SEC Division of Examinations Announces 2023 Priorities

February 15, 2023

Samantha Taylor, Christopher Pallanch, and Jessica A. Morgan - Tonkon Torp LLP

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On February 7, 2023, the Securities and Exchange Commission’s Division of Examinations announced its fiscal year 2023 examination priorities. This year, the Division continues its focus on protecting investors by prioritizing examinations on a risk-based approach to ensure compliance with federal securities laws and rules and to respond to the various risks posed by evolving technology. Once again, the Division’s priorities fit into several broad categories.

Here are some of the significant focus areas:

1. Compliance with new investment adviser and investment company rules, including Rule 206(4)-1 of the Investment Advisers Act of 1940 (the new Marketing Rule), Rule 18f-4 (the new Derivatives Rule), and Rule 2a-5 (the new Fair Valuation Rule);
2. Registered investment advisers to private funds, focusing on conflicts of interest, fees and expenses, rule compliance, and policies and procedures with the use of alternative data;
3. Standards of conduct, including Regulation Best Interest, fiduciary duty, and Form CRS; and
4. Environmental, Social, and Governance investing, including disclosures and adherence to policies and procedures.

The Division also highlighted other notable areas of interest:

1. Information security and operational resiliency;
2. Crypto assets and emerging financial technology;
3. Broker-Dealer and Exchange Examination Program (focusing on general Broker-Dealer compliance, as well as the obligations owed by National Securities Exchanges, Security-Based Swap Dealers, Municipal Advisors, and Transfer Agents);
4. Clearance and settlement examination;
5. Regulation Systems Compliance and Integrity;
6. FINRA and MSRB;
7. Anti-Money Laundering (focusing on broker-dealer and registered investment company compliance with AML programs); and
8. The LIBOR transition.

In FY 2022, the Division of Examinations’ work resulted in the return of more than $50 million to investors, with a number of cases being referred to the Division of Enforcement. With respect to the Division’s Investment Adviser/Investment Company Examination Program, the Division examined approximately 15% of the adviser population—on par with last year’s percentage, despite notable growth in the number of advisers and the amount of total assets under management. Additionally, the Division completed over 360 broker-dealer examinations. Counting the Division’s work with FINRA, nearly half of the estimated 3,500 registered broker-dealers were examined in FY 2022.

The Division’s 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.

About Tonkon Torp

Tonkon Torp LLP is a leading business and litigation law firm serving public companies, substantial private enterprises, entrepreneurial businesses, and individuals throughout the Northwest. For more information, visit tonkon.com.