SEC Asserts Enforcement Authority For Inadequate 204A Policies And Procedures Despite No MNPI Misuse

On August 26, 2024, it was not the first time the SEC settled charges with a Registered Investment Adviser (RIA) for willfully violating Section 204A of the Investment Advisers Act (204A) by failing to establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information (MNPI) despite no specific finding that the RIA or its employees illegally traded on MNPI or misused the information in any manner.¹

The SEC has been signaling for years through heightened enforcement efforts and increased examination surveillance that RIAs must adopt a set of policies, procedures, and controls related to the safeguarding of MNPI that adequately addresses the risks associated with the nature of their business activities. It is not sufficient for RIAs to have in place a general insider trading policy that blanketly prohibits trading on the basis of MNPI even when the firm implementing the policy is organized