SEC Announces 2025 Examination Priorities

The U.S. Securities and Exchange Commission’s (SEC) Division of Examinations (the Division) announced its 2025 Examination Priorities on October 21, 2024. In deciding its priorities for each upcoming year, the Division looks at practices, products and services that present potentially heightened risks to investors or the integrity of the U.S. capital markets. The published priorities indicate specific areas of interest, but do not cover all areas that may be examined.

The Division is responsible for reviewing the activities of investment advisers, investment companies, broker-dealers, clearing agencies and other self-regulatory organizations, as well as other market participants, including transfer agents, municipal advisors and securities-based swap dealers.

According to the SEC’s press release, “This year’s examinations will prioritize perennial and emerging risk areas, such as fiduciary duty, standards of conduct, cybersecurity, and artificial intelligence.”

In general, the Division’s 2025 priorities do not differ significantly from those of 2024. The following overview describes key risk areas affecting all market participants investment, as well as general areas of focus on advisers and broker-dealers. These include information security and operational resiliency, emerging financial technologies, including artificial intelligence (AI), crypto assets and Systems Compliance and Integrity (SCI).

Key Risk Areas Across Market Participants

The SEC stressed the importance of certain key risk areas, noting that it has concentrated resources and invested in specialized capabilities to address these areas:

Information security and operational resiliency

• Privacy: The Division will assess registrant compliance with Regulations S-ID and S-P, as applicable. Examinations will focus on firms’ policies and procedures, internal controls, oversight of third-party vendors and governance practices. Policies and procedures as they pertain to safeguarding customer records and information at firms providing electronic investment services will be considered.
• Cybersecurity: Particular attention will be on firms’ cybersecurity policies and procedures, governance practices, data loss prevention, access controls, account management and responses to cyber-related incidents, including those related to ransomware attacks. Areas of particular scrutiny will be cybersecurity risks and resiliency goals associated with third-party products, sub-contractors, services and any information technology (IT) resources used by the business without the IT department’s approval, knowledge or oversight or non-supported infrastructure. The focus will include assessments of how registrants identify and address these risks to essential business operations.

Crypto Assets

Examinations will focus on the offer, sale, recommendation, advice, trading and other activities involving crypto assets that are offered and sold as securities or related products, such as spot bitcoin or ether exchange-traded products. In particular, reviews will consider whether registrants meet and follow their respective standards of conduct when recommending or advising customers and clients regarding crypto assets and routinely review, update and enhance their compliance practices.

Emerging Technologies

The Division continues to invest resources and broaden its focus on registrants’ use of certain services, such as automated investment tools, AI and trading algorithms or platforms, and the risks associated with the use of emerging technologies and alternative sources of data.

Firms that offer digital investment advisory services, recommendations and related tools and methods may be subject to review to consider whether representations are fair and accurate, operations and controls in place are consistent with disclosures made to investors, algorithms produce advice or recommendations consistent with investors’ investment profiles or stated strategies and controls to confirm that advice or recommendations resulting from these digital engagement practices are consistent with regulatory obligations to investors, including older investors.

Registrant representations regarding AI capabilities or AI use may be reviewed for accuracy and to assess whether firms have implemented adequate policies and procedures to monitor and/or supervise their use of AI. This includes tasks related to fraud prevention and detection, back-office operations, anti-money laundering (AML) and trading functions.

Regulation Systems Compliance and Integrity

As part of the Division’s examination of SCI entities, reviews will focus on policies and procedures regarding the operational, business continuity planning and testing practices of SCI entities as well as the effectiveness of incident response plans.

Anti-Money Laundering

Reviews of broker-dealers and certain regulated investment companies will look at whether AML programs are tailored to the registrant’s business model and associated AML risks, independent testing is conducted, whether an adequate customer identification program, including for beneficial owners of legal entity customers, has been established and whether the registrant meets its SAR filing obligations.

Focus Areas Affecting Market Participants Subject to Review

Investment Advisers

• Fiduciary duty: As in 2024, the SEC will continue to scrutinize the practices of investment advisers regarding conflict of interest and other disclosures. The 2025 priorities report specifically mentions as areas of focus high-cost products, unconventional instruments, illiquid and difficult-to-value assets, as well as assets subject to higher interest rates or changing market conditions, including commercial real estate. Dual registrants and advisers with affiliated broker-dealers may face scrutiny regarding the suitability of investment advice for certain products, disclosures regarding the capacity in which recommendations are made and conflicts of interest.
• Compliance programs: Investment adviser compliance programs will continue to be reviewed for their effectiveness based on the applicable business operations, services and risks of the adviser. Reviews may focus on or go into greater depth of certain areas depending on the adviser’s practices or products. For example, if clients invest in illiquid or difficult-to-value assets, such as commercial real estate, examinations may have a heightened focus on valuation. If advisers integrate AI into advisory operations, including portfolio management, trading, marketing and compliance, an examination may look in-depth at compliance policies and procedures as well as disclosures to investors related to these areas.
• Advisers to private funds: The Division will continue to examine registered investment companies’ disclosures of actual practices, risks and conflicts of interest, as well as fee calculations and compliance with recently adopted SEC rules. There will be a continued focus on newly registered advisers and those who have not recently been examined.

Investment Companies

Mutual funds and exchange-traded funds (ETFs), particularly those serving retail investors, should be prepared for reviews on fee and expense structures, oversight of service providers, portfolio management practices and issues related to market volatility.

Broker-Dealers

• Regulation Best Interest compliance: These reviews may address conflict-free recommendations to ensure that product and account recommendations prioritize clients’ best interests and clear disclosures regarding fees, conflicts and service offerings. Examinations will focus on recommended products that are complex, illiquid or present higher risk to investors.
• Form CRS: These forms will be reviewed for relationships and services offered to retail customers, fees/costs and conflicts of interest. Examinations will continue to focus on broker-dealer compliance with the net capital rule and the customer protection rule and related internal processes, procedures and controls.
• Trading-related practices and services: Reviews will address the structure, marketing, fees and potential conflicts associated with offerings by broker-dealers to retail customers. These include bank sweep programs, fully-paid lending programs and mobile apps/online trading platforms. Trading practices associated with trading in pre-IPO companies and the sale of private company shares in secondary markets may also be reviewed.

Clearing Agencies and Self-Regulatory Organizations (SROs)

Clearing agencies and SROs such as the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Ruling Board (MSRB) will undergo assessments focusing on risk controls and governance that ensures compliance with rules that protect market integrity and investors.

Supporting Your Compliance Efforts

Our Public Company team has broad knowledge of SEC accounting requirements for public companies and access to a diverse array of services including compliance program assessments, cybersecurity evaluations, AI implementation, AML and blockchain and digital assets. Contact us to discuss how we can support your readiness for the year ahead.

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