Your SEC Examination Priorities Guide + the APAC Impact in 2023


For every registered firm with the SEC, it’s not a matter of if you’ll be examined but when. COVID-19 drove a necessity for the SEC to adapt its examination processes from traditionally in-person activities to remote. As a result, companies operating in the Asia-Pacific (APAC) region must now be ready and able to support the SEC in its procedures.

This article provides insight into the SEC and its examination priorities over the last year, how to prepare your firm for an impending examination, and what looks to be the SEC’s priorities for 2023.

A Short Introduction to the US SEC

MCO-Blog-Your-SEC-Exam-Priorities-Guide-and-APAC-Impact-in-2023-CongressThe SEC (Securities and Exchange Commission) was established by US Congress in 1934 to restore investor confidence in the US capital markets following the stock market crash of October 1929.

During the “roaring 20’s”, the US economy grew by an incredible 42%, as shown in the US Census Bureau’s Bicentennial Edition: Historical Statistics of the United States, Colonial Times to 1970. With so many uninformed investors jumping into the stock market, there was abundant opportunity for high-level manipulation. Brokers, market makers, owners, and even bankers began trading shares among themselves to drive prices higher before unloading the shares onto the public.

The SEC was formed to provide investors (and the markets) with more reliable information and to enforce regulations to create a more honest, safer environment in which everyone could confidently trade securities.

All companies offering securities to the public had to register and regularly file with the SEC. Better disclosure and strict reporting schedules were required by the SEC, who also cleared the way for civil charges to be brought against companies and individuals found guilty of fraud and other security violations.

What Does the SEC Look Like Today?

The SEC now has 23 offices headquartered in Washington, D.C. and 6 primary divisions:

  • Division of Enforcement
  • Division of Corporation Finance
  • Division of Investment Management
  • Division of Trading and Markets
  • Division of Economic and Risk Analysis
  • Division of Examinations (previously OCIE)

This article focuses on the Division of Enforcement, which brings forth all enforcement actions and activities, and the Division of Examinations, which examines SEC-registered investment advisers, brokers and dealers, and firms registered with the SEC.

Global Supervision of the SEC

MCO-Blog-Your-SEC-Exam-Priorities-Guide-and-APAC-Impact-in-2023-GlobalRegardless of whether your firm operates inside or outside the US, it can be registered with the SEC, and consequently subject to examinations.

The SEC has international memorandums of understanding (MoU)s with key regulatory bodies, including:

MAS (Singapore) - the Monetary Authority of Singapore has a tripartite MoU with the SEC and the Commodity Futures Trading Commission (CTFC).

CIMA (Cayman Islands) - the Cayman Islands Monetary Authority has an MoU that facilitates mutual assistance in the supervision and oversight of regulated entities, operating in a cross-border fashion in the US and the Cayman Islands.

SFC (Hong Kong) - the Securities and Futures Commission has an MoU with the SEC where both regulators have agreed to provide consultation, cooperation, and the exchange of information to supervise and oversee regulated entities on a cross-border basis in the US and Hong Kong.

There are many agreements additionally to the above, which are just a few examples of how regulators are sharing information and working together in increasingly cooperative capacities.

Why did the SEC Rename OCIE to the “Division of Examinations”?

2020 marked the 25th anniversary of the SEC’s Office of Compliance Inspections and Examinations (OCIE). Since its inception, the Division has grown significantly, becoming second only in size to the Division of Enforcement. Accordingly, as a reflection of the Division’s critical contributions and overall role within the Commission, the SEC renamed OCIE to the “Division of Examinations” (the Division).

The Division of Examinations continues to perform all of its core examination functions while leveraging its offices and program areas to support and carry out: the Investment Adviser/Investment Company Examination Program; the Broker-Dealer and Exchange Examination Program; the Clearance and Settlement Examination Program; the FINRA and Securities Industry Oversight Examination Program; the Technology Controls Program; the Office of Risk and Strategy; and a newly created Event and Emerging Risks Examination Team.

What Does the SEC’s Division of Examinations Do?

The SEC’s Division of Examinations (EXAMS) is tasked with implementing and supervising the SEC’s National Examination Program. EXAMS aims to protect investors, uphold market integrity, and support responsible capital formation through risk-focused strategies that:

  • Improve compliance
  • Prevent fraud
  • Monitor risk
  • Inform policy

The work undertaken by EXAMS informs the rule-making initiatives of the SEC while also identifying and monitoring risks, improving industry practices, and working to prevent misconduct.

EXAMS Moving from Cyclical to Risk-Based Triggers

MCO-Blog-Your-SEC-Exam-Priorities-Guide-and-APAC-Impact-in-2023-RiskWhere past EXAMS have been conducted on a cyclical nature, they are now taking a more risk-based approach. Rather than being undertaken based on time frames between EXAMS, it is now more critical to the Division to perform EXAMS based on the potential risk involved. In FY 2021 alone, 3,040 EXAMS were conducted, resulting in over 2,100 deficiency letters. During FY21, the Division issued more than 2,100 deficiency letters. Through these letters, the Division has a direct impact on improving and promoting compliance and investor protection and addressing market risk.

Interestingly, the last five years have seen a 20% increase in the number of RIAs (Registered Investment Advisers) operating, outpacing the SEC’s staffing capabilities. Despite this, 16% of all registered investment advisers were still put through EXAMS in FY 2021. The Investment Adviser / Investment Company Examination Program is the largest of the EXAMS’ programs, completing more than 2,200 examinations of investment advisers in FY 2021.

The APAC Impact from SEC EXAMS Priorities

COVID-19 heavily impacted how organisations work, with remote and hybrid working environments becoming the ‘new norm’. See our article, The Evolution of Regulatory Compliance and Risk Management, for more information about how firms are now managing risk and compliance priorities in a drastically different landscape. Throughout COVID, EXAMS were compelled to adapt their processes to the remote nature of work when conducting their examinations.

For the APAC region, EXAMS staff are now accustomed to conducting fully-remote examinations by teleconference and videoconference. The Division has conducted dozens of remote examinations in APAC over the last 24 months.

APAC is also squarely within EXAMS’ sights, particularly for Registered Investment Advisers (RIAs), who have not been examined since their effective date of registration with the SEC. Even those who have already been examined in past years need to be prepared. EXAMS pays close attention to historical deficiencies that have not been corrected. In FY2021, more than 69% of examined organisations were issued with deficiency letters (2,100+ of the 3,040 total). Prevention of recidivism is a guiding principle of the SEC, making it even more critical for firms who have received deficiency letters to prepare for additional examinations.

What Were the SEC EXAMS’ 2022 Examination Priorities?

In 2022, EXAMS prioritised areas where they believed the risk was heightened to investors or the integrity of the US capital markets.

Significant focus areas for FY 2022 included:

  • Private funds
  • Environmental, social, and governance (“ESG”) investing
  • Standards of conduct: Regulation Best Interest, fiduciary duty, and Form CRS
  • Information security and operational resiliency
  • Emerging technologies and crypto assets

What Were the SEC Examination Trends in 2022?

MCO-Blog-Your-SEC-Exam-Priorities-Guide-and-APAC-Impact-in-2023-TrendsThere were several trends observed in 2022, including:

Disclosure to Investors

These disclosures include the following:

- Liquidity, imposing gates or suspensions on fund withdrawals

- Cross trades, with particular interest to the SEC’s rules on agency cross-transactions, how they are disclosed to investors, and internal controls in place

- Conflicts of interest, how they arise, are communicated to investors, and are remediated by the firm

Fees and Expenses

All registered firms incur expenses and attract fees, some of which are allocated to clients. EXAMS have placed a keen focus on disclosures of how these fee allocations are conducted, and how allocations are working in practice where fees are collected across multiple clients. The appropriate processes and documentation are vital to prepare if your firm is under scrutiny by EXAMS.

Compliance Program

It’s crucial to show that your compliance measures are customised for your firm’s business structure and strategy. EXAMS has also been evaluating whether firms’ compliance programs are administered by a sufficient number of compliance resources. Inadequate resources have been noted on SEC deficiency letters as findings needing remediation.

Cybersecurity, Third-Party Dependency & Operational Resilience

Cybersecurity, third-party dependency and operational resilience were identified as critical functions coming out of the pandemic, to which the SEC has paid close attention. EXAMS has reviewed the cybersecurity infrastructure of firms and the service providers being depended upon for the privacy and security of information. Additionally, EXAMS have focused on business continuity strategy, and that rationalisation is strengthened based on internal policies and controls.

Business with Related Parties

Lastly, EXAMS has been closely reviewing business activities conducted with related parties, such as related party transactions, service level agreements, etc. It’s essential to prove that, where conflicts of interest are identified, they are mitigated through the appropriate remediation.

What Are the Anticipated SEC Examination Priorities for 2023?

EXAMS typically publishes the current-year priorities at the end of March. However, by taking into account the priorities and trends seen throughout 2022, there are several assumptions going into 2023.

What is anticipated to be seen as focus areas for EXAMS in 2023 include:

  • Private funds and their management (given the ever-growing nature of the industry)
  • RIA compliance with SEC Rule 206(4)-1 (the “Marketing Rule”)
  • Continued focus on fees and expenses (whether advisory, commissions-based, or otherwise)
  • ESG investing and “greenwashing”
  • Digital assets and protections against fraud
  • Disclosures, management, and mitigation of conflicts of interest
  • SEC’s Books and Records Rules

How to Prepare for an SEC Examination in 2023

MCO-Blog-Your-SEC-Exam-Priorities-Guide-and-APAC-Impact-in-2023-PreparingAs previously noted, it’s not a case of when the SEC will require an examination, but when - particularly with a heightened focus on the APAC region that is supported by fully-remote examination processes. 

Any registered firm must have a robust, effective compliance program. Key areas that will help you become more prepared for upcoming examinations include:

Having adequate compliance resources with a qualified CCO (Chief Compliance Officer) who has access to management, and can build out a customised compliance framework for your firm

  • Exercising due diligence
  • Communication, education, and training
  • Prevention, evaluation and enforcement
  • Robust compliance standards with customised policies and procedures
  • Oversight from boards of directors and committees to ensure the right tone is carried through the firm, from the top down
  • Clear delegation of responsibilities
  • A strong culture of compliance (read more about driving a compliance culture in our article, Reducing Compliance Risk in Workplaces Across Southeast Asia)
  • Addressing deficiencies promptly with effective reporting, documentation, and record-keeping of those deficiencies and their remediations
  • An annual review of your compliance program - being the first item that the EXAMS team will request at the commencement of an examination

Additionally, it’s prudent to prepare for SEC EXAMS with mock examinations. It’s vital for your firm to understand the level of detail within an examination, which may involve working through a complete SEC request list. The process of undergoing a mock examination helps all staff involved understand the detailed information required (often in a short amount of time) during an EXAMS regulatory inspection, where there are deficiencies in sample sets, and how to remediate those shortcomings proactively.

Another crucial part of a mock examination is preparing staff for interviews and information sessions. This activity helps staff appreciate the questions they will be asked by the SEC and what they should be keeping in mind.

By starting with a practical view of the detail and nuances involved, and how staff can manage an SEC examination, your firm can be better prepared to supply the required data when the SEC comes knocking and reduce your risk of receiving deficiency letters.

How can Kroll Help?

Firms need clear guidance from experienced local and global experts to effectively prepare for SEC examinations. Kroll’s skilled financial advisory professionals operate within Asia-Pacific, including Singapore and Hong Kong, to bring local knowledge with a global understanding.

As the leading independent provider of risk and financial advisory solutions, Kroll leverages its unique insights, data and technology to help clients stay ahead of complex demands. Kroll’s team of more than 6,500 professionals worldwide continues the firm’s nearly 100-year history of trusted expertise spanning risk, governance, transactions and valuation.

Kroll’s Financial Services Compliance and Regulation division experts provide financial services clients with end-to-end compliance and regulatory services, working alongside firms to minimise risks, drive efficiencies, and ensure compliance.

For more information about how Kroll can help your firm effectively prepare for SEC examinations, contact your Financial Services Compliance and Regulation team.

How Can MyComplianceOffice Help?

MyComplianceOffice (MCO) is a global conduct risk and compliance management solution which focuses on 4 key areas of compliance:

  • Know Your Risk
  • Know Your Employee
  • Know Your Transactions
  • Know Your Third Party

MCO’s powerful platform enables companies around the world to reduce their risk of misconduct and effectively oversee regulatory obligations.

Helping Your Firm Address Conflicts of Interest

MCO-Blog-Your-SEC-Exam-Priorities-Guide-and-APAC-Impact-in-2023-Conflicts-of-InterestConflicts of interest have been a recurring theme in the SEC’s priorities, along with many other regulators globally. MCO’s robust platform enables firms to identify conflicts of interest across their organisation automatically.

From an employee perspective, MCO allows all staff to access our platform to manage various activities, including:

  • Close personal relationships
  • Personal account dealing
  • Gifts and entertainment
  • Outside business activities
  • Registrations and licenses

Combined with our control room capabilities, MCO allows you to efficiently manage:

  • Firm transactions and deals
  • Material non-public information (MNPI)
  • Identification of insider lists, with cross-checking against employee activity to reduce insider trading risk

There have been many high-profile cases of insider trading coming to light across APAC, as recently discussed in our guest article, Former Tesla Australia Director Pleads Guilty to Insider Trading. The MCO platform helps firms identify and reduce the risk of insider trading within a single, integrated solution.


For more information about how MCO can help your firm reduce risk and uphold regulatory compliance, schedule your no-obligation meeting with MCO APAC Director, Kelly-Ann McHugh, or request your demo now. 

See the full webinar for more insights about:

☑️ How the SEC priorities went during 2022
☑️ How to prepare for any upcoming examinations
☑️ What we believe to be on the horizon for 2023

MCO-Kroll-On-Demand-Webinar-CTA-SEC-Examination-Priorities-APAC-Impact          MCO-APAC-Integrated-Compliance-Management-Brochure