The SEC's exam priorities in 2022 will focus on ESG investing and private funds, among other areas, according to the Securities and Exchange Commission's Division of Examinations.
On environmental, social and governance investing, the division will focus on ESG-related advisory services and investment products, including mutual funds, exchange-traded funds and private fund offerings, the division said in a report released Wednesday.
The examinations will focus on whether registered investment advisers and registered funds are accurately disclosing their ESG investing approaches and have adopted and implemented policies, procedures and practices designed to prevent violations of the federal securities laws in connection with their ESG-related disclosures, "including review of their portfolio management processes and practices," the SEC noted in its report.
On private funds, examinations will focus on a RIA's fiduciary duty and will assess risks, including a concentration on compliance programs, fees and expenses, custody, fund audits, valuation, conflicts of interest, disclosures of investment risks and controls around material nonpublic information, the SEC said in its report.
Moreover, the division will review private fund advisers' portfolio strategies, risk management and investment recommendations and allocations, focusing on conflicts and disclosures around these areas, the SEC added.
"The division's 2022 examination priorities identify key risk areas that we expect registrants to address, manage and mitigate with vigilance," said SEC Chairman Gary Gensler in a statement. "Investment advisers, broker-dealers, self-regulatory organizations, clearing firms and other registrants are critical market participants, and examinations against our laws and rules are fundamental to instilling the trust necessary for our markets to thrive."
The SEC also noted that it will continue to examine market participants engaged with cryptocurrency assets and will review their custody arrangements as well as assess the offer, sale, recommendation, advice and trading of crypto assets.
As has been the case in recent years, the division will also focus on compliance with Regulation Best Interest, Form CRS and whether RIAs have fulfilled their fiduciary duties of care and loyalty, the SEC said.
The best-interest standard was the centerpiece of a package designed to address the obligations of broker-dealers and investment advisers when they provide recommendations or investment advice to retail investors. It was adopted in June 2019 and went into effect June 2020.
The client relationship summary, or Form CRS, necessitates that firms disclose to retail investors the nature and scope of their services, the types of fees customers would incur, the conflicts of interest faced by the firm and the firm's disciplinary history.
In fiscal year 2021, which ended Sept. 30, the division completed 3,040 examinations, a 3% increase from the previous fiscal year.
