The Securities and Exchange Commission (SEC) has announced its 2025 examination priorities for registered investment advisers and investment companies, broker-dealers and other registered entities that are subject to inspection by the Commission’s Division of Examinations (EXAMS). The headline— while perennial risks remain paramount, new areas of emerging risk have been identified.
This is a notable shift from the SEC’s proposed efforts for sweeping rules aimed at private fund advisers. While this may reflect a transition year due to the upcoming general elections, it is not a major departure from course. Regardless, it is crucial for Chief Compliance Officers (CCOs) and supervisors to understand the continued emphasis on:
- Fiduciary duty
- Conflicts
- Valuation
- Fees and expense calculation, allocation, waivers and offset
- Cybersecurity and business continuity
- Data privacy and confidentiality
- Disclosures and the effectiveness of compliance programs
New additions to the SEC’s 2025 priorities, and areas that CCOs and supervisors should expect to see more in-depth reviews of, include:
- The use, or claimed use, of artificial intelligence throughout the adviser’s operations investment management, trading, compliance and/or marketing processes
- Illiquid or hard to value assets, especially when valuation is used as a basis to calculate management and performance fees
- Complex financial products
- Exposure to commercial real estate
- Interest rate-sensitive products
- Leveraged products
- Supervision and oversight of vendors
- Conflicts and compensation arising from the use of affiliated service providers
- Compliance with rules relating to Marketing, Form PF and other required filings
- The use of arbitration clauses in retail agreements
While this list reflects the SEC’s current priorities for 2025, it should be noted that the EXAMS mandate could shift at a moment’s notice to respond to regional issues, emerging market issues, risk alerts or enforcement actions, among others. As such, CCOs should continue to evaluate changes in their businesses, industry factors and other developments that may affect the risk profile and, if necessary, enhance the applicable policies and procedures.
Kroll’s private fund industry experts stand ready to support SEC registrants with navigating the 2025 priorities. For more than two decades, Kroll specialists have been helping clients design, implement, test and document robust compliance policies and procedures that are not only risk-based and reasonable to demonstrate to EXAMS, but that take into account market trends and other mitigating factors. Contact our experts today to learn more.
