The Securities and Exchange Commission (SEC) has outlined its examination priorities for 2025, focusing on investment advisers, investment companies, broker-dealers, and other registered entities subject to review by the Division of Examinations (EXAMS). While core risks remain critical, the SEC has also highlighted emerging areas of concern.
Despite ongoing regulatory efforts for new rules targeting private fund advisers, this year’s agenda signals only a moderate shift, perhaps influenced by the upcoming general elections. Nevertheless, Chief Compliance Officers (CCOs) and supervisors need to stay focused on core areas like:
- Fiduciary Duty
- Conflicts of Interest
- Valuation Practices
- Fee and Expense Management
- Cybersecurity and Business Continuity
- Data Privacy and Protection
- Disclosure Accuracy and Compliance Program Effectiveness
Emerging Focus Areas for 2025
The SEC will also be intensifying its examination in new and complex areas, including:
- Use of Artificial Intelligence: Assessing how AI is integrated into investment management, trading, compliance, and marketing operations.
- Valuation of Illiquid Assets: Particular attention will be given to assets that impact management and performance fee calculations.
- Complex Financial Products: Scrutiny of leveraged products and interest rate-sensitive instruments.
- Commercial Real Estate and Market Exposure: Evaluating risk levels linked to real estate investments.
- Vendor Oversight and Supervision: Ensuring proper controls over third-party service providers.
- Marketing and Form PF Compliance: Reviewing adherence to updated marketing and filing regulations.
- Conflicts from Affiliated Service Providers: Examining compensation management and conflict-of-interest risks.
- Arbitration Clauses in Retail Agreements: Evaluating the impact and fairness of arbitration terms for investors.
Be Ready for Shifts
The SEC’s focus can change rapidly due to emerging risks, regional events, or new enforcement actions. CCOs should regularly review and adapt their policies and procedures to keep pace with evolving risk profiles and industry developments.