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Pennsylvania Department of Banking and Securities Announces 2023 Priorities for the Bureau of Securities Compliance and Examinations

03/20/2023

  1. Digital Assets – The Bureau will review registrants’ recommendations to purchase investments in digital assets.  The Bureau will review transactions for suitability, and the Bureau will examine a registrant’s WSPs and Form ADV disclosures.  Furthermore, the Bureau will examine a registrant’s due diligence prior to the recommendation of investments in digital assets.
  2. Leveraged and/or Inverse Exchange-Traded Funds (ETFs) – The Bureau will continue to focus on the recommendation of leveraged and/or inverse ETFs. Specific areas of review will include:
    1. The length of time leveraged and/or inverse ETFs are held in a client’s portfolio;
    2. The suitability of the ETF for the client, including the client’s age, net worth, investment experience, investment objective, and risk tolerance;
    3. Proper disclosure of the investment strategy utilizing the leveraged/ inverse ETF on the Form ADV;
    4. Maintenance and enforcement of written supervisory procedures (“WSP”) that are reasonably designed to achieve compliance with the Pennsylvania Securities Act of 1972; and
    5. Disclosures of material risks to clients.
  3. Custody – The Bureau will review all situations where an investment advisor has custody of client assets, particularly those in which an investment adviser deducts client fees directly from a client’s account, is the trustee of a trust, participates in standard letters of authorization, or is the general partner of a pooled investment vehicle (“PIV”).  An investment adviser’s Form ADV should be current and should disclose all custody arrangements.
  4. Pooled Investment Vehicles - The Bureau will focus on investment advisers who advise PIVs.  The Department will analyze a PIV’s offering documents, disclosures, conflicts of interest, suitability, advertising, and compliance with the Department’s custody regulations.

These priorities are not an exhaustive list of the examination areas of the Bureau.   

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