The Securities and Exchange Commission’s (SEC) Division of
Examinations recently published its 2024 Examination Priorities, which is
a report intended to inform investors and registered entities about the primary
risks, examination topics and areas of focus for the upcoming year. These
examinations will place particular emphasis on emerging risks which could impact
investors and the financial markets while also addressing ongoing areas of
concern.
The Division of Examinations plays a major role in safeguarding
the interests of investors and supporting the formation of capital, SEC Chair
Gary Gensler explained in a press release.
“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,” Gensler said. “The division’s efforts, as laid
out in the 2024 priorities, enhance trust in our ever-evolving markets.”
SEC Director of the Division of Examinations Richard Best
highlighted the importance of making examination priorities public.
“Continuing to make our examination priorities public increases
transparency into the examination program and encourages firms to focus their
compliance and surveillance efforts on areas of potentially heightened risk to
retail investors,” Best said. “We hope that aligning the publication of our
examination priorities with the beginning of the SEC’s fiscal year will provide
earlier insight to registrants, investors, and the marketplace of adjustments
in our areas of focus year to year.”
The SEC’s Examination Division inspects various entities
registered with the SEC, including investment advisers, investment companies,
broker-dealers, transfer agents, municipal advisors, securities-based swap
dealers, clearing agencies and self-regulatory organizations. The division prioritizes
examining practices, products and services its examiners believe pose substantial
risks to investors and the integrity of U.S. capital markets. It uses a
risk-based approach to fulfill its mission of enhancing compliance, preventing
fraud, monitoring risk and shaping policy.
It is important to note that the published priorities do not cover
all the areas of focus for the division in its examinations, risk alerts and
outreach. The scope of any examination includes a comprehensive analysis of an
entity’s history, operations, services, products and other risk factors.
“As the industry prepares to meet new regulatory requirements,
similarly, the division will need to consider the impact of these rules, which
will influence potential examinations, compliance risks and new focus areas,”
the report stated. “To support the industry, we expect to increase our
engagement through increased in-person fieldwork, compliance outreach events,
speaking engagements, among other touchpoints.”
Among the “emerging risks” topics covered in the report are information
security and operational resiliency, crypto assets and emerging financial
technology, regulatory systems compliance and integrity, and anti-money
laundering (AML).
“The division will continue to focus on AML programs to review
whether broker-dealers and certain registered investment companies are: (1)
appropriately tailoring their AML program to their business model and
associated AML risks; (2) conducting independent testing; (3) establishing an
adequate customer identification program, including for beneficial owners of
legal entity customers; and (4) meeting their SAR filing obligations.
Examinations of certain registered investment companies will also review
policies and procedures for oversight of applicable financial intermediaries,”
the report stated.
The report also highlights the need for enhanced technology
infrastructure within U.S. securities markets, given the rise in alternative
trading systems that meet certain volume thresholds.
“Among other things, these critical market infrastructure entities
must establish, maintain, and enforce written policies and procedures
reasonably designed to ensure that their systems’ capacity, integrity,
resiliency, availability, and security is adequate to maintain their
operational capability and promote the maintenance of fair and orderly
markets,” the report explained.
The division develops its annual examination priorities
collaboratively with feedback from examination staff who can identify potential
risks to investors or the financial markets. It also seeks input and advice
from various sources, including the chair, other SEC commissioners, staff from
other SEC divisions and offices, other federal financial regulators, investors
and industry trade organizations.