Division of Examinations: 2022 Examination Priorities
On March 30, 2022 the Division of Examinations of the United States Securities & Exchange Commission published the 2022 Examination Priorities.
As in other years, the 2022 Examination Priorities document provides certain data regarding the scope of the examination program and the growth of the investment adviser community. Following are highlights of that data:
General Comments Regarding Compliance and Compliance Programs
The Division of Examinations again emphasizes the importance that firms place on compliance, with there being compliance engagement across business lines and with executive management. In addition, the Division of Examinations provides that a well-designed compliance program should be “resilient” and able to adjust to changing conditions and scenarios. Resilient compliance programs have the following common features:
Examination Priorities for 2022
More than 5,000 SEC-registered investment advisers manage private fund assets. Due to the growth in this market, the Division of Examinations will continue to focus on RIAs to private funds. Examinations will focus on issues such as:
The Division of Examinations will also focus on conflicts and disclosures relating to advisers’ portfolio strategies, risk management and investment recommendations and allocations.
Environmental, Social And Governance (ESG) Investing
The Division of Examinations will continue its focus on ESG-related advisory services and investment products. Reviews by the Division will generally focus on whether advisers are:
Fiduciary Duty and Form CRS
The Division of Examinations will continue to review how advisers are satisfying the Advisers Act fiduciary obligation to act in the best interest of retail investors and not to place their own interests ahead of retail investors. Reviews will include assessments of practices relating to:
Additional focus areas include such things as:
In addition, the Division of Examinations will focus upon dually registered RIAs and broker-dealers, as well affiliated firms with financial professionals who service both brokerage and advisory clients. While the focus areas for these firms will be similar to what is described above, the Division of Examinations will place a particular emphasis on potential conflicts of interest, including with regard to account recommendations and allocation of investments across different accounts. The Division of Examinations will review whether such firms have implemented written policies and procedures to effectively mitigate and address conflicts.
Information Security and Operational Resiliency
The Division of Examinations will continue to review whether advisers have taken appropriate measures to:
Also, the Division of Examinations will review advisers’ business and disaster recovery plans, with a particular focus on the impact of client risk and substantial disruptions to normal business operations.
Emerging Technologies and Crypto Assets
The Division of Examinations will conduct examinations on firms that are, or claim to be, offering new products and services or employing new practices, to assess whether:
In regards to crypto assets, the Division of Examinations will review custody arrangements for such assets, and will review the offer, sale, recommendation and trading of crypto assets. Reviews will determine whether advisers involved in crypto assets have met their fiduciary standard of conduct when recommending crypto assets, including evidence of an initial and ongoing understanding of such products. Also, reviews will determine whether advisers routinely review, update and enhance compliance policies and procedures, risk disclosures and operational practices.
The Examination Program for Investment Advisers – Compliance Programs
The Division of Examinations provides additional information regarding typical examinations of investment advisers, especially related to compliance programs. During a typical examination, the Division of Examinations reviews the compliance programs of advisers in one or more of the following key areas:
Furthermore, during the examination process, reviews will be conducted to determine whether advisers’ compliance programs address;
The Division of Examinations will also review whether an adviser has implemented oversight practices to mitigate any heightened risks, such as:
Finally, the Division of Examinations will continue to focus on disclosures and other issues related to fees and expenses. Specifically, the Division of Examinations will focus on issues associated with:
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