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The SEC’s 2025 Examination Priorities
On Monday October 21, the SEC’s Division of Examinations issued its 2025 Examination Priorities. The priorities provide a roadmap for advisers on areas that one should expect to be focal points during SEC examinations. Although this summary will focus on the priorities impacting registered investment advisers, the priorities also include sections specific to investment companies, broker-dealers, self-regulatory organizations, clearing agencies and other market participants, such as transfer agents.
The first area of focus noted by the Division was an adviser’s adherence to its fiduciary standards of conduct. Specifically, the priorities state that the Division will review firms to see if advice provided aligns with their fiduciary duties of care and loyalty to their clients. The Division explicitly called out the following areas:
- high-cost products,
- unconventional instruments,
- illiquid/ difficult to value assets, and
- assets sensitive to higher interest rates or changing market conditions.
Another focus area identified by the Division relates to advisers that are dual registered broker-dealers and those that are affiliated with broker-dealers. The Division will review disclosures on and mitigation of conflicts of interest, suitability analysis, review the capacity in which recommendations are made, and account selection practices.
A routine aspect of an examination is the SEC’s efforts to assess the effectiveness of adviser’s compliance programs under Rule 206(4)-7. In addition to the “routine” points of review, the Division identified the following priority areas:
- outsourced investment selection and management,
- alternative sources of revenue or benefits advisers receive, such as selling non-securities based products to clients, and
- appropriateness and accuracy of fee calculations and disclosure of fee-related conflicts (e.g., side letters).
The Division also noted that examinations may “go into greater depth” where: 1) there are illiquid or difficult-to-value assets, such as commercial real estate; 2) artificial intelligence (AI) has been integrated into advisory operations, including portfolio management, trading, marketing, and compliance; (3) there are a large number of independent contractors working from geographically dispersed locations; and 4) there are changes in business models or newly launched investment strategies, clients, or services offered.
Private Fund Advisers remain a priority for the Division, which noted the following areas of focus:
- strategies that are at higher risk of market volatility and interest rates, such as private credit. Moreover, the Division may focus particular attention on advisers to private funds that are experiencing poor performance and significant withdrawals and/or hold more leverage or difficult-to-value assets,
- the accuracy of calculations and allocations of private fund fees and expenses (both fund-level and investment-level),
- disclosure of conflicts of interests and risks, and adequacy of policies and procedures to address the aforementioned, and
- compliance with recently adopted SEC rules, including amendments to Form PF and the marketing rule.
The Division will continue to look at Never Examined Advisers and Recently Registered Advisers or those that have not had recent examinations.
The Division noted certain Risk Areas Impacting Various Market Participants. Some of the areas referenced are as follows:
- The Division intends to examine firm’s policies and procedures and practices related to cybersecurity to assess their reasonableness at managing information security and operational risks.
- The Division also noted it will inspect compliance with Regulation S-ID and S-P, as applicable.
- The Division will scrutinize registrants’ use of certain services, such as automated investment tools, AI, and trading algorithms or platforms, and the risks associated.
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