Scarinci Hollenbeck, LLC
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201-896-4100 info@sh-law.comFirm Insights
Author: Scarinci Hollenbeck, LLC
Date: April 8, 2021
The Firm
201-896-4100 info@sh-law.comWhile many focus areas remain unchanged from prior years, the SEC identifies several new ”foci”, including climate-related risk and environmental, social, and corporate governance (ESG) issues.
“This year, the Division is enhancing its focus on climate and ESG-related risks by examining proxy voting policies and practices to ensure voting aligns with investors’ best interests and expectations, as well as firms’ business continuity plans in light of intensifying physical risks associated with climate change,” Acting Chair Allison Herren Lee said in a press statement. “Through these and other efforts, we are integrating climate and ESG considerations into the agency’s broader regulatory framework.”
The SEC’s Division of Examinations (formerly the Office of Compliance Inspections and Examinations (“OCIE”)) publishes its annual priorities each year. The SEC’s examination process and analysis are grounded in four main pillars: promoting compliance; preventing fraud; identifying and monitoring risk; and informing SEC policy.
Below are key takeaways from the 2021 Examination Priorities:
The Division of Examinations also flagged areas of concern unique to registered investment advisers (RIAs) and investment companies. Citing that RIAs are increasingly offering investment strategies that focus on ESG factors, the Division of Examinations plans to focus on products in these areas that are widely available to investors including open-end funds and ETFs, as well as those offered to accredited investors such as qualified opportunity funds. According to the Division, it will “review the consistency and adequacy of the disclosures RIAs and fund complexes provide to clients regarding these strategies, determine whether the firms’ processes and practices match their disclosures, review fund advertising for false or misleading statements, and review proxy voting policies and procedures and votes to assess whether they align with the strategies.” Additionally, the SEC will prioritize examinations of mutual funds or ETFs that have not previously been examined or have not been examined recently and will focus on fund compliance programs and financial condition, particularly where funds have instituted advisory fee waivers.
The SEC report should be considered a “must-read” for compliance, technology and operational professionals at investment advisers, investment companies, broker-dealers, transfer agents, and clearing agencies. After reviewing the examination priorities for the coming year, it is essential that firms perform an in-depth self-evaluation to determine whether changes to the firms’ policies, procedures and business activities are necessary to address any potential compliance deficiencies, followed by planning and implementation of required changes.
If you have any questions or if you would like to discuss these issues further,
please contact Paul A. Lieberman or the Scarinci Hollenbeck attorney with whom you work, at (201) 896-4100.
[1] “As climate-related events become more frequent and more intense, we will review whether systemically important registrants are considering effective practices to help improve responses to large-scale events,” the Division of Examinations’ report states.
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