SEC 2025 Examination Priorities Overview
WebCE Staff
By
February 3, 2025
The U.S. Securities and Exchange Commission (SEC) Division of Examinations (Division) has released its 2025 Examination Priorities, outlining the key areas of focus for the upcoming year. As financial markets evolve, regulatory oversight remains crucial in protecting investors and maintaining market integrity.
Below, we break down the most significant updates and what they mean for financial professionals.
SEC Exam Priorities for 2025
Investment Advisers
Newly registered advisers and those that have never been examined will again be prioritized in 2025.
Ensure investment advisers adhere to their fiduciary duty remains a priority for the SEC in 2025.
The Division will continue focusing on whether investment advice given to clients satisfies the adviser’s fiduciary obligations.
Particularly close attention will be paid to high-cost products, unconventional instruments, illiquid and difficult-to-value assets, and assets sensitive to higher interest rates or changing market conditions (including commercial real estate).
Assess effectiveness of advisers’ compliance programs and adherence to the rules under the Advisers Act.
Examinations typically focus on core areas of advisers’ compliances programs like marketing, valuation, trading, portfolio management, disclosure and filings, and custody.
Beyond these core areas, the examinations may focus on:
Fiduciary obligations of advisers outsourcing investment selection and management
Alternative source of revenue or benefits advisers receive (such as selling non-securities based products to clients)
Appropriateness and accuracy of fee calculations and disclosure of fee-related conflicts (e.g. some clients receiving lower rates than others for similar services)
These are just examples, as reviews are shaped by a program’s practices and products.
Continued examination of advisers of private funds.
In the Division’s continued focus on advisers to private funds, the following topics will be prioritized this year:
Fiduciary Obligations – Whether disclosures accurately reflect actual practices, whether advisers meet their fiduciary obligations during market volatility, and whether private funds are exposed to interest rate fluctuations.
Accuracy – The accuracy of calculations and allocations of private fund fees and expenses, both fund-level and investment-level.
This includes: validation of illiquid assets, calculation of post commitment period management fees, offsetting of such fees and expenses, and the adequacy of disclosures.
Conflicts of Interest & Risk – Conflicts, controls, and risk reviews of products, policies, and procedures.
Investment Companies
Amid the greatest surge of Americans turning 65 in the country’s history, the Division “continues to prioritize examinations of registered investment companies (RICs or funds), including mutual funds and exchange-traded funds, because of how important they are to retail investors, particularly those saving for retirement.”
These examinations typically review compliance programs, disclosures, and governance practices.
Focus areas may include a review of specific topics or characteristics involving:
Fund fees and expenses, along with 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
In addition, the Division will monitor various developing areas of interest, such as RICs with exposure to commercial real estate and compliance with new and amended rules.
Funds that have never been examined and those that have not been examined recently will be the Division’s priority, with a particular focus on newly registered funds.
Broker-Dealers
Regulation Best Interest
The Division continues its focus on ensuring broker-dealers keep the best interest of the customer at the heart of their recommendations.
2025 examinations will review:
Recommendations with regard to products, investment strategies, and account types and whether the broker has a reasonable basis to believe the recommendation is in the best interest of the customer and does not place the broker’s interests ahead of the customer’s interests
Disclosures made to investors regarding conflicts of interest
Conflict identification and 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
Specifically, examinations of broker-dealer practices will focus on recommended products that are complex, illiquid, or present a higher risk to investors. These include, for example, highlight leveraged or inverse products, crypto assets, structured products, alternative investments, products not registered with the SEC, product with complex fee structures or return calculations, products based on exotic benchmarks, or products that represent a growth area of retail investment.
Other areas examinations may focus on dual registrants and encompass reviews of a firm’s process for identifying and mitigating and eliminating conflicts of interest, account allocation practices, and account selection practices.
Form CRS
Proper disclosure of client relationships will also be part of the 2025 examinations, such as how the broker-dealer describes:
The relationships and services offered to retail customers
Its fees and costs
Its conflicts of interest, and whether the broker-dealer discloses any disciplinary history
The examinations will also review whether the broker-dealer has met their obligations to file their relationship summary with the SEC and deliver their relationship summary to retail customers.
Financial Responsibility Rules
Examinations will continue their focus on broker-dealer compliance with the net capital rule and the customer protection rule and related internal processes, procedures, and controls.
Specifically, areas of review will include:
Broker-dealer accounting practice impacted by recent regulatory changes
Timeliness of financial notifications and other required filings made by the broker-dealer
Operational resiliency programs, including supervision of third-party or vendor provided services that contribute to the records firms used to prepare their financial reporting information
Credit, market, and liquidity risk management controls to ensure firms have sufficient liquidity to manage stress events
Trading-Related Practices and Services
One Division priority for 2025 remains squarely focused on broker-dealer equity and fixed income trading practices.
These examinations will review:
The structure, marketing, fees, and potential conflicts associated with offerings by broker-dealers to retail customers, including bank sweep programs, full-paid lending programs, and mobile apps/online trading platforms
Trading practices associated with trading in pre-IPO companies and the sale of private company shares in secondary markets
The examinations will also review broker-dealers' execution of retail orders, which will include:
Whether retail orders are marked as “held” or “not held,” and the consistency of the marking with retail instructions
The pricing and valuation of illiquid or retail-focused instruments, such as variable rate demand obligations, other municipal securities, and non-traded REITs
Regarding Regulation SHO, the Division will examine whether broker-dealers are relying on the bona fide market making exception, including whether quoting activity is away from the inside bid/offer.
Other Market Participants
Municipal Advisors
This year, the Division continues to examine whether municipal advisors have:
Met their fiduciary duty to municipal entity clients when engaging in municipal advisory activities (e.g. providing advice or recommendations regarding the pricing or method of sale with respect to the issuance of municipal securities)
Complied with MSRB Rule G-42, which establishes the core standards of conduct and duties applicable to non-solicitor municipal advisers, including requirements to disclose conflicts of interest and document municipal advisory relationships
Made required filings with the SEC and met their professional qualification, recordkeeping, and supervision requirements
Transfer Agents
The Division will continue to examine transfer agents in the following areas:
Processing of items and transfers
Recordkeeping and record retention
Safeguarding of funds and securities
Filing with the SEC
Examinations will also focus on transfer agents using emerging technology to perform their transfer agent functions.
Security-Based Swap Dealers (SBSDs)
The Division remains focused on SBSDs that have yet to be examined.
Examinations will cover:
If SBSDs have implemented policies and procedures related to compliance with security-based swap rules generally,
Whether SBSDs are meeting their obligations under Regulation SBSR to accurately report security-based swap transactions to security-based swap data repositories
Complying with relevant conditions in SEC orders governing substituted compliance (where applicable)
For other SBSDs, the Division will assess efforts made to correct issues identified in previous examinations as well as practices with respect to applicable capital, margin, and segregation requirements and risk management.
Security-Based Swap Execution Facilities (SBSEFs)
The SEC adopted new Regulation SE under the Exchange Act on November 2, 2024, which implemented a new set of rules and forms for registering and regulating SBSEFs.
Regulation SE eliminated the prior temporary registration exemptions as of August 12, 2024, meaning SBSEFs now need to apply for registration with the SEC.
Given the change, the Division may begin conducting examinations of registered SBSEFs in late fiscal year 2025.
Funding Portals
During their examinations, the Division will assess whether funding portals are making and preserving:
Required records (such as records related to investors who purchase, or attempt to purchase, securities through the funding portal
Records related to issuers who offer and sell, or attempt to offer and sell, securities through the funding portal and the control persons of such issuers, among others
The Division will also assess whether written policies and procedures are reasonably designed to achieve compliance with applicable federal securities laws and rules, particularly restrictions that prohibit the following:
Offering investment advice or recommendations
Soliciting transactions in the securities displayed on the funding portal’s platform
Compensating persons of such solicitation or based on the sale of securities displayed on the funding portal’s platform
Holding, managing, possessing, or handling investor funds or securities
Risk Areas Impacting Various Market Participants
Cybersecurity
The rise of cyberattacks and the threat they pose to customer records and information has made cybersecurity a perennial examination priority for the Division.
Particular attention will be on firms’ policies and procedures, governance practices, data loss prevention, access controls, account management, and responses to cyber-related incidents, including those related to ransomware attacks.
Third-party products and services will be a particular focus, as well as how registrants identify and address risks to essential business operations.
Emerging Financial Technologies (Including AI)
Automated investment tools, AI, and trading algorithms or platforms remain a focus for the Division as it evaluates the risks associated with these emerging technologies and alternate sources of data. As a result, the Division will examine firms employing these technologies for digital investment advisory services, recommendations, and related tools and methods.
These reviews typically consider whether:
Representations are fair and accurate
Operations and controls in place are consistent with disclosures made to investors
Algorithms produce advice or recommendations consistent with investors’ investment profiles or state strategies
Controls to confirm that advice or recommendations resulting from digital engagement practices are consistent with regulatory obligations to investors, including older investors
For AI in particular, the Division will review:
Registrant representations of their AI capabilities or use of AI for accuracy
Policies and procedures to monitor and/or supervise the use of AI (including for tasks related to fraud prevention and detection, back-office operations, anti-money laundering (AML), and trading functions, as applicable
Integration of regulatory technology to automate internal processes and optimize efficiencies
How registrants protect against loss or misuse of client records and information that may occur from the use of third-party AI models and tools
Crypto Assets
With how volatile crypto markets and activity can be, the Division will continue monitoring and, when appropriate, conduct examinations of registrants offering crypto-related services. These exams will focus on the offer, sale, recommendation, advice, trading, and other activities involving crypto assets.
These examinations will review whether registrants:
Meet and follow their respective standards of conduct when recommending or advising customers and clients regarding crypto assets, particularly retail-based scenarios and investments involving retirement assets
Routinely review, update, and enhance their compliance practices, risk disclosures, and operational resiliency practices
Anti-Money Laundering (AML)
The Division continues its focus on AML and how certain financial institutions, including broker-dealers, have tailored their AML program to their unique risks.
In their examination, the Division will assess whether broker-dealers and certain RICs 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 SAR filing obligations
Monitoring and ensuring compliance with the Department of Treasury’s Office of Foreign Assets Control sanctions
SEC’s 2025 Examination Priorities
These priorities reflect the SEC's commitment to strengthening regulatory oversight and addressing emerging risks within the financial and corporate sectors. By outlining these focus areas, the SEC aims to ensure that organizations adhere to robust governance standards, maintain transparency, and effectively manage potential vulnerabilities.
Understanding the SEC's examination priorities is crucial for organizations to prepare accordingly and align their compliance strategies with regulatory expectations. As the regulatory landscape evolves, staying informed about these priorities is key to navigating compliance requirements and mitigating risk.