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The U.S. Securities and Exchange Commission (“SEC”) released its 2021 Examination Priorities on March 3. The Examinations group – elevated last December to Division status (formerly the Office of Compliance Investigations and Examinations (“OCIE”)) covered the list of perennial concerns. The 2021 priorities include some new subjects, however, reflecting the policy emphasis of the Biden administration.
“This year, the Division is enhancing its focus on climate and ESG-related risks by examining proxy voting policies and practices to ensure voting aligns with investors’ best interests and expectations, as well as firms’ business continuity plans in light of intensifying physical risks associated with climate change,” said Acting Chair Allison Herren Lee. “Through these and other efforts, we are integrating climate and ESG considerations into the agency’s broader regulatory framework.”
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On February 1, 2021, the Financial Industry Regulatory Authority (“FINRA”) released its “Report on FINRA’s Risk Monitoring and Examination Activities.” The Report combines two of FINRA’s long-standing reports: (a) the retrospective Report of Examination Findings from the prior year; with (b) its forward-looking Examination Priorities Letter.
The new format is more user-friendly for supervision and compliance professionals than the prior reports, setting out for each topic:
Regulatory Obligation with citation to relevant rules;
Related Considerations, formatted as questions firms should ask themselves;
Exam Findings and Effective Practices, calling out the good and the bad FINRA found in its prior year’s examinations; and
SEC Enforcement and Exams Likely to Focus More on Private Funds in the New Administration
For the next several weeks and months, intense focus will be trained on determining the priorities of the Biden administration. We believe that at the Securities and Exchange Commission (“SEC”), the new administration will ramp up examinations and investigations of investment advisers, and specifically advisers to private funds.
The industry has certainly been in growth mode. By the SEC’s own calculations, the number of private funds increased by nearly one third during the past four years (from 26,840 funds in the first quarter of 2016 to 34,858 in the first quarter of 2020), and the aggregate net asset value increased likewise (from $6.9 trillion in the first quarter of 2016 to $9.5 trillion in the first quarter of 2020).