Published on Mar 4th, 2021 |

The SEC’s Division of Examinations announced its 2021 examination priorities on March 3rd, which highlights a greater focus on climate-related risks. It is important to note that the Division will also focus on conflicts of interests for brokers, investment advisers, and FinTech in its initiatives and examinations.

Acting Chair, Allison Herren Lee, stated “This year, the Division is enhancing its focus on climate and ESG-related risks by examining proxy voting policies and practices to ensure voting aligns with investors’ best interests and expectations, as well as firms’ business continuity plans in light of intensifying physical risks associated with climate change.”

Division Director, Pete Discoll, also stated “Our priorities reflect the complicated, diverse, and evolving nature of the risks to investors and the markets, including climate and ESG.”

It is clear the Division have made this a high priority to enhance their focus on the new climate and have provided detailed expectations regarding priorities for 2021.

Below are expectations of what the Division’s highlighted towards the 2021 examination policies:

  • Retail Investors
    • The Division is going to focus on compliance with Regulation Best Interest, Form CRS, and if Investment Advisers have fulfilled their fiduciary duties of care and loyalty.
  • Information Security and Operational Resiliency
    • Division will shift its focus to see if plans are accounting for the growing physical and other relevant risks associated with climate change.
    • As the frequency and intensity of climate related events grow, the Division will review if effective practices are being used to help improve responses to large-scale events for firms.
    • Registrants need to take appropriate measures to safeguard customer accounts and to prevent account intrusions.
  • Financial Technology (Fintech) and Innovation, Including Digital Assets
    • Evaluating whether registrants are operating consistently with their representations, whether firms review compliance around trade recommendations made in mobile applications, and if firms are handling customer orders in accordance with their instructions will also be a strong priority.
  • Anti-Money Laundering Programs
    • It is going to be important to have policies and procedures in place that are designed to identify suspicious activity and illegal money-laundering activities to help stay within compliance for AML requirements.
  • The London Inter-Bank Offered Rate (LIBOR) Transition
    • Continuing to engage with registrants regarding any exposures to LIBOR through examinations to assess their understanding of it will be a priority for the Division.

It is important to highlight that the Division of Examinations provided focus areas for Investment Advisers and Investment Companies, and Broker-Dealers and Municipal Advisors. This will help in providing more clarity of what the Division will be putting its focus towards.

Below will be the following focus areas for Investment Advisers and Investment Companies:

  • Compliance Programs
    • The Division will continue to review the compliance programs of RIAs, products that are widely available to investors (ETFs and open-end funds), and review the consistency of the disclosures RIAs and fund complexes provide to clients.
  • Registered Funds, Including Mutual Funds and ETFs
    • The commission will examine personal trading activities, contracts and agreements, disclosures to investors, valuations, and filings.
    • A high priority will be geared towards mutual funds or ETFs that have yet to be examined or not examined for years.
    • The Division will also review funds’ and advisers’ disclosures and practices relating to securities lending while also focusing on compliance with exemptive relief.
  • RIAs to Private Funds
    • The Division will focus on assessing compliance risks and advisers to private funds which will include disclosures of investments risks, conflict of interest, and a focus on liquidity as well.
    • Advisers to private funds that have a higher concentration of structured products will also have a high focus.

Want to learn more about what the key Focus Areas are for Broker-Dealers and Municipal Advisors?

Click HERE to see the full SEC Release.


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