Key Takeaways from the SEC 2025 Examination Priorities for Investment Advisers
Throughout the course of the calendar year, the SEC uses several forms of communication to keep investment advisers updated on the compliance issues that concern them. These forms of communication include risk alerts, official notices and bulletins, announcements of enforcement actions, and public statements and speeches. The SEC’s most highly anticipated communication, however, is the release of its examination priorities for the coming year. The SEC derives these examination priorities, in part, from the practices, products, and services that were found to present heightened risk to investors during previous examinations of firms under its jurisdiction. The SEC’s annual examination priorities announcement is a culmination of its most pressing concerns at the time of release. Below lists out key takeaways from the SEC 2025 examination priorities for Investment Advisers.
As in the past, the SEC’s 2025 Examination Priorities, announced on October 21, cover both perennial and emerging risks. While the SEC continues to be focused on the core tenants of an adviser’s compliance program, including the adequacy of policies and procedures, fiduciary obligations, conflicts of interest, compliance with recently adopted rules, and adequate disclosure, there are noteworthy callouts that advisers should pay particular attention to.
One of the callouts that is generating the most buzz since the release of the priorities is the integration of Artificial Intelligence, or AI, into a firm’s operations and compliance policies and procedures. The use of AI is evolving rapidly, whether firms are leveraging it directly, or indirectly through service providers, which is presenting many new issues firms need to consider. While the SEC did list AI as an emerging technology in its 2024 examination priorities, AI is a lot more prominent in this year’s priorities, accompanied by a list of compliance areas that should be noted by any firm that uses AI or has AI exposure. With over $700k in penalties assessed to three firms since March of this year, firms should pay particular attention to the SEC’s callout regarding the use of AI highlighted in this year’s priorities, including ensuring that they have implemented robust policies and controls, as well as ensuring they have adequate and accurate disclosures.
Other areas of note in this year’s priorities include:
- The SEC has indicated an increased focus on outsourcing, in particular for advisers who outsource investment selection and management. Advisers should review their overall policies regarding the supervision and oversight of all third-party providers, with a particular focus on the third-party provider’s use of AI. In today’s interconnected environment, AI risks can infiltrate a firm’s operations via third-party vendors. These must be understood by the adviser and the adviser must ensure they are adequately disclosed.
- The SEC continues to focus on an adviser’s fee calculations and disclosures, with particular interest regarding special arrangements and the conflicts of interest inherent in negotiating lower fee deals that are not available to clients that receive similar services but pay higher fees. While permissible, these arrangements must be fully disclosed to all clients.
- While the Commission continues to focus on private fund adviser practices, including fee and expense allocations and the use of illiquid assets, in the 2025 examination priorities, the SEC has called out other practices that create conflicts for private fund advisers, including the use of debt and fund-level lines of credit, investments held by multiple funds, and the use of affiliates. The SEC has also indicated it will review private fund adviser’s policies regarding Form PF amendments and the marketing rule.
- Focus on compliance with Reg S-ID and Reg S-P. The Commission has indicated it plans to engage firms regarding their preparedness for adoption of the amendments to Reg S-P, released earlier this year. These amendments broaden the scope of the information covered by Reg S-P and may also impact the firm’s incident response programs. If they have not already done so, advisers should be reviewing their own privacy practices in preparation for the adoption of the Reg S-P amendments. The Compliance Date for the adoption of Reg S-P amendments is December 3, 2025, for large investment advisers, and June 3, 2026, for smaller investment advisers.
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STP ComplianceAdvisor provides consulting to assist firms in complying with securities regulations. STP ComplianceAdvisor can review your firm’s policies in consideration of the SEC’s latest release, including a review of your firm’s AI exposure and practices, assessing your firm’s fee and compensation structure, examining compliance risk exposure related to private fund practices, and preparing your firm for adoption of Reg S-P amendments. Learn more by contacting us today.
