The Securities and Exchange Commission released its examination priorities for fiscal year 2025, according to an AdvisorHub report.
The priorities set out by the SEC’s Division of Examinations are issued to inform investors and registrants of the key risks, examination topics, and priorities that the Division plans to focus on in the year ahead. They reflect practices, products, and services that the Division believes present potentially heightened risks to investors or the integrity of the U.S. capital markets.
Among the areas of focus for the year ahead are firms’ compliance with standards of care, including Regulation Best Interest for broker-dealers and the fiduciary standard governing registered investment advisory firms. Other risk areas that will be scrutinized are cybersecurity and artificial intelligence. The Division will also examine for compliance with new rules, the use of emerging technologies, and the soundness of controls intended to protect investor information, records, and assets.
“The Division of Examinations 2025 priorities enhance trust in our ever-evolving markets,” said SEC Chair Gary Gensler. “In examining for compliance with our time-tested rules, the Division plays a critical role in protecting investors and facilitating capital formation. Working with registrants to understand the rules helps ensure that markets work for investors and issuers alike.”
“Our 2025 examination priorities identify the key areas of potentially increased risks and related harm for investors,” said Keith Cassidy, Acting Director of the Division of Examinations. “We hope that registrants will evaluate their compliance programs in the areas we identified and make the changes necessary to protect investors and maintain fair and orderly capital markets.”
With regards to dual registrants and advisors with affiliated broker-dealers, the Division of Examination said its areas of focus will include (1) assessing the suitability of investment advice and recommendations for client accounts, (2) reviewing disclosures regarding the capacity in which recommendations are made, (3) reviewing the appropriateness of account selection practices between brokerage and advisory, and (4) assessing disclosure and mitigation of conflicts of interest.
In the area of artificial intelligence, the SEC said it would be reviewing cases where advisors are using AI to assist with “portfolio management, trading, marketing, and compliance,” and stated it will “look in-depth at compliance policies and procedures as well as disclosures to investors related to these areas.”
The Division will continue to examine broker-dealer practices related to Regulation Best Interest, including the following areas: (1) 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; (2) disclosures made to investors regarding conflicts of interest; (3) conflict identification and mitigation and elimination practices; (4) processes for reviewing reasonably available alternatives; and (5) factors considered in light of the investor’s investment profile such as investment goals and account characteristics.
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