On October 21, 2024, the Division of Examinations of the Securities and Exchange Commission (SEC) released its much-anticipated 2025 examination priorities. This announcement serves as a crucial guide for registered investment advisers, investment companies, and broker-dealers, highlighting areas under scrutiny for the upcoming year. Despite the potential for shifts in focus due to a changing presidential administration, many core enforcement areas are expected to remain consistent.
Key areas of focus include conflicts of interest disclosures, compliance with Regulation Best Interest (Reg BI), cybersecurity, and the growing impact of artificial intelligence and crypto assets. The Division’s emphasis on these areas signals its commitment to maintaining rigorous standards in the financial sector.
Investment Advisers
The Division maintains its tradition of prioritizing examinations for investment advisers who have never been examined, newly-registered advisers, and those not recently reviewed. The focus for 2025 will be on fiduciary standards, compliance programs, and private fund advisers.
Fiduciary Duties
Investment advisers must adhere to fiduciary standards of conduct, acting in the best interests of their clients. The Division will pay close attention to advice on high-cost products, unconventional instruments, and assets sensitive to market changes, such as commercial real estate.
Compliance Programs
Compliance with Rule 206(4)-7 under the Investment Advisers Act of 1940 remains a priority. This includes adopting and implementing compliance policies, designating a chief compliance officer, and conducting annual reviews. The Division will evaluate core compliance areas, including marketing, valuation, and portfolio management.
Broker-Dealers
The SEC has previously taken action against broker-dealers for Reg BI violations and Form CRS obligations. In 2025, these remain top priorities, along with financial responsibility and trading-related practices.
Regulation Best Interest
Broker-dealers must ensure recommendations are in the best interests of their clients. The Division will assess conflict of interest disclosures and practices for identifying, mitigating, and eliminating conflicts.
Form CRS
Broker-dealers are required to provide Form CRS to all retail investors. The Division will review the content of these relationship summaries for accuracy and completeness.
Risk Areas
Cybersecurity, compliance with recent regulatory amendments, financial technologies, and crypto assets are highlighted as presenting the highest risks to investors and markets.
Cybersecurity
The Division will focus on registrant practices to prevent service interruptions and protect investor information, emphasizing policies, governance, and incident response.
Financial Technologies
With the rise of AI, the 2025 priorities emphasize the use of automated investment tools and digital engagement practices. The Division will assess how AI is implemented and monitored.
For more detailed insights, you can refer to the original article by Eric Mikkelson and Carissa Occhipinto at Stinson LLP.
