A flag outside the U.S. Securities and Exchange Commission headquarters in Washington, D.C., U.S., on Wednesday, Feb. 23, 2022.
Al Drago | Bloomberg | Getty Images
The Securities and Exchange Commission will increase its scrutiny of crypto-trading firms and investment advisors as well as Environmental, Social and Governance — or ESG — funds, among other issues on its list of top oversight priorities for 2023.
The annual list provides a road map for the SEC’s focus over the coming year and reflects areas it believes pose the most risk to investors and the health of U.S. capital markets. Released Tuesday, this year’s list shows “the changing landscape and associated risks in the securities market,” Richard R. Best, director of the Division of Examinations, said in a statement.
The priorities were released two months after the securities agency issued new guidance, requiring publicly traded companies to disclose their exposure to the cryptocurrency market. It also follows SEC Chair Gary Gensler’s warning to cryptocurrency firms to “come into compliance” with securities laws after crypto exchange FTX filed for bankruptcy.
This year, the SEC’s examinations division will focus its attention on broker-dealers and registered investment advisors who use emerging financial technologies, including crypto. Examinations will look at the “offer, sale, recommendation of or advice regarding trading in crypto or crypto-related assets” and whether standards of care were met or followed by advisors and routinely updated, as needed.
The House Financial Services Committee also recently formed a working group to rein in what the panel’s Republicans call the SEC’s overreach on ESG. The group aims to “combat the threat to our capital markets posed by those on the far-left pushing environmental, social, and governance (ESG) proposals,” according to its Feb. 3 press release. The securities agency has committed to ensure that ESG-related advisory services and funds are investing in what the firms say they are buying, according to the announcement.
Last year, the agency proposed new rules to prohibit misleading or deceptive claims on ESG fund names in the U.S. and enhanced their disclosure requirements.
The division’s other priorities include:
- Investment advisor and investment company marketing rules: Looking at whether they’ve implemented and adopted new rules designed to minimize advisor violations.
- Registered investment advisors to private funds: To assess compliance and other risks as well as if advisors are adhering to their duties as fiduciaries.
- Retail investors and working families: Ensuring these groups receive advice in their best interests from broker-dealers and registered investment advisors.
- Information security and operational resiliency: Examining cybersecurity protocols as well as data protection for customers.
“In a time of growing markets, evolving technologies, and new forms of risk, our Division of Examinations continues to protect investors,” said Gensler. “In executing against the 2023 priorities, the Division will help ensure compliance with the federal securities laws and rules.”
The annual priorities are compiled with input from the SEC chair and agency commissioners, as well as from other SEC staff, federal financial regulators, investors and industry groups.