April 19, 2021

Volume XI, Number 109

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SEC Exam Priorities for 2021 – Focus on Seniors, Reg. BI and Climate Risk (ESG)

The U.S. Securities and Exchange Commission (SEC) recently released its 2021 Examination Priorities.  The SEC indicates it will focus on senior investors and those saving for retirement, with a specific focus on potential conflicts of interests faced by brokers and advisors in giving them financial advice.  This would include advice given to seniors and those saving for retirement regarding how to manage both the investments in and the administration of retirement accounts, rollover 401(k) accounts and IRAs. 

In the report, the SEC asserts that recent market conditions and volatility may have given rise to opportunities for fraud by brokers and advisors.  In that regard, the SEC states it will more vigorously investigate conflicts of interests in financial advice given to seniors, among others, due to external market conditions, including the COVID-19 pandemic.  In doing so, it will continue to prioritize its review of sales practices and whether they create conflicts of interests, or rise to the level of fraud, especially when it involves senior investors.  These will include the review of sales practices for a host of investment products, including municipal bonds, private placements, ETFs, REITs, microcap securities and cryptocurrency.

The SEC will also continue to focus on Regulation Best Interest (Reg. BI) in its examinations.  While most firms have been proactive in their implementation of Reg. BI, there are still many ways to improve its implementation.  The report specifically states that compliance with Reg. BI will be a focus in their examinations, “including how firms have considered costs in making a recommendation and the processes firm personnel have used to recommend complex products”.  The report also focuses on the important role of compliance departments across the industry.  In the course of conducting examinations, the SEC explains that “CCOs and other compliance staff play critically important roles at firms” and that firms should empower them with “full responsibility, authority, and resources to develop and enforce policies and procedures of the firm”. 

The SEC will also have a particular focus on climate-related risk and ESG issues in investments.  They will be “examining proxy voting policies and practices to ensure voting aligns with investors’ best interests and expectations, as well as firms’ business continuity plans in light of intensifying physical risks associated with climate change”.  By doing so, the SEC states that they will now be “integrating climate and ESG considerations into the agency’s broader regulatory framework”.  The SEC asserts that they continue to promote investor protection and market compliance, but that their priorities continue to “reflect the complicated, diverse and evolving nature of the risks to investors and the markets, including climate and ESG”. 

The report also mentions other areas of interest by the SEC, including market structure, anti-money laundering and information security. The full SEC Release can be found here.  The full text of the 2021 Examination Priorities can be found here.

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©1994-2021 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume XI, Number 64
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About this Author

David L. Ward Member Securities Litigation White Collar Defense & Government Investigations Complex Commercial Litigation Arbitration, Mediation, ADR
Member

David Ward focuses his practice on financial services regulatory matters, internal investigations and related litigation. He represents financial services clients throughout the United States, including broker-dealers, investment advisors, banks, pension consultants, insurance companies and publicly traded entities before the SEC, FINRA, CFTC, U.S. Department of Justice and state regulators. David regularly assists clients in internal investigations; the defense of regulatory investigations, sales practice issues, corporate governance matters and securities-related litigation in state and...

617-348-4860
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