Cracking Open the SEC’s Examination Priorities Report

On October 16, the United States Securities and Exchange Commission (SEC) unveiled its 2024 examination priorities in a report that feels like an annual festive gathering for compliance departments. This report isn’t just formal paperwork; it’s like a treasure map for registrants, outlining where the potential risks and regulatory challengers lie for the upcoming year. Spoiler alert: Crypto dealer-brokers are on the SEC’s radar!

What’s New? An Expanded Focus

According to the report, the SEC’s Division of Examinations made some bold moves by expanding its teams specifically to tackle the wild west of finance — cryptocurrencies, fintech innovations, artificial intelligence, and the always critical cybersecurity. 2023 was a year of growth for the agency, and 2024 looks to continue that momentum.

Technology on Trial

The SEC is particularly interested in registrants that offer cutting-edge technological solutions aimed at serving online accounts. Some hot topics they’ll scrutinize include:

• Automated investment tools
• Artificial Intelligence in finance
• Trading algorithms or platforms

So, if your business has made strides in technology to meet compliance or marketing demands, brace yourselves—this is the SEC’s equivalent of the “drill sergeant’s watching!”

Keeping Up with Customer Advice Standards

The examinations will dive into how registrants meet conduct standards when advising customers. Special attention will be given to how well firms understand the products they offer, especially when dealing with older investors and retirement assets. The SEC is serious about safeguarding the less tech-savvy amidst this digital gold rush.

Custody Requirements Make the Cut

One specific area highlighted in the report is compliance with custody requirements under the Advisers Act. Yes, it appears the SEC is really keeping an eye on whether firms are playing by the rules—especially when it comes to handling client assets securely. This isn’t just regulatory red tape; it’s about protecting people’s financial futures.

Blockchain Risks and Transfer Agents

The SEC also indicated it will evaluate risks associated with blockchain and distributed ledger technologies. Those in the crypto space who are operating as transfer agents servicing crypto asset securities issuers better buckle in. If your operations are any less than transparent and compliant, consider this your friendly reminder from Uncle Sam—don’t skate on thin ice!

Get Ready for the T+1 Transition

Mark your calendars and sharpen those pencils! The SEC has added prep for T+1 as a priority for brokers in 2024. Traditionally, examination outlines are about more than just plumbing issues related to trades; this time, they’re signaling prioritization of operational readiness and compliance standards ahead of major changes.

This newfound focus means firms need to be proactive, not just reactive, in addressing compliance issues before the SEC swings by with a clipboard and a checklist.

Wrapping Up with Greater Transparency

In a bid to enhance transparency, Division Director Richard Best emphasizes the importance of making examination priorities public. The SEC wants firms to hone in on areas that could pose risks to retail investors. It’s like handing out report cards before the semester starts—nobody wants that D!