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What Are the SEC’s Examination Priorities for 2023?

John W. Sellers
Attorney John W. Sellers
SEC Examination Priorities Team Lead
Former DOJ Trial Attorney
envelope iconContact John

The U.S. Securities and Exchange Commission (SEC) is tasked with overseeing all aspects of the United States’ securities markets. This includes not only monitoring the sale of securities to institutional and retail investors, but also enforcing the rules and regulations that apply to investment advisors and broker-dealers.

To meet its mandate, the SEC relies on several enforcement powers. One of these is the power to conduct examinations. The SEC’s Examination Division regularly performs examinations of companies, firms, and individuals’ operations within the securities markets; and, when these examinations uncover evidence of fraud or misconduct, the SEC either: (i) imposes administrative penalties; (ii) pursues civil enforcement action; or (iii) refers the case to the U.S. Department of Justice (DOJ) for criminal prosecution.

But, due to the breadth of potential risks facing investors in the U.S. securities markets, each year the SEC’s Enforcement Division focuses on certain enforcement priorities. The Enforcement Division publishes a report detailing these priorities annually, typically in March. As the Enforcement Division explained in its 2022 Examination Priorities report, publicly identifying these priorities helps to create accountability not only for the Enforcement Division itself, but also for those that may find themselves facing SEC examinations:

“The annual publication of our examination priorities furthers the SEC’s mission and aligns with the Division’s four pillars to promote and improve compliance, prevent fraud, monitor risk, and inform policy. The examination priorities have taken on greater prominence over the years and have become an important tool for the examination program. The publication of the examination priorities provides investors and registrants transparency into those areas we believe bring heightened risks to investors, registrants, and the markets.”

So, what are the SEC’s exam priorities for 2023? At this point we don’t know, and we likely won’t know for certain until March of next year. But, we can forecast based on the Examination Division’s priorities from 2022 as well as the SEC’s enforcement activities throughout the year. Additionally, the SEC publishes an annual Report on Objectives as well, and its Fiscal Year 2023 Report on Objectives provides some key insights into where the Commission will be focusing its effort and resources in the coming year.

Forecasting the SEC’s Examination Priorities for 2023

To determine where the SEC’s Examination Division will likely be focusing in 2023, we can first look back at the Examination Division’s priorities in 2022. The 2022 Examination Priorities report identifies three broad categories in which the Division intended to focus its efforts during the year. The first category is the division’s “Significant Focus Areas.” Some of these were new for 2022, while others carried over from prior years. As the Enforcement Division notes in its 2022 Examination Report, while some of its priorities are perennial, “[e]ach year, in developing our examination priorities, we engage in a deliberative process across the SEC to identify the areas we believe exhibit the highest risks to investors and the markets or are trending in that direction.”

The second category encompasses priorities within the SEC’s Investment Adviser and Investment Company Examination Program. As its name suggests, this program focuses on ensuring compliance within the investment advisory services sector. Similarly, the third category focuses on fostering and enforcing compliance under the SEC’s Broker-Dealer and Exchange Examination Program.

1. The SEC Enforcement Division’s “Significant Focus Areas”

The Enforcement Division’s 2022 Examination Priorities report states that the division will, “prioritize examinations of several significant focus areas that pose unique or emerging risks to investors or the markets, as well as examinations of core and perennial risk areas.” These “significant focus areas” include:

  • Private Funds – Noting a 70% increase in assets managed by private funds over the past five years, the Enforcement Division prioritized several aspects of the SEC’s private fund oversight in 2022. These included calculation of fees and expenses, compliance with the Advisers Act Custody Rule, and investments in Special Purpose Acquisition Companies (SPACs), among others.
  • Environmental, Social, and Governance (ESG) Investing – With ESG investing becoming increasingly popular among retail investors, this has become a priority focus area for the SEC as well. While some state regulators are seeking to limit companies’ focus on ESG considerations in favor of pure profitability, the SEC is focused on ensuring that companies adequately (and accurately) disclose their ESG-oriented decisions and activities.
  • Regulation Best Interest (Reg BI) – While Reg BI has now been in place for several years, the SEC’s Examination Division is continuing to see issues with regard to compliance. In 2022, the Division wrote that it, “will continue to address standards of conduct issues for broker-dealers and RIAs, with reviews focused on how they are satisfying their obligations under Regulation BI . . . to act in the best interests of retail investors and not to place their own interests ahead of retail investors’ interests.”
  • Information Security and Operational Resiliency – With the ever-increasing cybersecurity threats to the U.S. securities markets, information security and operational resiliency have become perennial examination priorities for the SEC as well. The SEC relies heavily on exchanges, companies, firms, and other industry participants to proactively take the steps necessary to prevent malicious intrusions.
  • Emerging Technologies and Digital Assets (Including Cryptocurrency) – Emerging technologies and digital assets such as cryptocurrencies are also proving to be perennial examination priorities out of necessity. As the market for these technologies and assets grows, the SEC is doing everything it can to keep pace and help ensure that investors are able to make informed investment decisions.

Given that all of these “significant focus areas” from 2022 are likely to remain prevalent in 2023, we are anticipating that these will remain examination priorities for the SEC next year as well.

2. The Investment Adviser and Investment Company Examination Program

Similarly, with regard to the Examination Division’s priorities under its Investment Adviser and Investment Company Examination Program, the Division notes that most of these are perennial priorities that it continues to emphasize year after year. Some examples of these perennial SEC examination priorities include:

  • Adequate supervision of registered investment advisors (RIAs)
  • Adequate oversight of third-party service providers (including cybersecurity vendors)
  • Adoption of oversight practices focused specifically on heightened risks
  • Accurate calculation of management fees, refunds for prepaid fees, and other client fees and expenses
  • Devotion of appropriate resources to compliance in light of the firm’s size, revenue, and risks

Additionally, the SEC’s Enforcement Division notes that it consistently prioritizes the examination of RIAs and firms with little or no examination history. As stated in the 2022 Examination Priorities report, “the Division prioritizes RIAs and registered funds that have never been examined, including recently registered firms, and those that have not been examined for a number of years.”

3. The Broker-Dealer and Exchange Examination Program

Under the Broker-Dealer and Exchange Examination Program, the SEC’s Examination Division has identified six perennial priorities. As each of these priorities are broad-based by design, it is reasonable to conclude that the Division will maintain this approach in 2023. Under this program, the SEC’s examination priorities in 2022 were:

  • Microcap, municipal, fixed-income, and over-the-counter (OTC) securities
  • Broker-dealer operations
  • National securities exchanges
  • Security-based swap dealers (SBSDs)
  • Municipal advisors
  • Transfer agents

Of course, broker-dealers and exchanges must focus on all areas of securities compliance, as all types of compliance failures have the potential to trigger examinations and enforcement actions. As the retail investment market is anticipated to maintain its growth in 2023, broker-dealers and exchanges are likely to face particular scrutiny with regard to their marketing, disclosure, and other public-facing practices.

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Amanda Marshall

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Joe Brown

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John W. Sellers
John W. Sellers

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Linda Julin McNamara

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Aaron L. Wiley

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Roger Bach

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Chris J. Quick

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Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Additional Considerations Based on the SEC’s Recent Enforcement Activity and Fiscal Year 2023 Report on Objectives

Beyond looking back at the SEC’s examination priorities in 2022, we can glean insights for 2023 from other sources as well. In particular, the SEC’s enforcement activity over the year sheds light on where the Commission has been focusing (and is likely to continue focusing) its examination and enforcement efforts. For example, throughout 2022, the SEC has published numerous press releases publicizing its enforcement efforts in the areas of:

  • Corporate disclosure violations
  • Cryptocurrency fraud
  • Insider trading, conflicts of interest and other securities law violations
  • RIA and broker-dealer fraud
  • Unregistered offerings (including IPOs and ICOs)

As noted above, the SEC’s Fiscal Year 2023 Report on Objectives provides some useful insights as well. Of particular note are the areas where the SEC’s forward-looking policy objectives align with its examination priorities from the past year. These include private fund compliance, ESG compliance, and cryptocurrency fraud, among others. Ultimately, as companies, firms, and individual RIAs and brokers look ahead to 2023, they should take a hard look at their current compliance policies and procedures, and they should be focused on proactively making any adjustments or additions that may be necessary to avoid unnecessary SEC scrutiny in the year to come.

Contact the SEC Compliance and Defense Lawyers at Oberheiden P.C.

Do you have questions or concerns about SEC compliance (or facing SEC scrutiny) in 2023? If so, we invite you to get in touch. To schedule an appointment with a senior SEC lawyer at Oberheiden P.C., please call 888-680-1745 or request a complimentary consultation online today.

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