Focus areas include marketing practices, conflicts of interest, operational resiliency, and emerging financial technology
Regulatory Insights
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October 2023
The Securities and Exchange Commission (SEC) Division of Examinations (Division) issues its annual report outlining priority examination areas for various market participants in fiscal year 2024, as well as key risk areas that may impact them. In developing their priorities, the Division considers the impacts of new regulatory requirements, which will influence examinations, compliance risks, and new focus areas. The Division notes their intention to enhance industry engagement through increased in-person fieldwork, compliance outreach events, speaking engagements, and similar efforts.
The Division’s 2024 examination priorities for various market participants are outlined in the table below.
Market Participants | Examination Priorities | Related KPMG Regulatory Alerts |
---|---|---|
Investment Advisers | Focus on reviewing advisers' adherence to duty of care and duty of loyalty obligations, including investment advice provided to clients, processes for determining that investment advice is in clients' best interest, economic incentives for advisers, and disclosures made to investors. Focus areas will include:
Similarly, specific focus areas for investment advisers to private funds will include:
| Risk Alert: SEC Investment Adviser Supervision SEC Examinations Risk Alert: Marketing Rule Names Rules: SEC Final Amendments Third party risk management: SEC Investment Adviser Proposal SEC Private Fund Adviser Reforms: Final Rules Form PF and Share Repurchase Disclosures: Final Rules
|
Investment Companies | Evaluation of compliance programs, governance practices, disclosures to investors, and the accuracy of reporting to the SEC. Notable areas of examination focus may include:
| SEC Money Market Fund Reforms & Customer Protection Rule Proposal |
Broker-Dealers | Assessment of compliance with Regulation Best Interest (BI), Form CRS, financial responsibility rules, and trading practices. Key focus areas will include:
| SEC Examinations Risk Alert: Regulation Best Interest SEC Money Market Fund Reforms & Customer Protection Rule Proposal "Covered Technologies" and Conflicts of Interest: SEC Proposal Short Sale Disclosure Reporting of Securities Loans |
Self-Regulatory Organizations (SROs) | Scrutiny of SRO compliance with rules governing operations and enforcement activities (e.g., National Securities Exchanges and the Financial Industry Regulatory Authority (FINRA)), and review of fulfillment of regulatory duties (Municipal Securities Rulemaking Board (MSRB)). Focus areas will include:
| Examination and Risk Monitoring: FINRA 2023 Report Volume-Based Exchange Transaction Pricing |
Clearing Agencies | Examinations of clearing agencies designated as systemically important are conducted at least annually, and focus on core risks, processes, and controls, among other areas, while all other clearing agencies without that designation are subject to risk-based and examinations and Corrective Action Reviews. These exams will review compliance with the SEC's Standards for Covered Clearing Agencies and other relevant requirements. Reviews will assess:
Areas of examination focus in 2024 may include:
| |
Other Market Participants | Focus areas for other market participants (e.g., Municipal Advisors, Security-Based Swap Dealers, Transfer Agents, and those associated with crypto assets and emerging financial technology) will include:
|
Risk Areas. The table below summarizes key emerging risk areas that may impact investors or various market participants, as outlined in the report.
Risk Area | Summary | Related KPMG Regulatory Alerts |
---|---|---|
Information Security and Operational Resiliency | Focus on companies’ cybersecurity, data privacy, and operational resiliency measures, including policies and procedures aimed at preventing service interruptions and protecting client data and assets. Similarly, assessment of companies’ responses to cyber-related incidents, including ransomware attacks, and whether they adequately train staff regarding identity theft prevention programs. In connection with changes to a T+1 settlement cycle, assessment of companies’ preparations for the compliance date of May 28, 2024. | Cybersecurity: SEC Proposal for Adviser/Fund Risk Management SEC Proposals on Cyber Risk Management for Market Entities SEC Proposes Amendments to Regulation S-P Public Company Cybersecurity Risk Management, Strategy, Governance and Incident Disclosure |
Crypto Assets and Emerging Financial Technology | Examination of how companies involved with crypto assets meet and follow standards of conduct and compliance, review of risk disclosures and operational resiliency practices. Ongoing focus on certain services, including automated investment tools, artificial intelligence, and trading algorithms or platforms, and the risks associated with the use of emerging technologies and alternative sources of data. | "Covered Technologies" and Conflicts of Interest: SEC Proposal Focus on Non-Bank Financial Firms, P2P Platforms, and Crypto Exchanges |
Regulation Systems Compliance and Integrity (SCI) | Evaluation of whether SCI entities have implemented policies and procedures to ensure the security and resiliency of their systems and meet the requirements of Regulation SCI. | |
Anti-Money Laundering | Examination of whether broker-dealers and certain registered investment companies:
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Examinations: SEC 2024 Priorities
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