The SEC’s Division of Examinations has released its examination priorities for fiscal year 2025, providing a roadmap of where regulated entities can expect heightened scrutiny. The 22-page release outlines a significant number of priorities that will be focused on during next year’s examinations. Here’s a comprehensive analysis of the key areas:
Investment Advisers Face Enhanced Scrutiny Over Fiduciary Obligations
The SEC will evaluate how investment advisers carry out their fiduciary responsibilities, particularly regarding recommendations of high-cost products and unconventional instruments. Examiners will pay special attention to illiquid and difficult-to-value assets, with a particular focus on:
- Interest rates
- Market conditions, especially commercial real estate
- Relationship between dual registrants and their affiliated broker
Broker-Dealers Need to Shore Up Their Best Interest Practices
Regulation Best Interest compliance remains a priority, with examiners assessing how firms document and justify their product recommendations and investment strategies. The Division will evaluate:
- Conflict of interest disclosures
- Complex product sales processes
- Digital engagement practices
- Account type recommendations
Trading Practices Come Under Enhanced Review
The Division will thoroughly examine equity and fixed income trading practices across the industry. Special attention will be paid to
- Pre-IPO trading activities
- Secondary market transactions in private company shares
Retail order execution practices will be evaluated for compliance, while short selling activities will face increased scrutiny.
Technology and Innovation Demand Greater Controls
As firms increasingly embrace artificial intelligence and automated systems, the SEC will examine how these tools are implemented and overseen. Digital engagement practices and algorithm-based recommendations will face particular scrutiny to ensure they align with regulatory requirements and serve client interests appropriately.
Cybersecurity Takes Center Stage
Information security remains a critical focus, with examinations evaluating firms’ cybersecurity preparedness and incident response protocols. The Division will assess data protection measures and third-party vendor management practices. With the transition to T+1 settlement, firms must demonstrate robust operational capabilities to meet new timeline requirements.
Digital Assets Face Increased Regulatory Attention
The crypto asset space continues to draw regulatory focus, with examinations concentrating on:
- Crypto-related products and services
- Trading practices
- Custody arrangements
- Risk disclosures
Firms must demonstrate strong operational resilience in managing digital asset operations, including robust cybersecurity protocols and comprehensive business continuity plans.
Strategic Implications for Regulated Entities
Organizations should view these priorities as an opportunity to strengthen their compliance programs proactively. This includes conducting thorough reviews of existing procedures, enhancing oversight mechanisms for high-risk areas, and updating documentation processes to reflect current regulatory expectations.
Forward-Looking Perspective
The 2025 examination priorities reflect the SEC’s evolving approach to market oversight, balancing traditional investor protection concerns with emerging market dynamics. The focus on technology, cybersecurity, and digital assets demonstrates the regulator’s commitment to addressing modern market challenges while maintaining robust investor protection standards.
This comprehensive examination framework requires firms to take a proactive stance in addressing potential compliance gaps. Rather than waiting for examinations to identify issues, organizations should use these priorities as a blueprint for strengthening their regulatory compliance programs and risk management frameworks.
