By CSE research team
The examination priorities for fiscal year 2022 were announced by the Division of Examinations of the U.S. Securities and Exchange Commission (SEC). The annual publication of the Division’s examination priorities is composed in such a way to provide investors and registrants transparency and is aligned with the Division’s four pillars: promote and improve compliance, prevent fraud, monitor risk, and inform policy.
The Division highlighted the following five “significant focus areas”:
- Private Funds
- Environmental, Social, and Governance (“ESG”) Investing
- Standards of Conduct
- Information Security and Operational Resiliency
- Emerging Technologies and Crypto-Assets
In 2021, there was a 3% increase from 2020 in the examinations completed. Additionally, during 2021, the Division issued more than 2,100 deficiency letters and made more than 190 referrals to the SEC’s Division of Enforcement.
The SEC has already flagged ESG investments as potentially higher-risk for investors due to a lack of standardized ESG terms. Registered investment advisors and funds are increasingly offering and evaluating investments that employ ESG strategies or incorporate certain ESG criteria, increasing also the risk of materially false and misleading statements in the disclosures regarding portfolio management practices. To prevent this risk, the Division will continue to focus on ESG-related advisory services and investment products, including private fund offerings.
Specifically, the Division wants to ensure that registered funds are accurately disclosing their ESG investing approaches and have adopted and implemented policies, procedures, and practices designed to prevent violations of the federal securities laws in connection with their ESG-related disclosures. Moreover, examinations will focus on whether advisors overstate or misrepresent ESG factors used in portfolio selection (e.g., greenwashing).
CSE was proudly a supporter of SEC’s consultation process that took place last year and continues to include updates on the upcoming legislation and important sustainability (ESG) developments in its Sustainability ESG Practitioner Programs, where almost 90% of ESG Managers of Fortune 500 firms has been already certified.
The upcoming online practitioner programs include Seattle, May 12-13 & 16 (advanced edition) and NYC, June 9-10 & 13 (leadership edition). Ensure ESG is part of your risk management strategy and craft an ESG Roadmap tailored to your organization.