The Securities and Exchange Commission (SEC), Division of Examinations announced its examination priorities for 2023. The division publishes its examination priorities on an annual basis to provide insight into its risk-based approach, highlighting areas it believes pose risks to investors and the overall integrity of the U.S. markets.
“In a time of growing markets, evolving technologies, and new forms of risk, our division of examinations continues to protect investors,” said SEC Chair Gary Gensler. “In executing against the 2023 priorities, the division will help ensure compliance with the federal securities laws and rules.”
The division’s 2023 priorities include:
- New Investment Adviser and Investment Company Rules – The division will focus on the new Marketing Rule (Advisers Act Rule 206(4)-1) and whether registered investment advisers (RIAs) adopted and implemented written policies and procedures that are reasonably designed to prevent violations by the advisers and their supervised persons of the new rule and whether RIAs complied with the substantive requirements.
- Retail Investors and Working Families – The division will continue to address standards of conduct issues for broker-dealers and RIAs to ensure retail investors and working families are receiving recommendations and advice in their best interests. Specifically, these examinations will focus on how registrants are satisfying their obligations under Regulation Best Interest and the Advisers Act fiduciary standard to act in the best interests of retail investors and not to place their own interests ahead of retail investors’. Examinations will include assessments of practices regarding review of investment alternatives, management of conflicts of interest, and consideration of investment goals and account characteristics.
- Environmental, Social, and Governance (ESG) – The division will continue its focus on ESG-related advisory services and fund offerings, including whether funds are operating in the manner set forth in their disclosures. In addition, the division will assess whether ESG products are appropriately labeled and whether recommendations of such products for retail investors are made in the investors’ best interests.
- Information Security and Operational Resiliency – The division will review broker-dealers’, RIAs’, and other registrants’ practices to prevent interruptions to mission-critical services and to protect investor information, records, and assets. Reviews of broker-dealers and RIAs will include a focus on the cybersecurity issues associated with the use of third-party vendors, including registrant visibility into the security and integrity of third-party products and services and whether there has been an unauthorized use of third-party providers.
- Emerging Technologies and Crypto-Assets – The division will conduct examinations of broker-dealers and RIAs that are using emerging financial technologies or employing new practices, including technological and online solutions to meet the demands of compliance and marketing and to service investor accounts. Examinations of registrants will focus on the offer, sale, recommendation of, or advice regarding trading in crypto or crypto-related assets and include whether the firm (1) met and followed their respective standards of care when making recommendations, referrals, or providing investment advice; and (2) routinely reviewed, updated, and enhanced their compliance, disclosure, and risk management practices.
“Our priorities reflect the changing landscape and associated risks in the securities market and are the product of a risk-based approach to examination selection that balances our resources across a diverse registrant base. We 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,” division of examinations Director Richard Best said. “Our examination program continues moving forward and remains committed to furthering investor protection through high-quality examinations and staying abreast of the latest industry trends and emerging risks to investors and the markets.”
The priorities highlighted by the division are not the limit of the scope of any potential examination by the SEC. The scope of any examination includes analysis of a covered entity’s history, operations, services, products offered, and other risk factors.