SEC Examination Priorities for 2021

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March 4, 2021

Client Alert
The Securities and Exchange Commission’s Division of Examinations (“The Division”)  has released its 2021 Examination Priorities. Focus themes for the 2021 exam priorities include:

The Division indicated that its examinations and analysis will continue to remain grounded in four main pillars:

A more complete discussion of the exam priorities is included below. Firms should review their policies, procedures and business activities in light of the 2021 exam priorities. A copy of the examination priorities publication is available here. Firms should also review the Financial Industry Regulatory Authority, Inc.’s (FINRA) 2021 Report on Risk Monitoring and Examination Activities which is described in our Client Alert available here.

Retail Investor Protection

Protecting retail investors remains a priority for the Division in 2021. It is expected to continue to be a focus for the foreseeable future. The Division has indicated that it will focus on the following areas, among others, in conducting its 2021 examinations:

The Division will focus exams on advice given to retail investors with a particular focus on:

The Division will also be reviewing fees and expenses charged to accounts by registered investment advisers with a focus on advisory fee calculation errors, inaccurate calculations of tiered fees and failures to refund prepaid fees for terminated accounts.

Information Security and Operational Resiliency

Financial Technology and Innovation

The Division’s examination of firms in connection with financial technology and innovation will focus on:

Anti-Money Laundering Programs

The Division will continue to examine whether SEC regulated entities are establishing appropriate anti-money laundering programs including establishing appropriate customer identification programs, meeting Suspicious Activity Reports (“SARs”) filing obligations, conducting due diligence on customers, complying with beneficial ownership requirements and conducting robust and timely independent testing of anti‑money laundering programs.

LIBOR Transition

The Division will continue engage firms to assess their understanding of any exposure to LIBOR, preparation for the expected discontinuation of LIBOR and transition to an alternative reference rate.

Selected Areas for Examinations of Registered Investment Advisers

The Division typically assesses compliance programs of registered investment advisers in one or more core areas including:

In addition, in 2021 the Division will focus on:

The Division will also focus on advisers to private funds, especially those with a high concentration of structured products, to assess compliance risks including a focus on liquidity and disclosures of investment risks and conflicts of interest.

Selected Areas for Examinations of Investment Companies

In 2021, the Division will prioritize:

Selected Areas for Examinations of Broker-Dealers

In addition to the focus on issues discussed above, in broker‑dealer examinations the Division will focus on:

Selected Areas for Examinations of Municipal Advisors

With respect to its review of municipal advisors, the Division will focus on:

Conclusion

Firms should consider the SEC examination priorities as they conduct their annual reviews of policies, procedures and business activities. Where firms observe deficiencies in their own practices, adjustments should be made before they find themselves the subject of an SEC investigation, examination or enforcement action.

This article was republished by the Journal of Investment Compliance in June 2021. The republished article is posted with permission.

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