In a significant move, the Securities and Exchange Commission’s (SEC) Division of Examinations has unveiled its 2025 examination priorities, setting the stage for what could be a transformative year in financial regulation. The release, dated October 21, 2024, aims to guide registered investment advisers, investment companies, and broker-dealers on the areas of focus during upcoming examinations.
The 2025 priorities come amidst a changing presidential administration, which could lead to shifts in SEC focus. However, many of the priorities are expected to persist, emphasizing the need for firms to carefully review these priorities and consult with legal counsel as needed.
Investment Advisers
The SEC’s Division will continue to prioritize examinations of investment advisers, particularly those who have never been examined or have not been examined recently. Key areas of focus will include 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 and disclosing any conflicts of interest. The Division will scrutinize investment advice related to high-cost products, unconventional instruments, and assets sensitive to market changes.
Compliance Programs
Compliance with Rule 206(4)-7 under the Investment Advisers Act of 1940 remains a priority. Examinations will evaluate core compliance areas such as marketing, valuation, and trading. Special attention will be given to advisers integrating AI into their operations.
Private Fund Advisers
Private fund advisers will also be under the spotlight, especially those using investment strategies sensitive to market volatility and interest rate changes. The Division will examine conflicts of interest disclosures and compliance with new regulatory amendments.
Broker-Dealers
For broker-dealers, Regulation Best Interest (Reg BI) and Form CRS obligations remain top priorities. The Division will assess whether broker-dealers are making recommendations in the best interests of their clients and properly disclosing conflicts of interest.
Regulation Best Interest
Broker-dealers must ensure that their recommendations are in the best interests of their clients. Examinations will focus on complex and high-risk products, including crypto assets and structured products.
Form CRS
The SEC requires broker-dealers to provide Form CRS to retail investors, detailing their relationships, services, and fees. The Division will review the content of these summaries to ensure transparency and compliance.
Risk Areas
Several key risk areas have been highlighted, including cybersecurity, compliance with recent amendments, financial technologies, and crypto assets. The Division will ensure that practices prevent service interruptions and protect investor information.
Cybersecurity
Examinations will focus on policies and procedures to prevent data breaches and protect client information, with special attention to the use of third-party products and services.
Financial Technologies
With AI on the rise, the Division will review the use of automated investment tools and ensure that firms monitor and supervise AI use effectively.
Crypto Assets
Crypto assets remain a top priority, with examinations reviewing compliance practices and risk disclosures related to crypto securities.
For a more detailed exploration of these priorities, the original article by Eric Mikkelson and Carissa Occhipinto can be found on Stinson LLP’s website. This comprehensive guide underscores the SEC’s commitment to safeguarding investors and ensuring market integrity.
