On October 21, 2024, the Securities and Exchange Commission (“SEC”)’s Division of Examinations (the “Division”) released its 2025 examination priorities.[i] The priorities are published annually to inform investors and registrants of potential risks in the U.S. capital markets and to highlight examination topics that the Division plans to focus on over the upcoming year.
The Division is responsible for examining SEC-registered investment advisers, investment companies, broker-dealers, clearing agencies, self-regulatory organizations, and others, for compliance with federal securities laws.[ii]
The Division noted that the published priorities are not “an exhaustive list of all the areas the Division will focus on in the upcoming year,” but provide insight into the topics that are the Division’s main area of interest.[iii] While many of the priorities from 2024—as covered by this blog—were left unchanged, there were a few exceptions. Below is a sampling of some of the more notable priorities described in the report.
Investment Advisers
The first area of Division focus for investment advisers is their adherence to fiduciary standards of conduct. As fiduciaries, investment advisers owe their clients a duty of care and loyalty. To examine an adviser’s adherence to these duties, the Division plans to prioritize the following:
- Investment advice provided to clients, particularly for “(1) high-cost products; (2) unconventional instruments; (3) illiquid and difficult-to-value assets; and (4) assets sensitive to higher interest rates or changing market conditions, including commercial real estate.”[iv]
- Dual registrants and advisers with affiliated broker-dealers. Areas of focus for these entities include: (1) assessing investment advice and recommendations regarding certain products to determine whether they are suitable for clients’ advisory accounts; (2) reviewing disclosures to clients regarding the capacity in which recommendations are made; (3) reviewing the appropriateness of account selection practices; and (4) assessing whether and how advisers adequately mitigate and fairly disclose conflicts of interest.
- The impact of advisers’ financial conflicts of interest on providing impartial advice and best execution.
Another area of focus for the Division with respect to investment advisers will be to assess the effectiveness of the advisers’ compliance programs. In particular, the following aspects:
- The Division highlighted that its main focus continues to be on whether the advisers’ policies and procedures address compliance with the Advisers Act and are reasonably designed to prevent the advisers from placing their interests ahead of clients’ interests.
- Examinations may especially focus on “(1) fiduciary obligations of advisers that outsource investment selection and management; (2) alternative sources of revenue or benefits advisers receive, such as selling non-securities based products to clients; and (3) appropriateness and accuracy of fee calculations and the disclosure of fee-related conflicts.”[v]
- The Division also noted that its review of a compliance program may depend on the adviser’s particular practices or products. For instance, if clients invest in illiquid or difficult-to-value assets, examinations may have a heightened focus on valuation. Or, if advisers integrate artificial intelligence (“AI”) into operations, an examination may look in-depth at compliance policies and procedures related to these areas.
As it did in its 2024 priorities, the Division indicated that it will focus on examinations of investment advisers to private funds—a significant portion of the registered investment adviser population. Specifically, the Division will prioritize the following topics:
- Whether disclosures are consistent with actual practices and if an adviser met its fiduciary obligations in times of market volatility.
- The accuracy of calculations and allocations of private fund fees and expenses.
- Disclosure of conflicts of interests and risks, and adequacy of policies and procedures.
- Compliance with recently adopted SEC rules, including amendments to Form PF and the updated rules that govern investment adviser marketing.
Registered Investment Companies
Registered investment companies—such as mutual funds and exchange-traded funds (“ETFs”)—continue to be a focus for the Division in 2025 “due to their importance to retail investors, particularly those saving for retirement.”[vi] The priorities for the examinations of such companies are as follows:
- 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.
Broker-Dealers
The Division stated that it would continue to examine broker-dealer practices related to Regulation Best Interest, which establishes the standard of conduct for broker-dealers at the time they recommend to a retail customer a securities transaction or investment strategy. The Division noted the following areas of interest:
- The recommendations themselves.
- Disclosures of conflicts of interest.
- Conflict identification, mitigation, and elimination practices.
- Processes for reviewing reasonably available alternatives.
- Factors considered in light of the investor’s investment profile, such as investment goals and account characteristics.
The Division stated that examinations of broker-dealer practices will focus on recommended products that are complex, illiquid, or present higher risk to investors. Additionally, the Division noted that it will continue its prior practice of focusing on dual registrants.
Finally, the Division articulated three additional areas of interest with respect to broker-dealer practices:
- Form CRS: the Division will review “the content of a broker-dealer’s relationship summary, such as how the broker-dealer describes: (1) the relationships and services that it offers to retail customers; (2) its fees and costs; and (3) its conflicts of interest, and whether the broker-dealer discloses any disciplinary history.”[vii]
- Financial Responsibility Rules: the Division will examine compliance with the net capital rule and the customer protection rule and related internal processes, procedures, and controls. This includes accounting practices impacted by recent regulatory changes, operational resiliency programs, and credit, market, and liquidity risk management controls.
- Trading-Related Practices and Services: the Division will review broker-dealer equity and fixed income trading practices, including the structure, marketing, fees, and potential conflicts associated with offerings by broker-dealers to retail customers, trading practices associated with trading in pre-IPO companies and the sale of private company shares in secondary markets, and execution of retail orders.
Information Security and Operational Resiliency
As with the 2024 examination priorities, the Division included in this year’s priorities discussion of risk areas impacting various market participants.
The first of these broad risk areas concerned cybersecurity. The Division noted that “[o]perational disruption risks remain elevated due to the proliferation of cybersecurity attacks, firms’ dispersed operations, weather-related events, and geopolitical concerns.”[viii] As a result of this, the Division stated that it plans to examine registrants’ procedures and practices to assess whether they are reasonably managing information security and operational risks to ensure the safeguarding of customer records and information.
The Division further stated that it plans to assess registrant compliance with Regulations S-ID and S-P, with a focus on policies and procedures regarding safeguarding customer records and information at firms providing electronic investment services.
Finally, the Division will review compliance with the new rules shortening the settlement cycle between execution and settlement that were implemented in 2024, as well as registrant technology changes associated with the shortening of the settlement cycle.[ix]
Crypto Assets
The Division acknowledged the continued proliferation of investments involving crypto assets and their associated products and services. In light of this, it stated that it would continue to monitor and, where appropriate, conduct examinations of registrants offering crypto asset-related services.
Such examinations would focus in particular on whether the registrants: “(1) meet and follow their respective standards of conduct when recommending or advising customers and clients regarding crypto assets . . . ; and (2) routinely review, update, and enhance their compliance practices . . . risk disclosures, and operational resiliency practices . . . if required.”[x]
The 2025 priorities discuss crypto assets with greater specificity than in prior years, demonstrating the increased importance of digital assets and their integration into the traditional financial markets.
Artificial Intelligence
In contrast to prior years, the 2025 examination priorities went into more detail regarding its planned review of AI. In discussing the use of emerging technologies and alternative sources of data, the Division stated that it will review registrant representations regarding their AI capabilities or AI use for accuracy. In addition, the Division plans to assess firm integration of regulatory technology to automate internal processes and optimize efficiencies, as well as assess whether firms have implemented adequate policies and procedures to monitor and/or supervise their use of AI. Finally, the Division stated that it will examine how registrants protect against loss or misuse of client records and information that may occur from the use of third-party AI models.
Anti-Money Laundering
Under the Bank Secrecy Act (“BSA”), certain financial institutions are required to establish Anti-Money Laundering (“AML”) programs that include policies, procedures, and internal controls reasonably designed to achieve compliance with the BSA and its implementing rules, including identifying and verifying the identity of customers and conducting ongoing monitoring to identify and report suspicious transactions.
Through its examinations, the Division will review whether registrants are:
- Appropriately tailoring their AML program to their business model and associated AML risks.
- Conducting independent testing.
- Establishing an adequate customer identification program, including for beneficial owners of legal entity customers.
- Meeting their Suspicious Activity Report (“SAR”) filing obligations.
Conclusion
The 2025 examination priorities left unchanged many of the major areas of focus for specific industry participants, such as investment advisers and RICs. In addition to the examination priorities for industry participants listed above, the Division’s release included priorities for self-regulatory organizations—including national securities exchanges and FINRA—clearing agencies, municipal advisors, transfer agents, security-based swap dealers, security-based swap execution facilities, and funding portals.
However, specific trending areas of focus for the Division were highlighted in greater depth than have been before, including the discussion of AI, cybersecurity, and crypto assets. In contrast, while environmental, social, and governance (“ESG”) investing was an area of focus in the Division’s 2023 examination priorities, it was not mentioned as a priority for 2025. Additionally, as with the 2024 examination priorities, the 2025 priorities do not mention assessments of climate risk planning for systematically significant registrants—like the 2023 priorities did.[xi]
It is important for industry participants to remember that while the SEC published its current priorities for 2025, these priorities can change throughout the year in order to respond to market changes, including regional issues, emerging market issues, or enforcement actions.
[i] Press Release, U.S. Securities and Exchange Commission, SEC Division of Examinations Announces 2025 Priorities, (Oct. 21, 2024), https://www.sec.gov/newsroom/press-releases/2024-172.
[ii] Id.
[iii] Press Release, U.S. Securities and Exchange Commission, SEC Division of Examinations Announces 2024 Priorities, (Oct. 16, 2023), https://www.sec.gov/news/press-release/2023-222.
[iv] U.S. Securities and Exchange Commission, 2025 Examination Priorities Release, Division of Examinations 5, https://www.sec.gov/files/2025-exam-priorities.pdf.
[v] Id. at 6.
[vi] Id. at 7.
[vii] Id. at 8.
[viii] Id. at 12.
[ix] U.S. Securities and Exchange Commission, Shortening the Securities Transaction Settlement Cycle, https://www.sec.gov/investment/settlement-cycle-small-entity-compliance-guide-15c6-1-15c6-2-204-2.
[x] 2025 Examination Priorities at 18.
[xi] See 2023 Examination Priorities at 14.
