The SEC’s Focus for 2021Crelano@mahadvising.com
Whether you’ll be subject to a SEC Exam is on everyone’s mind. In this article we will walk you through with our compiled lists of focus and priorities of the SEC for the year 2021.
Retail Investors and Individuals Preparing for Retirement like Seniors, through Regulation Best Interest and Fiduciary Duty Compliance – In addition to checking whether these RIA’s satisfy the requirements of Reg BI, Form CRS, the SEC will also ensure that RIAs are exercise fiduciary duties to their clients. Also, ensuring conflicts of interest are being minimized.
Operational Resilience and Information Security – The SEC will shift its focus to evaluate the company’s growth plans as well as whether or not they are sufficiently accountable towards climate change-related risks. The regulator will also assist firms in assessing whether they have recovery plans once a disaster occurs and whether their continuity to operate is adequate.
Programs in Anti-Money Laundering – As a way to easily identify, avoid, and lessen suspicious and illegal activities, the SEC will review the anti-money laundering requirements for compliance, which includes checking whether banks, brokerages, and investment advisers have in place policies and procedures to execute or implement these functions properly.
The Transition of The London Interbank Offered Rate (LIBOR) – In collaboration with RIA, the SEC will conduct an exam to determine whether RIA’s understand the implications of being subject to LIBOR. Likewise, the aim is to determine if the firms are prepared to discontinue the use of LIBOR and to migrate to an alternative reference rate in regards to RIA’s own financial matters as well as with clients and customers.
Innovation and Fintech or the Financial Technology Sector which includes the Digital Assets – Today, with digital currencies and financial technology at its peak, the SEC will evaluate whether RIAs act consistently with their representations to see if the customers of these fintech companies are handled appropriately based on RIA’s instructions. Furthermore, to determine whether or not RIA’s have been able to evaluate whether these companies are in compliance with other areas including trade recommendations made in customers’ mobile applications and areas alike.
Furthermore, there are areas of focus like Investment Categories for Advisers, along with Companies themselves
Registered Funds like ETFs and Mutual Funds – The SEC intends to carefully examine these registered funds to determine whether disclosures to investors, filings with the SEC, valuation, agreements, and trading activities are appropriate, as well as review compliance programs and fund governance. Exams are generally prioritized for mutual funds or exchange-traded funds that have never been examined or have not been for a while. The focus is generally on the fund’s financial condition and programs for fund compliance.
Compliance Programs – In light of RIA’s policies and procedures, the SEC will turn its attention to this. In addition, the regulatory agency will focus its efforts on strategies and products that are widely available for investors, such as ETFs and open-end funds, as well as qualified opportunity funds that are being offered to buyers who meet certain qualifications. In relation to these matters, the SEC will also conduct an extensive examination of the disclosures which have been used.
RIAs to Private Funds – Here, the SEC will examine investment advisers of small private funds. They will assess the risks regarding compliance, including the issue of conflicts of interest and information disclosures or liquidity risks.
Additionally, SEC focuses on Municipal Advisors and Broker-Dealers – The exam for broker-dealers are mainly focused on compliance with the Customer Protection and the Net Capital Rules, including whether internal processes and controls are sufficient and whether procedures are followed for borrowing securities from customers. Furthermore, one of the focus areas is compliance with amendments to the rules, such as whether fiduciary duties have been met and the firms’ adjustment to and practices during the pandemic.
In Market Infrastructure:
National Securities Exchange – Examining the operations of the exchange will be the primary focus of the investigation, monitoring, and enforcement of compliance with federal securities and exchange laws.
Clearing Agencies or Operatives – The SEC will be focusing on the conduct of exams by the clearing agency in particular in regards to legal, compliance, wind down and recovery, back testing, margin, operations and settlement, cybercrime, liquidity risk management and resiliency. In addition, the SEC will monitor firms that have already been found to have deficiencies and to confirm that they are taking the right actions to rectify them and lessen the risks related to them.
Transfer Agents – Transfer agents’ main functions that will be continuously examined are the prompt delivery of transfers and items, the record keeping and preservation of records, and the protection of securities and funds.
Compliance and Integrity in Regulation Systems – A continuous assessment will be conducted by the SEC to determine whether the SCI entities have established and enforced the required SCI policies and procedures. In the assessment, they will primarily evaluate the areas of information technology like asset management, governance, incident response or management of cyber threats, the use of third-party vendors, and continuity planning for a business.
MSRB and FINRA – Other regulatory organizations – like MSRB – will also be evaluated by the SEC for how effective their policies, controls, and procedures are.
This may overwhelm you with information; however, we can help your business to avoid any regulatory risks. For excellent regulatory advising, book your appointment with MAH Advising.