In March of this year, the SEC released its annual announcement of the year’s exam priorities. This year’s priorities include many of the usual standbys: marketing and disclosures, valuation, custody of assets, conflicts of interest, etc. The specifically highlighted priorities also include some trending areas in financial services, like ESG (Environmental, Social, and Governance), crypto assets, and information security/cybersecurity.
Mixed in with these “flashy” exam priorities is a different priority that could be easily overlooked. But do so at your peril. This year, one of the SEC’s listed top priorities for exams is what they’ve referred to as “Standards of Conduct.”
What are "Standards of Conduct"?
In this context, the SEC refers to areas like Regulation Best Interest, Fiduciary Duty, and Form CRS.
Per the SEC Exam Priorities release:
“The Division will continue to address standards of conduct issues for broker-dealers and RIAs, with reviews focused on how they are satisfying their obligations under Regulation BI and the Advisers Act fiduciary standard to act in the best interests of retail investors and not to place their own interests ahead of retail investors’ interests.”
What does this mean for you? Well, it means, generally, the nuts and bolts of a strong compliance program. It’s less about the exciting things and more about managing conflicts of interest, disclosures, best execution obligations, and more. As the release puts it: “For both broker-dealers and RIAs, examinations will focus on the effectiveness of compliance programs, testing, and training designed to support retail investors and working families receiving recommendations and advice in their best interests.”
As we move into the second half of 2022, now is the perfect time to reflect on your compliance program and look at where your strengths and weaknesses are. Take the opportunity for a mid-year reset to ensure you have all your ducks in a row before the SEC comes and asks to see all your ducks.
While these areas might be the less exciting aspects of compliance, adequate managing of your day-to-day compliance work is the foundation of a good SEC exam outcome. If you’re unsure of where you stand or would like a second opinion from experts who’ve seen many types of clients, using a compliance consultant is a good option.
