SEC Exam Priorities 2022
The Division emphasised the value of a robust compliance program, noting that “A well-designed and resilient compliance program and compliance staff should be able to adjust, pivot, and address a range of conditions and scenarios.”
Key Features of a Compliance Program
Throughout their exams, the Division identified the key features of a robust compliance program. These included:
- inclusivity – the involvement and collaboration between compliance and staff across the organisation
- change management – a thoughtful and well-designed program that can adapt and change over time and quickly be adjusted when needed
- reviews and testing – a periodic review and testing of policies and procedures to ensure the on-going adequacy and effectiveness of a compliance program.
SEC 2022 Priorities vs. 2021 Priorities
The SEC’s Priorities for 2022 are similar to the 2021 priorities, being grounded in the four pillars, which include:
- promoting compliance
- preventing fraud
- identifying and monitoring risk
- informing policy.
There is a continued and significant focus on the private fund industry with the Division highlighting the “70% increase of assets being managed by advisers to private funds.” This follows the January 27, 2022 Risk Alert highlighting deficiencies uncovered in the examination of private fund advisers. The SEC’s increasingly intensifying approach to examining private markets fund managers under SEC Chair Gary Gensler’s administration puts private fund advisers firmly in the sights of the examination program.
Aside from private funds, the SEC will continue its focus in 2022 on environmental, social and governance (ESG) investing, retail investor protections, information security and operational resilience, emerging technologies, and crypto assets.
We recommend that organisations review their own compliance programs with a view to the Exam Priorities announced by the SEC.
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5 Key Focus Areas for 2022 SEC Exam Priorities
In summary, the Division outlined five key focus areas for 2022:
SEC EXAMS will focus on registered investment advisers (RIAs) who manage private funds. Field examinations will review an adviser’s fiduciary duty and will assess risks with a focus on:
- compliance programs
- fees and expenses
- fund audits
- conflicts of interest
- disclosures of investment risks
- controls to safeguard material nonpublic information (MNPI).
The SEC expresses continuing concern that advisers are making unsupported claims about their use of ESG. SEC EXAMS will continue to focus on how firms represent their approaches to integrating ESG into advisory services and investment products (including mutual funds, exchange-traded funds, and private fund offerings). Field examinations will typically focus on whether fund managers are accurately disclosing their ESG approaches and have put in place tailored policies, procedures, and practices in relation to their ESG disclosures.
SEC EXAMS will continue to review and address standards of conduct issues for RIAs and broker-dealers to ensure that retail investors and working families are receiving recommendations and advice in their best interests. These examinations will focus on how registrants are satisfying their obligations under Reg BI and the Advisers Act fiduciary standard (via Form CRS) when acting in the best interests of retail investors.
The Division will continue to review broker-dealers and RIA procedures for preventing interruptions to critical services and protecting investor information. Field examinations will continue to review and test whether firms have taken appropriate measures to:
- safeguard customer accounts
- oversee vendors and third-party service providers
- address malicious email activities such as phishing
- respond to incidents (including those related to ransomware and identity theft)
- manage operational risk due to a remote workforce.
The Division will continue to conduct examinations of RIAs and broker-dealers that are (or claim to be) offering new robo and/or crypto products and services to identify whether these activities incur additional risk and how such risk(s) is being considered when developing compliance programs. The SEC Examination Priorities reflect ongoing concerns about automated investment advice, including mobile apps and other digital engagement practices, as well as an increased focus on crypto investing.
If you have any questions about the SEC’s Exam Priorities for 2022 and how these may affect your business, please reach out to your usual Waystone Compliance Solutions representative or contact us.