SEC Division of Examinations Announces 2023 Priorities

The U.S. Securities and Exchange Commission’s Division of Examinations has published a document setting out its key priorities regarding the examination of SEC supervised firms for 2023. Thereafter, the Division will focus on the following key issues, among others:
Examination of investment funds with an ESG focus: In order to ensure compliance with related regulations and to ensure the avoidance of greenwashing, the Division will
– continue to review the disclosures made by ESG funds and review their fund labels,
– continue to examine the investments of funds to ensure that they match the focus outlined by the funds, and
– continue to assess the „recommendations of such products for retail investors are made in investors’ best interest“.
Examination of market participants engaged in crypto-assets: Particularly in light of the recent financial distress among crypto-asset market participants and the detrimental effects on investors, the Division plans to particularly focus on firms acting as financial advisers or facilitating the purchase and sale of crypto-assets to retail clients. A key issue will be the monitoring and examination of compliance to ensure that crypto-related recommendations are made with the appropriate care following the SEC’s regulatory standards and that subsequent investments match investors‘ interest. The Division also plans to examine the disclosures made by crypto-asset service providers and their risk management practices.
Examination of registered investment advisers (RIAs) managing private funds: The Division intends to examine RIAs‘ compliance with their fiduciary duties, ranging from the calculation and disclosures of fees and expenses, to the performance of fund audits, to the valuation of private funds. The Division also announces a special focus on conflicts of interest and the observance of the new marketing rule obligations (17 CFR Part 275, §275.206(4)-1).
General compliance with new investment company rules: The Division will examine compliance with the SEC’s new Fair Valuation Rule under the Investment Company Act (17 CFR Part 270, § 270.2a-5) which requires periodic assessments of the risks, including the risks of conflicts of interest, in relation to the valuation of funds‘ investments so as to ascertain that the investments are valued fairly. Furthermore, the Division will review funds‘ practices as regards the new Derivative Rule under same Act which allows mutual funds (except for money market funds), Exchange Traded Funds (ETFs), registered closed-end funds, and business development companies to engage in derivatives transactions, provided that certain conditions are met.
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As the above noted issues are „only“ the key issues addressed by the SEC Division in its statement, please consult the enclosed document or follow above noted link for a comprehensive list of priorities.