We should expect more – and larger – penalties to be meted out by the US Securities and Exchange Commission, said Carl Ayers, long-time publisher of affiliate title Regulatory Compliance Watch. Ayers was speaking with New Private Markets‘ Toby Mitchenall for a podcast about a recent SEC Department of Examinations letter shared anonymously with Ayers by a contact and published on RCW in partially redacted form.
The six-page letter shows the extent to which the US regulator is probing managers about their ESG claims and practices. It is not the first ESG-focused exam letter Ayers has seen, but the extent of the document requests in it show that the regulator is now “on top of this stuff, and [managers] should be too”.
“There is a lot of material being requested,” Ayers said, and managers “might want to test their ability to get these documents”.
He continued: “If you don’t have those documents, then maybe you should start to get them together.”
The SEC has proposed new rules around ESG disclosures and the process is currently open for consultation. Another takeaway from this latest ESG-focused exam letter is “how much the exam focus aligns with the SEC proposal”, added Ayers.
The Commission has already meted out two penalties relating to ESG based on the existing legal framework, the most recent being a $1.5 million settlement paid by BNY Mellon Investment Advisers (register with RCW to read about it here). Ayers said we will most likely see much more in the way of settlements.
“We are going to see more and we are going to see bigger. As far as enforcement, you can definitely take it to the bank,” Ayers said. “When the SEC is out there doing exams, they are also looking for violations. It may be some time… it may be another year before these exams turn into enforcement actions, but I think there will be more – and probably bigger – ESG enforcement actions.”
- Visit Regulatory Compliance Watch to see the letter in its original form.