The SEC’s 2025 Examination Priorities report (“Exam Priorities”) from the Division of Examinations (“the Division”) was recently issued on October 21, 2024. This is the second year in a row that the Division released its Exam Priorities report in October. It has now set an expectation for the industry that this will be the timing of its release going forward. Since the SEC’s new fiscal year begins on October 1st, it makes sense that the public release of the report would occur annually in October.
The Division now has a specific planning team that helps to structure its examination planning considerations and likely allows the release of the Exam Priorities earlier than in past years. Exams will continue a risk-based approach according to the report so that they can increase the number of exams conducted each fiscal year. The agenda for 2025 appears robust with some of the same exam focus areas as years past, as well as containing some new areas.
According to the Exam Priorities, the Division will specifically focus on the following areas during Private Fund Examinations in 2025:
- Disclosures to investors regarding interest rate fluctuations
- Focus on commercial real estate funds
- Focus on private credit funds
- Fund fees and expenses (both fund level and investment level)
- Disclosure of conflicts of interests
- Use of fund level lines of credit
- Adviser-led secondary transactions
- Use of affiliated service providers
- New Form PF filings
- Marketing practices
Registered Investment Adviser Examinations in the 2025 fiscal year will include focus areas such as:
- Client recommendations regarding high-cost products
- Firms investing in commercial real estate or other difficult-to-value assets
- Dual registrants and how recommendations are made (suitability, client disclosures, rollover accounts)
- Conflicts of interest associated with the dual registrant model
- Non-standard fee arrangements
- Annual Compliance Review effectiveness
- Alternative sources of revenue to RIAs
- Accuracy of fee calculations
- Use of artificial intelligence (AI) at firms and how reflected in policies
- Supervision and oversight of multi-office firms
In addition, EVERY routine exam of SEC registered investment advisers will include a review of:
- Marketing practices
- Valuation processes
- Trading activities
- Portfolio management
- Disclosure and filings
- Custody of client assets
- Conflicts of interest
Investment Companies such as mutual funds, BDCs, and ETFs will be examined for compliance with:
- Fund fees and expenses
- Oversight of fund service providers
- Fund marketing materials
- Funds exposed to commercial real estate
- Compliance with new rules
- Newly registered funds
- Portfolio management and disclosures of strategies
Other, more general focus areas for 2025 include:
- Cybersecurity practices by registrants
- Reg S-ID and Reg S-P
- Use of artificial intelligence (AI)
- Crypto assets and retail investors
- AML practices and programs
It is a rather long laundry list of items for examiners to focus on. Not all exams will have these components, but most SEC registered advisers will be affected in some way by the above exam focus areas. It is in a firm’s best interest to ensure that its compliance program is well covered in the areas discussed here. Firms should determine the exam focus areas that are relevant and ensure their actual practices match their written policies.
A change in the political environment will most certainly affect the SEC’s examination goals, especially if the SEC Chair role should also change. In the meantime, SEC registered advisers should use this Exam Priorities report as a game plan to review and take immediate steps where necessary to tighten up their compliance.
View the SEC’s Division of Examinations “2025 Examination Priorities”
