SEC Highlights Exam Priorities for 2024

Critical compliance should also be centered around compensation arrangement assessments focusing on: (1) fiduciary obligations of advisors to their clients, particularly with respect to the advisors' receipt of compensation for services or other material payments made by clients and others; (2) alternative ways that advisors try to maximize revenue, such as revenue earned on clients' bank deposit sweep programs; and (3) fee breakpoint calculation processes, particularly when fee billing systems are not automated.  

Attention will be paid to safeguarding assessments of advisors' controls to protect clients' material non-public information, particularly when multiple advisors share office locations, have significant turnover of investment adviser representatives or use expert networks.

There will also be disclosure assessments to review the accuracy and completeness of regulatory filings, including Form CRS, with a particular focus on inadequate or misleading disclosures and registration eligibility. 

Examinations of Private Fund Advisors

Thomas further advised that the SEC will be looking at the following when reviewing private fund advisors: 

• The portfolio management risks present when there is exposure to recent market volatility and higher interest rates. This may include private funds experiencing poor performance, significant withdrawals and valuation issues, and private funds with more leverage and illiquid assets. 
• Adherence to contractual requirements regarding limited partnership advisory committees or similar structures, including adhering to any contractual notification and consent processes.
• Accurate calculation and allocation of private fund fees and expenses (both fund-level and investment-level), including valuation of illiquid assets, calculation of post-commitment-period management fees, adequacy of disclosures, and potential offsetting of such fees and expenses. 
• Conflicts, controls, and disclosures regarding private funds managed side-by-side with registered investment companies and use of affiliated service providers. 
• Compliance with Advisers Act requirements regarding custody, including accurate Form ADV reporting, timely completion of private fund audits by a qualified auditor and the distribution of private fund audited financial statements.

All Registrants

All registrants should be aware that the compliance date for recently adopted rules shortening the standard settlement cycle for most broker-dealer transactions to one business day after the trade date is May 28.

Regardless of the type of advisor, cybersecurity, crypto assets and their associated products and services, and anti-money laundering programs continue to be a perennial SEC focus. 

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