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.
Footnote
1. Regulation S-P amendments have a compliance date of February 2, 2026, for "large institutions" and August 2, 2026, for other institutions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
