SEC Releases 2024 Exam Priorities
The Securities and Exchange Commission (SEC) released its 2024 exam priorities for investment advisers and broker-dealers, revealing that examiners will remain squarely focused on areas the commission has previously prioritized, such as Regulation Best Interest (BI), complex products, cryptocurrencies, and emerging technologies.
Regulation BI continues to be a primary emphasis of broker-dealers. The commission stated that it intends to focus on recommendations of complex products such as derivatives and leveraged exchange traded funds, as well as annuities, non-traded real estate investment trusts, and other private placements.
Other areas of concern in Reg BI include disclosures and conflict-of-interest mitigation, as well as how broker-dealers assess an individual investor’s financial condition and investing profile when providing recommendations.
The commission also plans to continue evaluating broker-dealers’ compliance with rules related to Form CRS, the net capital and customer protection rules, and trading practices, particularly in regard to short selling.
The commission plans to focus on investment advisors’ compliance with their duty of care and duty of loyalty, particularly as they pertain to complicated investment products and strategies, suitability, optimal execution, and managing conflicts of interest.
“The Division of Examinations plays a critical role in protecting investors and facilitating capital formation,” said SEC Chair Gary Gensler. “In examining for compliance with our time-tested rules, the Division helps registrants understand the rules as well as ensures that markets work for investors and issuers alike. The Division’s efforts, as laid out in the 2024 priorities, enhance trust in our ever-evolving markets.”
Examiners also intend to investigate economic motivations for promoting specific products as well as investment advisors’ compliance systems, particularly when it comes to the marketing rule, pay arrangements, and disclosures.
Furthermore, information security and operational resilience remain a priority, as do artificial intelligence, trading algorithms, and crypto assets. Other areas of concern include developing financial technologies such as mobile apps, automated guidance, and anti-money laundering measures.