Key Highlights from the SEC's 2025 Examination Priorities

Estimated Time to Read: 3 minutes

If you have not heard of the U.S. Securities and Exchange Commission’s (“SEC”) Division of Examinations Examination Priorities, let us introduce you!

On an annual basis, the SEC shares a detailed report on the key themes they will be focused on for the following year’s exams. As you can imagine, the RIA Compliance world anxiously awaits its publication, reviewing it with a fine-toothed comb the moment it is published. On October 21, 2024, our wait finally ended. The SEC published its 2025 Examination Priorities (the “2025 Priorities”) !!

As independent RIA's, it is paramount that we understand what the SEC prioritizes so that we can be prepared to act as needed, and respond should the examiners ever come knocking on our door. Taking proactive steps around the regulatory agenda can be the difference between a smooth or challenging examination experience. It is why we encourage reviewing the SEC's Examination report as one of the top ways you can stay informed on "what the SEC is focused on."

So let's dive deeper.

The Examination Priorities “reflect the SEC’s commitment to adapting to evolving market conditions and safeguarding investors through proactive examination and oversight” and are developed in consultation with other divisions and offices throughout the SEC. They are driven by prior years’ examination results, market events, and information gathered through participation in conferences and conversations with investors, registrants, industry groups, and other regulators. They reflect a comprehensive list of practices, products, and services that the Division believes present potentially heightened risks to investors or the integrity of the U.S. capital markets.

At first glance, you will find that the 2025 Priorities reinforce many of the same areas of focus as the 2024 Priorities; including Investment Advisers use of private funds, conflicts of interest disclosures, Regulation Best Interest (“Reg BI”), cybersecurity, and crypto assets.

The report is 22 pages and well worth the read! For the Cliffnotes version, listed below are the key areas we highlighted:

• Adherence to Fiduciary Standards of Conduct: Enhanced examination will focus on compliance with fiduciary duties (duty of care and duty of loyalty), suitability requirements, and conflicts of interest.
  
  
• Effectiveness of Advisers’ Compliance Programs: Rule 206(4)-7 under the Investment Advisers Act of 1940 (Advisers Act), often referred to as the “Compliance Rule,” requires SEC-registered investment advisers to: (1) adopt and implement written policies and procedures that are reasonably designed to prevent violations of the Advisers Act and the rules adopted under the Advisers Act by the adviser and its supervised persons; (2) designate an individual as Chief Compliance Officer to be responsible for administering the policies and procedures; and (3) review compliance policies and procedures at least annually for their adequacy and the effectiveness of their implementation.
  
  
• Private Fund Advisers: There will be a closer look at practices within the private fund sector, particularly in areas such as fees, expenses, and investor disclosures.
  
  
• Focus on Emerging Risks: The division will emphasize areas such as cryptocurrency, digital assets and Artificial Intelligence (AI), ensuring that firms are compliant with regulatory standards in these rapidly evolving markets.
  
  
• Environmental, Social, and Governance (ESG) Factors: Increased scrutiny will be placed on firms' disclosures related to ESG practices, assessing how they address sustainability and social responsibility.
  
  
• Cybersecurity and Technology Risks: With rising concerns about cyber threats, the division aims to evaluate firms' cybersecurity measures and their readiness to handle technological disruptions.
  
  
• Anti-Money Laundering (AML) Compliance: Continued focus on AML compliance will ensure firms are effectively managing risks associated with illicit activities.

Please keep in mind (compliance disclosure!) that the report is not a full list of items the Division will address in examinations... just their priorities.

Your tru Compliance team has reviewed the priorities and are ensuring that all policies are up-to-date. If you have any questions regarding the 2025 Priorities or anything else that comes to mind, please contact your CCO or email our team at compliance@tru-ind.com.

*Fun Fact: Marshall M. Gandy, National Investment Adviser/Investment Company Program Director, was a speaker at the Comply conference I attended October 25-28, 2024! He is listed in the Examinations Priorities as a part of the Division of Examinations Leadership.