For over a decade, the Division of Examinations within the U.S. Securities and Exchange Commission (the SEC) has released its annual examination priorities in the first quarter of each new calendar year. The Division, however, released its 2024 examination priorities on October 16, shifting the release of its annual priorities on the basis of the U.S. government’s fiscal year, which began on October 1.
Despite the slight change in timeline from calendar year to fiscal year, the Division says that it will continue to focus on many of the areas it has emphasized for years in its examinations. Compliance with the Marketing Rule, as well as new rules adopted by the SEC throughout 2023, will be important focus points, alongside longstanding private fund concerns, such as conflicts of interest, calculation and allocation of fees and expenses, and the allocation of investment opportunities.
The release, as in past years, reflects the examination priorities for investment advisers regulated by the SEC under the U.S. Investment Advisers Act of 1940 (the Advisers Act); investment companies registered under the U.S. Investment Company Act of 1940; broker-dealers registered under the U.S. Securities Exchange Act of 1934; and other market participants. The 2024 priorities follow the finalization of a broad-ranging set of new private fund rules adopted by the SEC in August, with more than a half-dozen additional proposed rules under consideration.
While most investment fund sponsors are not registered investment companies or registered broker-dealers, many are either (i) registered investment advisers (RIAs), which should expect routine examinations every few years by the SEC, or (ii) exempt reporting advisers (ERAs) relying on either the venture capital fund adviser exemption (i.e. those advising solely venture capital funds) or the private fund adviser exemption (i.e. those advising solely private funds with under $150 million in assets under management), excluding in each case the assets of any small business investment companies (SBICs).
As with the 2023 priorities, the Division continues to emphasize the “four pillars” of its mission: (i) promoting compliance; (ii) preventing fraud; (iii) monitoring risk; and (iv) informing policy. Given the shorter eight-month intervening period since the release of the 2023 priorities, many initiatives and focus areas from the 2023 priorities remain relevant.