SEC Exam Priorities for 2022

The Five “Significant” Areas The SEC Is Focusing On This Year

This year, the SEC announced its five top priorities to focus on as well as some other areas which will be scrutinized. The five “significant” areas include 1) Private Funds, 2) Environmental, Social, and Governance (ESG) Investing, 3) Standards of Conduct, 4) Informational Security and Operational Resiliency, and 5) Emerging Technologies and Crypto-Assets. The other areas of focus include reviewing of the “core” areas of the adviser’s compliance program, sales and trading activities of broker-dealers and exchanges, and perennial areas of registered investment companies.

Private Funds

With the extensive growth of assets in many private funds, the focus will be brought to 1) calculation and allocation of fees and expenses, 2) preferential treatment of certain investors, 3) compliance with the custody rule under the Advisers Act, 4) adequacy of disclosures and compliance with requirements for certain trading and distressed sales, and 5) conflicts surrounding liquidity. Other things not to be ignored are how conflicts are addressed and disclosed, and practices, controls, and reporting associated with trading and risk management.

ESG Investing

In regards to ESG Investing, the SEC believes investors can be misled due to certain aspects, such as lack of standard ESG terminology, the different approaches taken by firms when investing, and lack of addressing legal and compliance issues.

Standards of Conduct

This includes many practices, most of which are structured around the following:

• Regulation Best Interest

• Fiduciary Duty

• Form CRS

The above, when managed well and in good compliance, protect investor’s best interests by demonstrating a commitment to focus on the effectiveness of compliance programs, compliance testing, and training applied by broker-dealers, investment advisers, and dually registered firms.

Information Security and Operational resiliency

As a continued area of focus from the SEC, business continuity in the presence of climate risk and potential disruptions to business operations, compliance with Regulation S-P (to safeguard client non-public information) and S-ID (identity theft program), and due diligence of service providers/vendors. Also, covered here is the management of risk from remote work, as well as cybersecurity and the potential for malicious attacks and response to incidents.

Emerging Technologies and Crypto-Assets

The SEC will be examining for how broker-dealers and investment advisers consider and address risks within their compliance programs. This includes checking if and how firms employ new practices, have appropriate operational controls, implemented risk controls, and their ability to provide consistent advice and recommendations.

SEC’s “Commonalities of Resilient Compliance Programs”

The SEC wishes firms to consider the following when trying to bolster your firm’s compliance program.

- Inclusivity - This focused on open communication with your compliance team and CCO to keep them informed of operational processes (where there should be an open dialogue about any changes which should be made to be in the best compliance state possible), up-to-date on potential new service offerings, and provide training to staff with regulations and any changes which may affect practices.

- Change Management - In the dynamic regulatory environment, a firm needs to be just as dynamic. Having a team that adequately and properly addresses regulatory and business changes alike is the most effective team.

- Review and Testing - Beyond having a diverse toolbox for assessing compliance programs, such as testing and reviews, CCO’s should also periodically review the processes in which the firm is being assessed, reviewed, and tested to ensure continued efficacy.

How Coast To Coast Compliance Can Help.

Coast to Coast Compliance can perform an Annual Review and in doing so, address areas of risk in regards to the above SEC Exam Priorities and more. We will conduct a comprehensive review of the consistency and adequacy of your firm’s policies and procedures, as well as the completeness and effectiveness of its overall compliance program.  We will provide a written annual review report documenting the scope of our review, relevant findings, and any resulting recommendations.

‍