With its Investment Adviser/Investment Company Examination Program, the Division completed more than 2,200 examinations, covering approximately 16% of RIAs. Firms selected for examination are chosen according to a risk-based analysis, which varies depending upon the type of firm and its business activities. In performing examinations, the Division noted the following attributes of strong compliance programs: operational collaboration, established processes flexible to adjust to change management, and consistent testing of policies and procedures.
Each year for the past decade the Division has published its priorities to inform industry of policy, improve compliance, prevent fraud, and monitor risk. The published priorities are not exhaustive, and additional priorities may be added should new trends or risks emerge. We will continue to monitor developments throughout the year.
This client alert is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have questions regarding this update, or for more information about this topic, please contact any of the attorneys in our Financial Services & Investment Management Practice Group, or the attorney with whom you normally consult.