Current Developments in SEC Examinations & Enforcement 2021–2022

The 2022 Examination Priorities for the US Securities and Exchange Commission’s Division of Examinations place continued emphasis on resilient compliance programs that are flexible enough to adjust to known variables and capable of adjusting to new issues. We expect that conflicts of interest and disclosure will again be an enforcement focus, while sweeps, investigations, and initiatives in areas such as environmental, social, and governance (ESG); robo-advisory services; cybersecurity; and best execution will likely lead to enforcement actions. Couple these trends with an aggressive rulemaking agenda, and the next several months promise to be full of developments for investment advisers.

After the US Securities and Exchange Commission spent several years focused on “Main Street” retail misconduct that left private funds largely out of the its crosshairs, Chairman Gary Gensler and the Divisions of Enforcement and Examinations are intent on shifting that focus in a way certain to affect hedge and private equity fund managers. As noted in the 2022 Examination Priorities, given the “size, complexity, and significant growth of this market,” private fund advisers will garner growing examinations resources, and that in turn will lead to more enforcement scrutiny in areas such as valuation, fees and expenses, insider trading, and special purpose acquisition company (SPAC) transactions.