With an upcoming U.S. election, the potential derailment of climate disclosures, market structures, and cybersecurity requirements, the ambitious pace for new regulations will likely slow in 2024 as regulators work to finalize existing proposals. However, while rulemaking in the second half of 2024 may not continue at the same pace as its first half or in 2023, don’t expect less supervision and enforcement.

The 2024 intensity of supervision and regulation will continue with marked changes to reviews and examinations (e.g., more frequent, faster response, issues escalation, more rapid remediation) and a focus on risk management and governance. This will require financial services firms (service providers, broker dealers, and investment advisers) to (re)assess the current and target states of their operations, risk management policies, governance, and controls, as well as their data and systems infrastructure.

Adrian Whelan: What are the top three SEC rulemaking issues to look out for in 2024?

Amy Matsuo: While the SEC’s agenda largely focuses on climate disclosure, market structure, and cybersecurity requirements, the top issues to look out for in 2024 are more likely to be driven by supervision and enforcement activity, especially related to risks in the following areas:

1. Information security and operational resiliency. The SEC will be looking at a company’s level of preparation for the May 28 compliance change to a T+1 settlement cycle as well as their cybersecurity efforts and response to cyber related incidents, level of data privacy, and operational resiliency
2. Emerging financial technology: With increasing public policy and regulatory attention on emerging technologies, the SEC is focused on potential AI washing, leveraged technologies and online solutions used to meet compliance and marketing solutions, and certain services around alternative sources of data including automated investment tools, artificial intelligence, and trading algorithms or platforms - and their associated risks
3. Anti-money laundering programs: SEC and the prudential bank regulators plan to release multiple new regulations on AML/BSA/CFT and beneficial ownership compliance in 2024. The SEC will focus on whether companies have tailored their AML programs to address their business model and the associated AML risks. They’ll also be looking at whether companies are conducting independent testing, meeting Suspicious Activity Report (SAR) filing obligations, and both monitoring and complying with the Office of Foreign Assets Control (OFAC) sanctions. More emphasis will be given to establishing an adequate customer identification program, including for beneficial owners of legal entity customers