September 21, 2021

Volume XI, Number 264

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September 20, 2021

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SEC Annual Examination Priorities for RIAs

Last month, the SEC Division of Examinations (the "Division"; formerly the "Office of Compliance Inspections and Examinations") released its annual Examination Priorities for 2021. RIAs and their Chief Compliance Officers are advised to review the whole report, which can be found here. Financial advisers registered with the SEC should expect 2021 examinations to focus on the following areas:

  • Standards of Conduct: The Division will assess whether RIAs have fulfilled their fiduciary duty comprised of the duty of loyalty and duty of care to their client. RIAs should also expect continued examination of their Form CRS, including a focus on readability for clients and timely submission.

  • Fraud, Sales Practices, and Conflicts: Examinations will focus on whether investors receive required disclosures (including on fees and expenses and conflicts of interest), and whether retail investors receive appropriate recommendations, with an emphasis on seniors, teachers, military personnel nd individuals saving for retirement.

  • Information Security and Operational Resiliency: The Division will review whether firms have appropriately identified and addressed information security risks, including risks related to cyber-attacks (e.g., endpoint security, data loss and remote access) and whether firms have taken appropriate measures to safeguard customer accounts and information. The Division will further review firms’ business continuity and disaster recovery plans, especially with regard to risks associated with climate change.

  • Financial Technology (FinTech) and Innovation, Including Digital Assets: RIAs can expect review on their safe use of new technologies and whether services provided to clients through such technologies are consistent with their representations. Examinations will further focus on the use of technology for regulatory compliance and its integration in the firm’s overall compliance programs. With regard to digital assets, examinations will assess issues such as best interest of investors, safety of client funds and effectiveness of compliance programs.

  • Anti-Money Laundering (AML) Programs: The Division will review compliance with AML obligations, including customer identification programs, Bank Secrecy Act filing obligations, due diligence on customers, and beneficial ownership requirements.

  • LIBOR Transition: Firms should be preparing to transfer from LIBOR (the London Inter-bank Offered Rate), which is being discontinued, to an alternative reference rate if LIBOR is presently used by the firm.

  • RIA Compliance Programs: The Division continues its focus on the effectiveness of RIA compliance programs, including whether programs are reasonably designed, implemented, maintained and funded. Priority will be on RIAs that have never, or not in recent years, been examined.

  • RIA to Private Funds: The Division emphasized that it will focus on RIAs that manage private funds and will assess compliance risks, with a priority on liquidity and disclosures concerning investment risks and conflicts of interest.

© 2021 Miller, Canfield, Paddock and Stone PLC National Law Review, Volume XI, Number 104
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About this Author

Vera Hansen Corporate Transactions Lawyer Miller Canfield
Associate

Vera Hansen is an associate in Miller Canfield's Corporate and Transactions Group. Her experience includes drafting, negotiating, and reviewing contracts, and reviewing and assessing international and domestic compliance violations. She is a native German speaker and has worked internationally with leading Fortune 500 automotive companies.

Vera is a graduate of Wayne State University Law School and earned her Bachelor of Arts in political science and law at the University of Tübingen in Germany. During her undergraduate studies, Vera was selected as a Baden-Württemberg Scholar and...

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Aimee Jachym Corporate and Securities Attorney Miller Canfield Law Firm Kalamazoo, Michigan
Principal

As a principal in Miller Canfield's Corporate and Securities group, Aimee Jachym represents businesses in commercial transactions, mergers and acquisitions, corporate governance and compliance matters.

Corporate Law

Using her background in business and international affairs to meet the needs of local and global clients, Aimee counsels businesses of all sizes, including public institutions and start-ups, in diverse matters ranging from contract assistance and real estate to regulatory matters and complex...

269.383.5855
Steven J. Rotunno Corporate Litigation Attorney, Miller Canfield Law Firm
Principal

Steven J. Rotunno has more than three decades of experience representing corporations, partnerships and financial services professionals in complex and wide-ranging legal matters, including investment advisory services, securities matters, employment law, title insurance claims and general commercial litigation.

He represents clients before federal and state courts, as well as the Securities and Exchange Commission, New York Stock Exchange, Financial Industry Regulatory Authority, and the American Arbitration Association in issues involving restrictive covenants, regulatory...

312.460.4261
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