The SEC Announces 2025 Examination Priorities

Is your compliance program examination ready?

Today, the Securities and Exchange Commission’s Division of Examinations (the “Division”) released its 2025 examination priorities. 2025 examinations will prioritize recurring and emerging risk areas, such as fiduciary duty, standards of conduct, cybersecurity, and artificial intelligence. The Division also carried forward several priorities from 2024, continuing to focus on the promotion of compliance, prevention of fraud, risk monitoring, and informed policymaking. Below is PINE’s review of the 2025 SEC Exam Priorities

Key Focus Areas for Investment Advisers

Adherence to Fiduciary Standards of Conduct

Focus on ensuring advisers serve the best interests of their clients when:

• Providing investment advice regarding products, investment strategies, and account types.
• Providing investment advice regarding high-cost products.
• Providing investment advice regarding unconventional instruments.
• Providing investment advice regarding illiquid and difficult-to-value assets.
• Providing investment advice regarding assets sensitive to higher interest rates or changing market conditions (including real estate).

Effectiveness of Adviser’s Compliance Programs

Focus on:

• Core areas of advisers’ compliance programs such as marketing, valuation, trading, portfolio management, disclosures and filings, and custody.
• Fiduciary obligations of advisers that outsource investment selection management.
• Alternative sources of revenue or benefits advisers receive such as selling non-securities-based products.
• Appropriateness and accuracy of fee calculations, and disclosure of fee-related conflicts.

Private Fund Advisers

Focus on:

• The consistency of disclosures and actual practices of advisers.
• Poor performing funds or funds experiencing significant withdrawals.
• Accuracy of calculations and allocations of private fund fees and expenses (both fund-level and investment-level.

New Registrant Examinations

• A continued focus on examinations of advisers that have never been examined.

Cybersecurity

Focus on:

• Protection of confidential trading information related to the use of alternative trading systems.
• Resiliency goals associated with third-party products, sub-contractors, services, and any information technology (IT) resources.

Emerging Technologies

Focus on:

• Automated investment tools: operations and controls in place are consistent with disclosures made to investors.
• Artificial Intelligence (“AI”): Registrant representations regarding AI, implementation of adequate policies and procedures, protection against loss or misuse of information.
• Trading algorithms and platforms: ensuring algorithms produce advice or recommendations consistent with investors’ investment profiles or stated strategies.

Key Focus Areas for Registered Investment Companies

General

• Compliance programs
• Disclosures
• Governance practices

Focus on:

• Fund fees and expenses
• Waivers and reimbursements
• Oversight of service providers (affiliated and non-affiliated)
• Portfolio management practices and disclosures
• Market volatility issues

Newly Registered Investment Companies

• A continued focus on examinations of registered investment companies that have never been examined.

Key Focus Areas for Broker-Dealers

Regulation Best Interest

Focus on:

• Recommendations made with regard to products, investment strategies, and account types
• Recommendations of products that are complex, illiquid, or present higher risk to investors. Disclosures made to investors regarding conflicts of interest
• Conflict identification and mitigation and elimination practices
• Processes for reviewing reasonably available alternatives

Form CRS

Focus on:

• Content of relationship summaries
• Fees and costs · Conflicts of interest
• Disclosure of disciplinary history

Trading Practices

Focus on:

• Structure, marketing, fees, and potential conflicts associated with offerings by broker-dealers to retail customers.
• Bank sweep programs, fully paid lending programs, and mobile apps/online trading platforms.
• Pricing and valuation of illiquid or retail-focused instruments such as variable rate demand obligations, other municipal securities, and non-traded REITs.

Regulation SHO Focus on:

• Reliance on bona fide market-making exception

General Considerations

T+1

Broker-Dealer:

• Compliance with Rules 15c6-1 and 15c6-2

Advisers:

• Evaluation of compliance with amended books and records requirements associated with T+1

AML

Broker-Dealers and Applicable RICs:

• Appropriateness of AML programs in relation to the business model
• Independent testing · Adequacy of customer identification program
• SAR filing obligations

Department of Treasury’s Office of Foreign Assets

Control Sanctions Broker-Dealers and Advisers:

• Monitoring of sanctions and compliance with sanctions

PINE’s skilled team of compliance professionals works diligently with investment advisers and investment companies to build and implement tailored programs that align with regulatory requirements and industry best practices. Contact PINE to discuss steps your firm can take to prepare for regulatory examinations and potential enhancements to your compliance program to address these examination priorities.