The Securities and Exchange Commission’s (SEC) Division of Examinations (EXAMS) recently announced its new examination priorities where investment advisers are concerned.
While the majority of the exam priorities are the same as in previous years, there are a few changes that are more in line with the current federal administration’s priorities and concerns.
A new focus on environmental, social and governance (ESG) issues
The creation of the Climate and ESG Task Force is another indication that misconduct in this area is now a priority. Every issuer of a security must file periodic reports that include climate-related disclosures. They must also file reports on certain environmental-related lawsuits to which a company is party and provide assessments of any climate-related risks.
Disaster recovery and business continuity plans are being highlighted. This likely reflects some of the concerns and lessons that have been highlighted by events of the last few years.
A continued focus on conflicts of interest and compliance with fiduciary duties
The list also highlights the SEC’s continued interest in making sure that the registered investment advisers (RIA) adhere to their fiduciary duties, including disclosing or eliminating any conflicts of interest. The SEC will also continue to investigate high-risk investment products to see whether clients are given clear information before they commit to an investment.
RIAs can also expect to be scrutinized over their representation of their customers’ desires, their proxy votes and other services. Similarly, RIAs can also anticipate closer examination of how customer information and data is secured.
This is just a rough overview of the compliance issues that may be focused on by the EXAMS in 2021. Working with an attorney who understands the complex compliance issues faced by investment advisers and broker-dealers can help you keep your business on track.