The U.S. Securities and Exchange Commission (SEC) is intensifying its oversight on the rapidly evolving landscape of cryptocurrency and emerging financial technologies, signalling a strategic shift detailed in its recently unveiled 2024 Exam Priorities report.
Navigating a Dynamic Landscape
SEC Chair Gary Gensler emphasized the pivotal role of the Division of Examinations in fostering an ecosystem where investor protection and capital formation are paramount. “In examining for compliance with our time-tested rules, the division helps registrants understand the rules as well as ensures that markets work for investors and issuers alike,” Gensler asserted, illuminating the path towards nurturing trust in the mutable terrains of financial markets.
Entities encompassing broker-dealers, investment advisers, and a spectrum of self-regulatory organizations fall within the purview of the division’s examinations. Enhanced transparency and a focus on areas of heightened risk to retail investors are fundamental to these assessments, according to Richard Best, Director of the Division of Examinations.
Crypto and FinTech in the Spotlight
With the crypto asset markets characterized by continued volatility and fervent activity, a meticulous examination of registrants involved is a focus area. The division’s lens will zoom into crypto asset wallet reviews, custody practices, and the broader compliance landscape to ensure that innovations in blockchain and related technologies align with regulatory norms.
“The list of things that they’re going to look at for crypto is a lot longer than it used to be,” observed Gregory Larkin, elucidating the expanding scope of the SEC’s scrutiny in the cryptocurrency space. With a spotlight previously centered on financial actors, a discernible shift towards investment advisers is emerging.
Technology and Compliance Intersect
The SEC’s specialized examination teams on crypto assets, financial technology, and cybersecurity underscore the intricate intersection of technology and compliance. Proposed SEC rules on predictive data analytics offer insights into the Commission’s perspective and approach, noted securities attorney Christine Lombardo.
A noteworthy omission in the 2024 priorities is environmental, social, and governance investing, a mainstay for the past three years. Ranah Esmaili anticipates continued investigations and potential enforcement actions, especially as the SEC prepares to finalize its climate disclosure rule, underscoring a commitment to addressing greenwashing and ensuring adherence to compliance policies.
Decoding the Report’s Implications
The exam priorities, while not exhaustive, provide crucial insights into the SEC’s strategic focus. Andrew James Lom sees the report as a testament to the Commission’s unwavering commitment to its public mission of safeguarding investors.
The early release of the report is a boon for compliance programs, according to Christine Schleppegrell. It offers a tangible reference, bolstering internal advocacies for compliance and illuminating the regulatory landscapes that organizations must adeptly navigate in the unfolding year.
As the curtain rises on 2024, the intersection of technology, regulatory compliance, and investor protection is poised to be a theater of intricate dynamics, rigorous examinations, and transformative evolutions, with the SEC playing a pivotal role in scripting the narrative of this unfolding act in the financial markets odyssey.
