Three recent enforcement actions highlight the risks of failing to adhere to representations made to investors regarding ESG and biblically responsible investing strategies.
Three recent enforcement actions highlight the risks of failing to adhere to representations made to investors regarding ESG and biblically responsible investing strategies.
The upcoming change in US administration is expected to bring about significant priority shifts by the federal government, including at the US Securities and Exchange Commission (SEC).
One area of potential overlap that the investment community should be prepared for, however, is in the realm of thematic investing. Citing its core mission to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation, the SEC has recently focused on the investment decision-making processes and disclosures of registered investment advisers (IAs) and registered investment companies (RICs or funds).1
The SEC’s Division of Examination (the Division) has not only listed IAs and RICs first in its annual examination priorities for 2025 (2025 Priorities), but also published on November 4, 2024, a Risk Alert specifically for RICs, (“Registered Investment Companies: Review of Certain Core Focus Areas and Associated Documents Requested”) (the Risk Alert). It highlights certain common deficiencies and weaknesses that Division staff observed among such funds’ compliance, disclosure, and governance practices over the last four years.
The themes of the Risk Alert align with enforcement trends, as the SEC has settled enforcement actions against three separate IAs in the past three months for alleged misstatements and compliance failures relating to the IAs’ investment processes and procedures. All three of these enforcement actions relate to some level of thematic investing considerations.