September 28, 2021

Volume XI, Number 271

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September 28, 2021

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September 27, 2021

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SEC's Division of Examinations Issues 2021 Examination Priorities

On March 3, 2021, the SEC’s Division of Examinations (formerly the Office of Compliance Inspections and Examinations (OCIE)) issued its examination priorities for 2021. In addition to broadly reiterating its continued focus on advisers’ fiduciary duties to their clients, the protection of retail investors and compliance with Regulation Best Interest and Form CRS; knowledgeable and empowered CCOs; conflicts of interest; environmental, social and governance (ESG) matters; and technology and cybersecurity in general, the Division also identified examination priorities that will be of particular interest to managers of both private and registered funds.

Cybersecurity Matters Related to COVID-19

Cybersecurity matters will continue to be a focus, especially those that may be exacerbated by remote work arrangements caused by the COVID-19 pandemic, including with respect to data protection, oversight of vendors, phishing, mobile and remote application access, books and record maintenance, and business continuity and disaster recovery plans.

Financial Technology (FinTech) and Innovation

The Division will focus on whether firms are operating consistently with their representations, handling customer orders in accordance with instructions received and complying with applicable requirements in connection with trade recommendations made in mobile applications. The Division also will focus on how advisers to private and registered funds utilize “alternative data,” or data gleaned from non-traditional sources, including whether an adviser has appropriate controls around the creation and use of that data.

Digital Assets

Digital assets and blockchain technology will be scrutinized by the Division, including whether those assets are in the best interest of investors, as will the trading, custody and valuation of those assets.

Anti-Money Laundering

The Division will continue to prioritize compliance with AML obligations of registered broker-dealers and investment companies, including customer identification programs and their Suspicious Activity Report (SAR) filing obligations.

Compliance Programs

The effectiveness of advisers’ compliance policies continues to be a focus of the Division, including whether those policies are reasonably tailored to the advisers’ business, if sufficient resources are devoted to compliance and other priorities identified in its risk alert issued November 19, 2020 (as summarized here).

LIBOR Transition

The Division will continue to assess firms’ understanding of exposure to LIBOR and their preparation for its discontinuation and the transition to an alternative reference rate.

Dually Registered Advisers

The Division will continue to prioritize examinations of advisers that are dually registered as or affiliated with broker-dealers, including whether the conflicts of interest associated with this arrangement are adequately disclosed.

Examination of Registered Funds

The Division will prioritize examinations of mutual funds or ETFs that have not been previously examined, focusing on their compliance programs, financial condition and compliance with exemptive relief, particularly with respect to non-transparent actively-managed ETFs.

Private Fund Advisers Concentrated in Structured Products

In addition to familiar priorities with respect to private fund advisers, including conflicts of interest, valuation and the effect on fee calculations, cross-trades, principal investments and distressed sales, the Division also will focus on advisers to private funds with a high concentration in structured products, such as collateralized loan obligations or mortgage-backed securities.

The Division of Examinations’ 2021 examination priorities are available here.

 

© 2021 Vedder PriceNational Law Review, Volume XI, Number 109
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About this Author

John Marten Investment Attorney Vedder Price Law FIrm
Shareholder

John S. Marten, a Shareholder in the Chicago office of Vedder Price, has substantial experience representing clients in the investment management industry.

As a member of the firm’s Investment Services group, Mr. Marten counsels clients on a wide variety of matters involving the application of the federal securities laws to investment companies, investment advisers and broker-dealers. He has significant experience counseling investment company clients with respect to new products and was recently involved in the creation of two mutual funds...

(312) 609 7753
Nathaniel Segal Investment Attorney Vedder Price Law Firm
Counsel

Nathaniel Segal is counsel at Vedder Price and a member of the Investment Services group. He focuses his practice on investment companies and investment advisers in connection with the organization and operation of investment products and services, including traditional mutual funds, closed-end investment companies (including interval funds and listed closed-end funds), variable insurance products and registered hedge funds, as well as mutual funds utilizing complex hedging and absolute return strategies. Mr. Segal has experience in conducting transactional due diligence...

(312) 609 7747
Jacob Tiedt,Vedder Price law firm investment services attorney
Shareholder

Jacob C. Tiedt is a Shareholder at Vedder Price and a member of the Investment Services group.

Mr. Tiedt’s practice includes the representation of registered mutual funds, closed-end funds and exchange-traded funds; private funds; investment advisers; and other financial institutions on a broad range of regulatory, governance and compliance matters. Mr. Tiedt regularly counsels clients on matters relating to SEC registration, disclosure and compliance; shareholder solicitation; NYSE, Nasdaq and FINRA regulation; corporate governance; and board administration. Mr....

312-609-7697
Adam Goldman Investment Attorney Vedder Price
Associate

Adam S. Goldman is an Associate in the Chicago office of Vedder Price and a member of the firm’s Investment Services practice group.

Prior to joining Vedder Price, Mr. Goldman practiced at a boutique financial services firm, representing broker-dealers, investment advisers, commodity pool operators, private equity funds, and other investment services clients in transactional, litigation, and compliance matters. Mr. Goldman also counseled public companies on required filings under the 1933 and 1934 Acts and other regulatory issues.

While in law school, Mr. Goldman competed in...

312 609 7731
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