Crypto trading, gamification and retail conduct standards are among the issues the U.S. Securities and Exchange Commission (SEC) will focus on in its compliance reviews in the year ahead.
In a new paper, the SEC’s division of examinations highlighted the areas that it believes pose potential risks to investors and market integrity.
In particular, the division said its compliance reviews will look at how well industry firms are meeting their obligations to retail investors under the new best interest standards (Reg BI) for brokers, and the fiduciary duties owed by investment advisers.
“Examinations will include assessments of practices regarding review of investment alternatives, management of conflicts of interest, and consideration of investment goals and account characteristics,” the SEC said in its paper.
Additionally, the compliance division said it will be looking at the use of innovative financial technologies, including online solutions, and digital engagement practices (such as gamification) to serve retail clients.
Among other things, those reviews will look at advice and trading in cryptoassets, including whether firms are meeting their standards of care.
“Given the disruptions caused by recent financial distress among crypto asset market participants, the division will continue to monitor and, when appropriate, conduct examinations of potentially impacted or affected registrants,” it said.
At the same time, reviews of brokers and advisors will look at the use of digital engagement tools to assess whether recommendations are being made through social media and social trading platforms; the adequacy of disclosure; internal controls; and the impact these practices may have on certain investors, such as seniors.
Other key areas for the division’s reviews in the coming year include greenwashing and whether ESG-focused products are properly labelled; whether recommendations of ESG products are being made in retail investors’ best interests; conflicts of interest and disclosure at private funds; and cybersecurity.
“Our priorities reflect the changing landscape and associated risks in the securities market and are the product of a risk-based approach to examination selection that balances our resources across a diverse registrant base,” said Richard Best, director of the SEC’s division of examinations, in a release.
“We will emphasize compliance with new SEC rules applicable to investment advisers and investment companies as well as continue our focus on emerging issues and rules aimed at protecting retail investors.”