SEC Division of Examinations 2023 Priorities?
On Feb. 7, 2023, the Securities and Exchange Commission’s Division of Examinations announced its 2023 examination priorities. These priorities are published annually to provide insights into the Division’s view on the areas it believes present potential risks to investors and the integrity of the U.S. capital 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.”
"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,” said Division of Examinations’ Director Richard R. Best. "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."
In addition to New Investment Adviser and Investment Company Rules, ESG, and Information Security and Operational Resiliency, the announcement highlights what readers already know is top of mind for Chairman Gensler and the Staff: “Emerging Technologies and Crypto-Assets.”
According to the release, the Division will conduct examinations of broker-dealers and RIAs that are using emerging financial technologies or employing new practices, including technological and on-line 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.
While compliance and testing are not new obligations for broker-dealers and RIAs, the challenge will be updating policies and, significantly, incorporating new forms of testing to document compliance with such updates. As technology continues to permeate every facet of our financial lives, it behooves currently regulated entities to do what they can to keep up, but it is also imperative that the prospective clients of these entities take the steps they need to be viable options. Without secondary controls and compliance testing, otherwise attractive investment vehicles will be walled off from mainstream capital markets, undercutting long term viability.
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