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SEC Division of Examinations sets out priorities for 2024

On Behalf of | Oct 25, 2023 | Securities and Compliance

The Securities and Exchange Commission’s Division of Examinations has released its examination priorities for 2024, AdvisorHub reports.

The priorities are issued to inform investors and registrants of the key risks, examination topics, and priorities that the Division plans to focus on in the year ahead. The SEC said the upcoming examinations will prioritize areas that pose emerging risks to investors or the markets along with the core and perennial risk areas.

One area of focus in the coming year will be hybrid advisor-brokers who are registered with both the SEC and the Financial Industry Regulatory Authority.  The Division plans to scrutinize “the economic incentives and conflicts of interest associated with advisers that are dually registered as broker-dealers, use affiliated firms to perform client services, and have financial professionals servicing both brokerage customers and advisory clients.”

The examiners want to determine whether the hybrid broker-dealers are recommending certain investments, products and providers when lower cost options are available.

The SEC noted that the Division of Examinations focuses on certain practices, products, and services that it believes present potentially heightened risks to investors or the integrity of the U.S. capital markets.

“The Division of Examinations plays a critical role in protecting investors and facilitating capital formation,” said SEC Chair Gary Gensler. “In examining for compliance with our time-tested rules, the Division helps registrants understand the rules as well as ensures that markets work for investors and issuers alike. The Division’s efforts, as laid out in the 2024 priorities, enhance trust in our ever-evolving markets.”

Another priority for the division will be monitoring compliance with Regulation Best Interest, which establishes the standard of conduct for broker-dealers when they recommend a securities transaction or investment strategy. When making such a recommendation, a broker-dealer must act in the retail customer’s best interest and cannot place the interest of the broker-dealer ahead of that of the customer.

Examinations will focus on recommendations with regard to products, investment
strategies, and account types; disclosures made to investors regarding conflicts of interest;
conflict mitigation practices; processes for reviewing reasonably available alternatives;
and factors considered in light of the investor’s investment profile, including investment
goals and account characteristics.

Also on the list of priorities are marketing practice assessments for whether advisers have adopted and implemented reasonably designed written policies and procedures to prevent violations of the Advisers Act and the rules thereunder including reforms to the Marketing Rule

The SEC said the collaborative effort to formulate its annual priorities starts with feedback from examination staff while also including input and advice from the Chair and other Commissioners, staff from other SEC divisions and offices, other federal financial regulators, investors, and industry groups.

The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry.  If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.