On October 21, 2024, the Securities and Exchange Commission’s (“SEC”) Division of Examinations (“Division”) released its 2025 Examination Priorities. Below is a summary of the priorities the SEC highlighted.
Investment Adviser Examination Priorities
- Targeting Unexamined and Newly Registered Advisers
Examinations will prioritize investment advisers that are newly registered, that have never been examined or that have not been examined recently.
- Examination of Private Fund Advisers
Specific areas of review for private fund investment advisers include:- consistency of disclosures with actual practices
- adherence to fiduciary obligations in times of market volatility and exposure to interest rate fluctuations
- accuracy of calculations and allocations of private fund fees and expenses;
- disclosure of conflicts and risks;
- adequacy of policies and procedures; and
- compliance with recently adopted SEC rules (i.e., Form PF amendments and the “Marketing Rule”).
- Fiduciary Standards of Conduct
The Division will examine advisers’ fulfillment of their duties of care and loyalty to their clients, ensuring they are not placing their own interests before their clients and are fully and fairly disclosing conflicts to allow clients to provide informed consent to the conflict.
- Compliance Program Effectiveness
The Division will focus on whether investment advisers’ policies and procedures address compliance with the Investment Advisers Act of 1940 and its rules, including whether an investment adviser’s policies and procedures are reasonably designed to prevent it from placing its interests before its clients’ interests.
Broker-Dealers
The Division will prioritize reviews of broker-dealer practices related to Regulation Best Interest, the content of customer relationship summaries and compliance with the net capital rule and customer protection rule.
Self-Regulatory Organizations
Examinations will focus on national securities exchanges to assess their enforcement of compliance with their own rules. Major regulatory areas within the Financial Industry Regulatory Authority and the Municipal Securities Rulemaking Board will also be examined.
Clearing Agencies
The SEC conducts annual examinations, at a minimum, of systemically important clearing agencies under its supervision. It also reviews registered clearing agencies not designated as systemically important for compliance with the SEC’s Standards for Covered Clearing Agencies.
Other Market Participants
The Division will examine municipal advisors, transfer agents, Security-Based Swap Dealers, and funding portals. Examinations of registered Security-Based Swap Execution Facilities may begin in late fiscal year 2025.
Risk Areas Impacting Market Participants
The Division will also focus on:
- registrants’ cybersecurity practices;
- compliance with Regulations S-ID and S-P;
- adherence to standard settlement cycle deadlines per Rules 15c6-1 and 15c6-2 under the Securities and Exchange Act of 1934;
- use of digital financial technologies like artificial intelligence;
- investments, products, and services involving crypto assets;
- Systems Compliance and Integrity entities; and
- broker-dealers’ compliance with Anti-Money Laundering requirements.
Prepare for Examinations
For more information, please refer to the Division’s official list of examination priorities, which is available here: Examination Priorities.
Contacts:
Burke McDavid I 214.745.5490 I bmcdavid@winstead.com
Andrew Rosell I 817.420.8261 I arosell@winstead.com
Jacob Spicer I 817.420.8234 I jspicer@winstead.com
Disclaimer: Content contained within this blog post provides information on general legal issues and is not intended to provide advice on any specific legal matter or factual situation. This information is not intended to create, and receipt of it does not constitute a lawyer-client relationship. Readers should not act upon this information without seeking professional counsel.