On October 21, the Securities and Exchange Commission’s (SEC’s) Division of
Examinations (Division) released its examination priorities for 2025,
outlining the key topics the Division plans to focus on in the upcoming fiscal year.
For investment advisers, this year’s priorities will continue to emphasize policies
regarding fiduciary duty and standards of conduct while also increasing attention on
emerging technologies, particularly artificial intelligence (AI).
The priorities are primarily categorized by market participants (e.g., investment
advisers, investment companies, broker-dealers, self-registered organizations), with
emerging topics relevant to multiple market participant categories covered
separately. These emerging topics include information security and operational
resiliency, emerging financial technologies, crypto-assets, system compliance and
integrity, and anti-money laundering. Below is a summary of the priorities of
particular interest to investment advisers registered with the SEC (RIAs), including
private fund advisers, and registered investment companies (RICs).
Risk Areas Impacting Various Market Participants
Information Security and Operational Resiliency
The priorities for 2025, like those for 2024, emphasize cybersecurity, the
prevention of disruptions to mission-critical services, and the protection of
investor information. The 2025 priorities expand upon last year’s by including a
specific emphasis on third-party products, services, and IT resources when used by
firms without proper IT department approval, oversight, or supported infrastructure.
This year’s priorities include Regulation S-ID and S-P, which were not addressed in
last year’s priorities. The Division will emphasize compliance with these
regulations, including the review of policies and procedures, internal controls,
third-party oversight, and governance practices. The focus will particularly be on
safeguarding customer records and information, including (1) measures against
identity theft; (2) protection of investors’ information, including personally
identifiable information; (3) training related to identity theft prevention; and (4)
evaluating whether policies and procedures are reasonably designed to safeguard
customer records and address operational and technology-related risks. Although the
amendments to Regulation S-P have a 2026 compliance date,1 the Division will engage with firms regarding their
progress in preparing the programs required by these amendments.
The Division will also verify that RIAs comply with the amended books and records
requirements associated with Rule 15c6-1 under the Securities Exchange Act of 1934,
which has shortened the standard settlement cycle for most securities to the day
after the trade date (T+1).
Emerging Financial Technologies
The 2025 priorities expand on the use of AI and include a subsection focusing on the
use of AI by RIAs, emphasizing the Division’s continued concerns with digital
engagement practices. Examinations will assess whether digital advice and
recommendations align with investors’ profiles and if disclosures are consistent
with operations, particularly regarding the use of AI and automation.
Crypto- Assets
The priorities continue to focus on crypto-assets, with increased examinations of
firms offering crypto-asset-related services. In particular, examinations will focus
on firms that offer, sell, recommend, advise, trade, and engage in other activities
involving crypto-assets. The priorities specifically focus on following standards of
conduct and reviewing and updating compliance practices. The Division states that it
will be particularly focused on (1) crypto products sold to retail investors or
investments involving retirement assets; (2) compliance practices (wallet reviews,
custody reviews, Bank Secrecy Act compliance review, and valuation procedures), risk
disclosures, and operational resilience practices (e.g., data integrity and business
continuity plans); and (3) technological risks associated with the use of blockchain
and distributed ledger technology and the security of crypto-assets.
Investment Adviser Exams
Adherence to Fiduciary Standards of Conduct
The Division will continue to focus on the duty of care and loyalty in its
examinations of RIAs. A significant focus will be on ensuring that investment
advice, particularly concerning high-cost, unconventional, illiquid, or
interest-sensitive assets, is in alignment with RIAs’ fiduciary obligations. The
Division will also look at RIAs with affiliated broker-dealers to ensure investment
advice is suitable for clients, disclosures are sufficient, and, where there are
potential conflicts of interests, if they are providing impartial advice and best
execution.
Effectiveness of Adviser Compliance Programs
Under Rule 206(4)-7 of the Investment Advisers Act of 1940 (Advisers Act), RIAs are
required to (1) adopt and implement written compliance policies that are designed to
prevent violations of the Advisers Act, (2) appoint a chief compliance officer to
oversee the compliance program, and (3) conduct annual reviews of the adequacy and
effectiveness of the compliance procedures. Examinations will primarily focus on
compliance programs in areas such as marketing, valuation, trading, portfolio
management disclosure, and custody, as well as monitoring conflicts of interest
relating to the RIA’s business and compensation arrangements, arbitration clauses,
and affiliated transactions. The Division will also continue to focus on (1)
outsourcing of investment selection and management, (2) the receipt of alternative
sources of revenue or benefits (e.g., non-securities-based products), and (3)
appropriateness and accuracy of fee calculations and the disclosure of fee-related
conflicts. The Division also suggested it would explore certain topics in greater
depth based on the facts and circumstances, including those related to (1)
valuations in cases where the clients invest in illiquid or difficult-to-value
assets (e.g., commercial real estate); (2) policies and procedures, and disclosures
where the RIA uses AI in its advisory operations (e.g., portfolio management,
trading, marketing and compliance); (3) supervision and oversight practices when the
RIA uses a large number of independent contractors working from geographically
disperse locations; and (4) changes in compliance policies when the RIA has changed
its business model, is advising new types of clients, is providing advice on new
types of assets, or is offering new types of services.
Examinations of Advisers to Private Funds
The Division will continue to prioritize private fund advisers and, in addition to
the topics above, will focus on private fund advisers:
- Meeting their fiduciary duties during periods of market volatility and/or
changes in interest rates, with a particular focus on commercial real estate,
illiquid assets, and private credit, as well as when a private fund advised by
an RIA is experiencing poor performance, has significant withdrawals, is
significantly leveraged, and/or has difficult-to-value assets
- Ensuring accurate calculation, allocation, and disclosure of fees and expenses
at both the fund and investment level (particularly with respect to fees based
on the valuation of illiquid assets, the calculation of management fees in the
post-commitment period, and fee offsets)
- Assessing conflict disclosures and controls related to debt use, fund-level
credit, investment allocations, adviser-led secondary transactions,
cross-transactions between affiliated funds, investments by multiple funds in a
single portfolio company (including investments in different parts of the
capital structure), and affiliated service providers
- Checking adherence to the amendments to Form PF, adopted in 2023 and 2024, and
the Marketing Rule (Advisers Act Rule 206(4)-1), adopted in 2020.
Investment Company Exams
The Division also released a short description of its examination priorities for
RICs. The priorities noted that examinations of RICs will generally include a review
their compliance programs, disclosures, and governance practices. The Division also
specified the following areas on which particular examinations may focus:
- Fund fees and expenses, and any associated waivers and reimbursements
- Oversight of service providers (both affiliated and third-party)
- Portfolio management practices and disclosures for consistency with claims about
investment strategies or approaches and with fund filings and marketing
materials
- Issues associated with market volatility
The Division also stated that it will continue to monitor certain developing areas of
interest, such as RICs with exposure to commercial real estate, and compliance with
new and amended rules.
[1] Regulation S-P amendments have a compliance
date of February 2, 2026, for “large institutions” and August 2, 2026, for other
institutions.
[View source.]
