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SEC Plans to Focus Its Attention on Recently Adopted Rules

An RIA doing a review for SEC compliance.

The Securities and Exchange Commission (SEC) has recently implemented multiple rules that impose substantial compliance obligations on investment advisers. These rules address various aspects of regulatory compliance. Additionally, the SEC’s 2023 Examination Priorities Report emphasizes enforcement efforts in interconnected areas of compliance specific to registered investment advisers (RIAs).

RIAs need to be aware of compliance duties and especially where the SEC will direct much of its focus this year. Failure to abide by the rules and regulations could subject your organization to serious penalties. My RIA Lawyer is here to help prepare you to meet the agency’s examination demands in 2023 and beyond.

These are three recent rules under the Advisers Act and Investment Company Act which will see heightened compliance examination.

Advisers Act Rule 206(4)-1 (Marketing Rule)

The SEC views this rule as a significant change to examination review for RIAs. The Division of Examinations (Division) will assess whether RIAs have properly adopted and implemented policies and procedures concerning this rule. These policies should be reasonably designed to prevent violations of the Marketing Rule by advisers and supervised persons.

Additionally, the Division wants to see RIA compliance with the substantive requirements of the Marketing Rule. Among these are:

  • That RIAs have a reasonable basis for believing they can substantiate material statements of fact
  • Rules for performance advertising, testimonials, endorsements, and third-party ratings

The compliance date for the SEC’s Marketing Rule was November 4, 2022. If you have questions about your obligations under the rule, reach out to My RIA Lawyer.

Investment Company Act Rule 18f-4 (Derivatives Rule)

Funds that rely on the Derivatives Rule are subject to the following Division activities (among others).

Assessment of whether registered investment companies have adopted policies and procedures to manage the funds’ derivatives risks.

These policies and procedures should also reasonably prevent violations of the Derivatives Rule under Investment Company Act Rule 38a-1. “Registered investment companies” include mutual funds (non-money market), exchange-traded funds (ETFs), closed-end funds, and business development companies (BDCs).

Review for compliance with Rule 18f-4.

This includes the adoption and implementation of a derivatives risk management program, board oversight, and disclosure rules. Compliance officers should ensure that disclosures concerning the fund’s use of derivatives are not incomplete, inaccurate, or potentially misleading.

Investment Company Act Fair Valuation Rule 2a-5

To ensure compliance with this rule, the Division will take the following steps (among others).

1. Evaluate funds’ and fund boards’ compliance with newly imposed requirements for:

  • Determining fair value
  • Implementing board oversight duties
  • Setting recordkeeping and reporting requirements
  • Permitting the funds’ board to allow designated individuals to perform fair value determinations subject to board oversight.

2. Determine whether necessary changes required by the rule have been made to:

  • Valuation methodologies
  • Compliance policies and procedures
  • Governance practices
  • Service provider oversight
  • Reporting and recordkeeping

Let Our Team Assist With All Aspects of RIA Compliance

The year 2023 is anticipated to bring heightened scrutiny and oversight from the Securities and Exchange Commission (SEC). This increased regulatory activity is likely to extend beyond this year and continue indefinitely. It is crucial to assess your readiness for the compliance obligations that the Division of Examinations will expect from you. By proactively preparing for these duties, you can demonstrate your commitment to regulatory compliance and ensure that you meet the expectations set forth by the SEC.

It’s time to let seasoned legal counsel review your and your team’s practices to make sure you’re following the law. To learn more about the SEC’s Examination Priorities Report or our legal services, call My RIA Lawyer today.

Author Bio

Leila Shaver is the Founder of My RIA Lawyer, a law firm that provides compliance and legal consulting for financial institutions. With extensive experience as a securities attorney and compliance expert, she has served as Chief Compliance Officer and General Counsel to RIAs, BDs, and TAMPs with billions in assets under management.

Leila understands the challenges RIAs face and is committed to helping RIAs streamline their processes, mitigate risks, and ensure compliance with regulatory requirements. She received her Juris Doctor from Atlanta’s John Marshall Law School and is a West Georgia Young Lawyers’ Association member. Leila has received numerous accolades for her work, including the Carroll County Bar Association’s Outstanding Young Lawyer Award in 2017.

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