The U.S. Securities and Exchange Commission (SEC) has released its 2024 Exam Highlights Report, a routine publication to inform registrants about emerging risks and areas of focus for the agency's examinations. The report, issued on October 16, is a part of the SEC Examination Division's longstanding practice to highlight key areas of concern. Notably, it signals the SEC's continued scrutiny of cryptocurrency traders, brokers, and others involved in the crypto space.
In its examination efforts, the SEC Examination Division has expanded its capabilities and established dedicated teams to address emerging technologies such as cryptocurrency, fintech, artificial intelligence, and cybersecurity throughout 2023. The report explicitly mentions that the SEC is closely monitoring broker-dealers and advisors engaged in cryptocurrency-related activities.
The agency is interested in examining registrants' adoption of new practices, particularly those leveraging technology and online solutions to meet compliance and marketing requirements. This includes automated investment tools, artificial intelligence applications, trading algorithms, and trading platforms. The examinations will assess how well registrants adhere to conduct standards regarding customer advice and their understanding of the products they offer. The report specifically highlights older investors and retirement assets, underscoring the importance of protecting these demographics.
The SEC's examination program also aims to ensure that registrants adhere to the latest guidance provided by the agency. One specific area mentioned is the "claim for guardianship under the Advisers Act." Additionally, the examinations will address the treatment of risks associated with blockchain and distributed ledger technology, which play a significant role in the crypto and fintech sectors.
In a notable shift, the SEC Examination Division released this report at the beginning of the new financial year, promoting transparency and encouraging firms to prioritize their compliance and oversight efforts, particularly in areas that pose higher risks to retail investors. Richard Best, the Head of the Examination Division, emphasized that disclosing the focus of their examinations increases transparency and helps firms direct their efforts to safeguard retail investors.
The SEC determines its review priorities based on feedback from examiners over the previous year and input from investors, industry groups, and other relevant sources to address emerging challenges and ensure the protection of investors and the integrity of the financial markets.
