SEC Releases 2022 Exam Priorities

Although most RIAs registered with the SEC will not receive a review this year, consulting practices that do get an audit will already have a full cheat sheet on hand.

This is because the regulator has provided financial advisors and other wealth management professionals with its annual list of priorities for the more than 2,000 RIA reviews that the Review Division will perform in 2022. Approximately 1,000 unit staff oversee approximately 15,000 RIAs with $125 trillion in assets under management and 3,500 brokerages with 150,000 branches, according to to the SEC’s budget request to Congress.

Three areas of the closely watched annual report stand out for Douglas Kamin, managing director of compliance firm Foreside who acts as a consultant to RIAs:

  • ESG criteria: “Corporate marketing, or I would say ‘over-marketing’, of ESG was probably an SEC concern, what the industry would euphemistically say is ‘greenwashingKamin said. “Like any other type of portfolio management, if you say you do something, you will need policies and procedures that document what you do, how you do it, and when you do it. ”
  • Best Interest Regulation“I don’t think anyone should feel comfortable that this is new,” Kamin said, noting dozens of cases that the SEC filed regarding the new “client relationship summary” document required by the rule for RIAs. “This is part of their regular reviews with respect to wealth managers and other financial entities subject to the rule.”
  • Bearings“It was very subtle,” Kamin said of a small reference to rollovers and other account conversions in the Reg BI section of the report. The Ministry of Labor considering creating a new rule this could potentially enforce a fiduciary duty in rollover recommendations under the Employees Retirement Income Security Act, although there is no timeline for the proposal. “They didn’t mention any other context,” Kamin said. “But, given the new DOL standards, that might be an area they’re moving into.”
  • cyber security“They’re telling everybody, ‘You gotta up your game,'” Kamin said, referring to new SEC rule proposal on cybersecurity in RIAs and the increased importance in light of Russia’s invasion of Ukraine. “I imagine the SEC wants to see world-class information security procedures, and that’s something they’ll be looking at very closely.”

For a summary from the SEC 2022 exam priorities and key takeaways for advisors, scroll through our slideshow. To see this year’s FINRA exam areas of interest, Click here.