On Feb. 7, 2023, the Securities and Exchange Commission (SEC) Division of Examinations released its 2023 annual exam priorities report, highlighting the commission’s accomplishments and four-part mission. Examinations during 2022 focused on new rulings which went into effect in 2022, impacting registered investment advisers (RIAs) and other SEC-registered firms.
Guided by new leadership, the SEC responded to emerging events which posed significant risks to investors and the markets, conducted hundreds of outreach events and engagements, published seven risk alerts and examined approximately 15% of the RIA population. 2022 was a year which offered EXAMS learning opportunities which were also included in the annual SEC exam priorities report.
The SEC’s “four pillars” for RIA firms
The SEC guided its examinations using what the commission calls its four pillars: promote compliance, prevent fraud, monitor risk and inform policy. Each pillar represents an SEC exam priority which accompanies a set of goals.
- Promote compliance.
One of the primary focuses of the SEC is to promote compliance. Much of this is done through communications like risk alerts and SEC exam priorities reports, as well as conferences. An important component which allows the market to operate effectively is how well the SEC supports the compliance functions of its regulated entities.
- Prevent fraud.
Preventing fraud is a critical goal of the SEC. The SEC sets out to enhance RIA firms’ ability to uncover fraud and suspicious activity by refining risk-based targeting methodologies. This then enables the SEC to assess and monitor risk and accomplish its goal of better allocating limited resources to effectively focus on areas and entities which pose the greatest risk to investors and market stability.
- Monitor risk.
The SEC aims to evaluate changes in market conditions and industry practices and leverage data analysis to monitor and identify potentially problematic activities and determine how best to scope examinations of those activities and RIA firms. It is another goal of the SEC to coordinate more closely with its foreign counterparts to enhance oversight of the regulated entities from a global perspective.
- Inform policy.
It’s a continuous goal of the SEC to provide an invaluable perspective on the industry, its regulated entities and the impact of existing rules on regulated entities. This information has various uses, such as illuminating how regulated entities might have misinterpreted a regulation. The agency then uses this knowledge to revise regulations for better understanding, ensuring better compliance in the future.
According to the report, the SEC intends to adjust to the new realities of the financial environment, utilizing its four pillars to guide how the Divisions will strengthen its examination program and offer value to its regulated entities.
In 2023, the SEC intends on building upon its accomplishments and continuing to confront many of the same economic, geopolitical and technological challenges which it successfully met in the past.
RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.