The U.S. Securities and Exchange Commission (SEC) has released its examination priorities for fiscal year 2025, with the Division of Examinations continuing to adapt to an evolving financial landscape. The priorities highlight areas where the SEC sees heightened risks to investors and market integrity, providing valuable guidance to financial institutions.
The following are some of the critical areas of focus for the upcoming year, as well as guidance on how financial firms can prepare to meet the SEC’s rigorous compliance expectations.
1. Investment Advisers: Heightened Scrutiny on Fiduciary Duties
One of the primary focuses of the SEC’s 2025 examination priorities is ensuring investment advisers adhere to fiduciary standards of conduct. The SEC is particularly concerned with the duty of care and duty of loyalty that advisers owe to their clients. This means advisers must always act in their clients’ best interests, ensuring that any conflicts of interest are either eliminated or fully disclosed so that clients can make informed decisions.
For 2025, the SEC will closely examine the following:
- Advice on high-cost products: Investment strategies involving high-cost products, illiquid assets and unconventional instruments will be scrutinized to ensure they align with client needs.
- Impact of financial conflicts of interest: The Division will assess whether advisers are effectively disclosing financial conflicts and how these might influence impartial advice or best execution practices.
In addition to examining fiduciary standards, the SEC will continue to evaluate the effectiveness of advisers’ compliance programs, particularly their ability to prevent violations of the Advisers Act. Areas like marketing, fee disclosures and trading will come under scrutiny, as well as advisers’ use of artificial intelligence (AI) in portfolio management, where compliance challenges are likely to arise due to the novel nature of these technologies.
2. Investment Companies: Emphasis on Retail Investor Protections
Registered investment companies (RICs), including mutual funds and exchange-traded funds (ETFs), remain a priority for the SEC in 2025, reflecting their critical role for retail investors, particularly those saving for retirement. The SEC will focus on:
- Fund fees and expenses: Ensuring that fees, expenses and associated waivers are transparent and accurately communicated to investors.
- Market volatility: Funds exposed to volatile markets, such as those investing in commercial real estate, will face heightened scrutiny.
Newly registered funds or those that have not been examined recently will also be prioritized, reinforcing the SEC’s focus on maintaining robust compliance across both new and established firms.
3. Broker-Dealers: Strengthening Compliance With Best Interest Standards
The SEC’s ongoing focus on broker-dealer compliance will continue, with particular emphasis on adherence to regulation best interest (Reg BI). Reg BI requires broker-dealers to act in the best interest of their clients when making recommendations, ensuring that their own financial interests are not prioritized over those of their customers.
In 2025, the SEC’s examination of broker-dealers will address:
- Product recommendations: Special attention will be given to complex, illiquid or high-risk products, including crypto assets, which carry a greater risk for investors.
- Account type advice: The SEC will evaluate recommendations to open different account types, such as IRAs or self-directed brokerage accounts, ensuring the rationale aligns with the investor’s needs and profile.
- Conflict mitigation: Broker-dealers must demonstrate that they have adequate processes in place to identify and mitigate conflicts of interest, particularly in dual registrant scenarios where broker-dealers and investment advisers operate under the same roof.
4. Cybersecurity and Operational Resilience: Defending Against Emerging Threats
The SEC continues to place significant importance on cybersecurity and operational resiliency, given the rising threats posed by cyberattacks, geopolitical risks and operational disruptions. Firms must have robust processes to protect sensitive investor information, maintain operational continuity and swiftly recover from disruptions.
The SEC will assess firms’ policies and procedures in several key areas:
- Incident response plans: Firms must demonstrate they have effective incident response plans that cover both internal disruptions and third-party risks.
- Third-party cybersecurity: The SEC will also focus on the security of third-party products and services used by financial institutions, especially in cases where IT oversight may be lacking.
This emphasis on cybersecurity is critical as financial institutions increasingly rely on external vendors and digital tools, which could expose them to new vulnerabilities if not properly managed.
5. Crypto Assets: Increased Scrutiny on Digital Markets
With the rapid growth of the crypto asset market, the SEC has intensified its oversight of crypto-related activities. In 2025, examinations will focus on whether firms that engage in crypto asset services comply with applicable securities laws and maintain proper investor protections.
Key areas of examination include:
- Standards of conduct: Whether firms follow appropriate standards when recommending crypto assets to clients, especially in high-risk areas like retirement accounts.
- Operational resilience: Crypto firms must ensure that their custody, valuation and business continuity practices meet the high standards expected of traditional financial firms, especially when dealing with volatile or illiquid crypto assets.
6. Anti-Money Laundering (AML): Keeping Illicit Activities in Check
The SEC’s AML examinations will remain focused on ensuring that broker-dealers and other financial institutions have comprehensive programs tailored to their business models. Firms must continue to implement risk-based customer due diligence, file suspicious activity reports (SARs) when appropriate, and maintain robust monitoring systems.
In 2025, the SEC will examine:
- Tailored AML programs: Whether firms have adequately adjusted their AML programs to account for their size, customer base and the complexity of products offered.
- Independent testing: Firms must also conduct regular, independent testing of their AML processes to ensure compliance with the Bank Secrecy Act.
Proactive Preparation for 2025
As financial firms prepare for the SEC’s 2025 exams, it’s clear that the regulator’s priorities remain sharply focused on investor protection, market integrity and the evolving risks posed by new technologies and complex products.
To ensure compliance, ACC recommends that firms take the following actions:
- Regularly review and update their fiduciary, compliance and cybersecurity programs.
- Ensure robust documentation and transparency around fees, conflicts of interest and risk management.
- Engage with emerging risks, including the integration of AI and the growing crypto market, while maintaining strong operational resiliency.
By staying ahead of these examination priorities, firms can not only meet regulatory expectations but also bolster investor trust in a rapidly changing financial landscape.
If your firm needs support in addressing these exam priorities, ACC offers a variety of proactive compliance solutions that can be tailored to your firm’s specific needs. Click here to schedule a complimentary call.
