On October 21, 2024, the staff of the SEC’s Division of Examinations issued its examination priorities for 2025. The examination priorities are summarized below and include areas of particular interest to regulated entities such as registered investment advisers, registered funds, and broker-dealers. Many examination priorities are relatively unchanged from recent years, including examinations of advisers to private funds, the use and oversight of third-party service providers, cybersecurity and operational resiliency, and the proliferation of crypto assets and emerging financial technologies.  Examinations of newly registered advisers and funds, advisers and funds that have never been examined, and those that have not been recently examined are perennial areas of focus, as are examinations regarding compliance with recently adopted SEC rules.  New or enhanced examination priorities for 2025 include controls and oversight around the use of artificial intelligence (AI) and accurate disclosure regarding AI capabilities, as well as investments in commercial real estate, illiquid assets, and private credit.

Investment Advisers

Examinations of investment advisers will continue to focus on advisers’ adherence to their fiduciary duties of care and loyalty with respect to investment advice and their mitigation and disclosure of conflicts of interest.  The SEC staff stated that it remains focused on advisers’ compliance programs, with particular focus on marketing, valuation, trading, portfolio management, disclosure and filings, and custody.  Examinations may also go into greater depth on illiquid or difficult-to-value assets such as commercial real estate, as well as integration of AI into advisory operations and oversight of independent contractors.  Examinations will also focus on advisers to private funds, including disclosure practices and calculating and allocating private fund fees and expenses.

Investment Companies

Examinations of investment companies (e.g., mutual funds and ETFs) will focus on compliance programs, disclosures, and governance practices, with a particular focus on fund fees and expenses (and any associated waivers and reimbursements), oversight of services providers, portfolio management practices and disclosures, and issues associated with market volatility.

Broker-Dealers

The SEC staff stated that it will continue to examine broker-dealer practices related to Regulation Best Interest and recommendations of products that are complex, illiquid, or that present higher risk to investors.  Examinations will also review the content, SEC filing, and customer delivery of a broker-dealer’s relationship summary on Form CRS.  The SEC staff stated that it will focus on broker-dealers’ compliance with the net capital rule and the customer protection rule, operational resiliency programs, risk management controls, and trading practices.

Self-Regulatory Organizations, Clearing Agencies and Other Market Participants

The examination priorities also outline focus areas for examinations of (1) self-regulatory organizations, including national securities exchanges, FINRA, and the Municipal Securities Rulemaking Board (MSRB); (2) clearing agencies; and (3) other market participants, including municipal advisors, transfer agents, security-based swap dealers, security-based swap execution facilities, and funding portals.

Risk Areas Impacting Various Market Participants

Lastly, the SEC staff highlighted examination priorities with respect to (1) information security and operational resiliency, including matters such as cybersecurity, compliance with Regulations S‑ID and S-P, and compliance with the shortened T+1 settlement cycle applicable to most securities; (2) AI and emerging financial technologies; (3) crypto assets; (4) Regulation Systems Compliance and Integrity (SCI); and (5) anti-money laundering.

Conclusion

The SEC staff stated that the examination priorities it has highlighted are not a comprehensive compilation of the issues that it will address in examinations, and that it will cover other areas and conduct examinations focused on and devote resources to new or emerging risks, products and services, market events, and investor concerns.

The Division of Examinations’ 2025 examination priorities are available here.