SEC Announces Top Exam Priorities for 2024
The Securities and Exchange Commission’s Division of Examinations released its 2024 examination priorities to inform investors and registrants of the key risks, examination topics and priorities that the division plans to focus on in the upcoming year.
According to the SEC, this year’s examinations will prioritize areas that pose “emerging risks to investors or the markets in addition to core and perennial risk areas.”
Among these are Regulation Best Interest, both in terms of recommendations by broker-dealers in regard to product types, investment strategies, and account types; disclosures to investors regarding conflicts of interest; conflict mitigation practices; and processes for reviewing reasonably available alternatives. The SEC will also focus on Reg BI from a product standpoint in 2024, particularly in terms of recommended products that are considered complex, high cost, illiquid, proprietary, and microcap securities. Included in this cohort are derivatives and ETFs, variable annuities, non-traded REITs and private placements.
The SEC said in terms of investment advisers, the exams will focus on advice to clients related to products, strategies and account types in regard to complex products like derivatives and leveraged exchange traded funds; high-cost illiquid products such as variable annuities and non-traded REITs; and unconventional strategies, especially those that seek to address rising interest rates.
The commission said it will also prioritize Form CRS, the Marketing Rule, as well as crypto and emerging financial technologies, such as artificial intelligence, and their utilization among broker-dealers.
“The Division of Examinations plays a critical role in protecting investors and facilitating capital formation,” said SEC Chair Gary Gensler. “In examining for compliance with our time-tested rules, the Division helps registrants understand the rules as well as ensures that markets work for investors and issuers alike. The Division’s efforts, as laid out in the 2024 priorities, enhance trust in our ever-evolving markets.”
The division conducts examinations and inspections of SEC-registered investment advisers, investment companies, broker-dealers, transfer agents, municipal advisors, securities-based swap dealers, clearing agencies, and other self-regulatory organizations. The Division prioritizes examinations of certain practices, products, and services that it believes present potentially heightened risks to investors or the integrity of the U.S. capital markets. It uses a risk-based approach to fulfill its mission to improve compliance, prevent fraud, monitor risk and inform policy.
The SEC says published priorities are not exhaustive of the focus areas of the division in its examinations, risk alerts, and outreach. The scope of any examination includes analysis of an entity’s history, operations, services, products offered and other risk factors.
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