New Exam Handbook from the Division of Examinations
Summary: On October 1, the Division of Examinations announced a new handbook, “The SEC Exam Handbook: A Practical Guide on Process and Engagement.” The Handbook replaced the existing EXAMS Brochure, and in a speech on September 16, Director of Examinations Keith Cassidy described the then-impending Handbook as a “modern and expanded replacement.” The new Handbook largely aligns with the Brochure that it replaces, but adds additional content that aligns with the Director’s goal to ensure the Division is “accessible and integrated” and guided by the “Golden Rule”: “we should treat others as we would like to be treated.” For example, the new Handbook includes a chart titled “Working Together” that outlines “[w]hat registrants can expect from EXAMS” and “[w]hat EXAMS expects from registrants.” The chart calls on both parties to be “courteous” and “professional.”
- In his speech, the Director pointed to publishing annual priorities and risk alerts, holding outreach events and gathering feedback from industry groups, and ensuring that Division staff participate in “regular knowledge exchange sessions” with other SEC divisions like Trading and Markets and Investment Management as ways that the Division was abiding by the Golden Rule. In advice to registrants, the Director encouraged firms to “be responsive, be prepared, and be professional” and put an emphasis on a firm’s ability to “confidently walk us through their procedures and have real familiarity with compliance requirements.” He further encouraged open and courteous communication throughout the exam and noted that “approaching the process with an unnecessary adversarial mindset can make an already complex process more difficult for everyone involved.”
Takeaway: The theme of the Director’s speech and the release of the new handbook is, in the Director’s words, “answering the call from registrants to provide more clarity to the exam process.” By answering the call, the Division will expect that registrants have reviewed and understood its priorities and processes, and will likely have less patience for complaints aimed at opaque exam procedures.
Best Practice Tip: Review and digest the new SEC Exam Handbook and consider calibrating existing policies and procedures relating to exams to align with the Division’s guidance. Just as guidance in the Enforcement Manual can provide a hook for constructive engagement with the Staff in the investigative setting, the updated Exam Handbook can be a similar hook for raising questions or concerns with the Exam Staff.
Enforcement Director Outlines Updates and Priorities for Enforcement
Summary: On September 18, Director of Enforcement David Woodcock made a speech outlining the Division’s priorities and providing a message to defense counsel aimed at “Removing Roadblocks to Efficient Enforcement.” The Director emphasized that the Division has been “prioritizing back to basics cases – cases focusing on conduct that harms investors, holding individual wrongdoers accountable, and pursuing opportunities to return money to harmed investors,” and named fraud, insider trading, accounting fraud, compliance failures, and investment adviser conflicts and misrepresentation as priority areas. He touted a “visible” Enforcement Division and highlighted new initiatives like the Financial Reporting and Accounting Unit, Retail Fraud Working Group, new Office of Artificial Intelligence & Analytics, and coordination efforts with the FDA, CFTC, PCAOB, and U.S. Attorneys’ Offices.
- In remarks directed to defense counsel, the Director warned that the Staff is paying close attention to Form 8-Ks, the news, and other sources and emphasized that “it’s better if you come to us first, because you will get a call from us.” In terms of investigation mechanics, the Director noted that he has directed Staff to take testimony before document productions are complete in appropriate cases, and noted that “[t]his is not a negotiable concept” but rather “a procedural tool we will use.” Underscoring the point on efficiency, the Director noted that “we will move matters forward – with or without delay attempts from counsel,” and noted that the Staff will file subpoena enforcement actions “sooner, rather than waiting years to obtain subpoenaed documents and testimony.” Finally, the Director clarified that a meeting with a Deputy Director is a meeting with the Front Office, and that “meeting with them satisfies any request to elevate concerns.”
Takeaway: The Director’s speech aligns with the increased enforcement activity we have been seeing over the past several months and charts a clear path for the Division moving forward. The emphasis on quickly and efficiently moving cases forward is particularly noteworthy, and the Director’s warning about subpoena enforcement actions should not be considered an empty threat, as we noted last month.
Best Practice Tip: The Director’s remarks make clear that the Enforcement Division is back to work, including with a list of priorities that include investment adviser conflicts and misrepresentations. As to the stated intent to seek testimony before the production of documents, advisers subject to investigative scrutiny should be cautious about subjecting witnesses to potentially hostile questioning before doing the work necessary to understand the full record that will eventually be produced.
New Retailization Proposals Impacting Asset Managers
Summary: On September 30, the Commission announced proposed rule amendments that would expand the ability of registered investment advisers to receive performance-based compensation from certain clients, including clients that are “accredited investors” as defined under Rule 501(a) of Regulation D, and clients that are regulated funds (e.g., mutual funds, closed-end funds, and business development companies), provided that either (A) all of the investors in the regulated fund are “accredited investors”; or (B) (i) the compensation does not exceed 20% of the fund’s net capital gains or net capital appreciation in a specified period, (ii) the fund’s board satisfies the fund governance standards of Rule 0-1(a)(7) under the Investment Company Act, and (iii) the fund’s board finds the arrangement is in the best interests of the fund and shareholders.
- The announcement came alongside continued efforts to expand the “accredited investor” definition under Rule 501(a) of Reg D. The Commission now seeks public comment on a proposal to allow individual investors to qualify as accredited investors through a showing of good standing in certain professional certifications, designations, or credentials. Specifically, the proposal would allow those with a CPA license, a CFA charter, a CFP certification, or Series 79, 86, or 87 licenses issued by FINRA, to qualify as accredited investors.
Takeaway: These proposals have the potential to materially expand retail access to private market strategies historically limited to a narrow group of investors, reflecting Chairman Atkins’ commitment to “facilitate the ability of individual investors to participate in private markets,” as noted in his statement. The proposals are also consistent with the Commission’s stated priorities of deregulation and expansion of private markets for retail investors.
Best Practice Tip: The comment period for both proposals is sixty days, and asset managers seeking to submit a comment letter should act quickly. Keep an eye on SEC Watch for any noteworthy developments.
Additional Things To Know
Innovation Exemption: On September 17, the Commission issued the long anticipated Innovation Exemption. The SEC’s order provides temporary, conditional exemptive relief to entities known as “Tokenized Securities Venues” (“TSVs”) and permits trading in tokenized interests in NMS stock using permissioned automated market makers and liquidity pools. The exemption is subject to a number of conditions and limitations designed to ensure TSVs are operated in a manner that is consistent with the Commission’s commitment to investor protection. As of this writing, at least one TSV has launched and appears ready to commence trading on or prior to November 1, 2026. Market participants that are interested in transacting via TSVs should closely familiarize themselves with the risks associated with such venues before trading. The Commission is simultaneously soliciting comment on the exemption.
Valuation of Private Assets: On September 28, the SEC’s Office of the Chief Accountant and the Division of Investment Management jointly released a “reminder” addressing fair value measurements and disclosure considerations for private assets held by registered funds, business development companies, and other similar registrants. The “reminder” focuses on private credit valuation practices. Advisers to regulated funds should consider benchmarking their valuation processes and investor-facing disclosures against this guidance. See the full Simpson Thacher analysis here.
Proposed Modernization of the Custody Rules: On October 1, relying in part on a no-action relief previously obtained by Simpson Thacher, the Commission announced proposed new rules and amendments that would provide a tailored framework for the custody of crypto assets for registered investment advisers and regulated funds. In particular, the framework would allow advisers and regulated funds to self-custody crypto assets in certain circumstances. The proposal also modernizes the custody rules by formalizing certain prior SEC no-action letters and staff guidance, as well as better addressing current industry practices.
Commissioner Peirce Departs: Effective October 2, Hester Peirce resigned as Commissioner after a tenure of 15+ years at the Commission. This leaves a two-seat, one-party Commission of Chairman Atkins and Commissioner Uyeda, with newly-released guidance allowing for the possibility of Commission action with a quorum of just one Commissioner.
Prepared by Your Simpson Thacher Asset Management Regulatory and Enforcement Team»