PKF O'Connor Davies Accountants and Advisors
PKF O'Connor Davies Accountants and Advisors
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Helping You Prepare for the SEC 2025 Examination Priorities

By Jay Monaghan, CPA, Michael Stellwagen, CPA, Michael Provini, CPA, Rachel DiDio, CPA, Elisabeth da Silva, CPA, CFF and Don Melody, CPA, CFE

Each year, the U.S. Securities and Exchange Commission (SEC) Division of Examinations (the Division) issues its examination priorities to inform investors and SEC registrants of market risks and notify them of potential examination topics of focus. The Division’s objective is to prevent fraud, identify and monitor risk and promote industry compliance with SEC policies.

The 2025 Examination Priorities were published this year on October 21 and can be found here.

30 Years of Examinations … Means They’re Pretty Good at This

Created nearly 30 years ago, this SEC Division is tasked with overseeing a growing portfolio of registered firms and targeting those that pose the greatest risk to investors and markets. The Division prioritizes examinations of recently registered firms and registrants that have never, or have not recently, been examined.

While the Division’s on-site examinations and priorities generally remain consistent with their prior-year objectives, highlighted below are summaries of the recently adopted rules, standards of conduct and fiduciary duties — organized for you by market-participant type. Also highlighted are continuing or emerging areas of risk that impact multiple market participants.

PKF O’Connor Davies is qualified and ready to help your organization assess its readiness for these examination priorities and implement remediation plans where deficiencies may exist.

Market Participants

Investment Advisers

Fiduciary Standards of Conduct

Acting as fiduciaries, investment advisers owe clients a duty of care and loyalty. They can never place their own interests ahead of their clients and must eliminate or make full disclosure of all conflicts of interest. The fiduciary duty of investment advisers remains a priority of the SEC Division and their examinations will focus on:

  • Investment advice related to high-cost products, unconventional instruments, illiquid and difficult-to-value assets and assets sensitive to higher interest rates and changing market conditions.
  • Dual registrants and advisers with affiliated broker-dealers to assess if investment advice provided is in a client’s best interest and how conflicts of interest are disclosed.
Adviser Compliance Programs

Rule 206(4)-7 (the Compliance Rule) under the Investment Advisers Act of 1940 (the Advisers Act) requires SEC-registered investment advisers to: adopt and implement written compliance policies and procedures designed to prevent violations of the Advisers Act, annually review those policies/procedures and designate an individual to serve as their Chief Compliance Officer.

The Division will also assess the effectiveness of these required investment adviser compliance programs by evaluating core program areas, including marketing, valuation, trading, portfolio management, disclosures, filings and custody.

Because the Advisers Act is designed to prevent investment advisers from placing their interests ahead of their clients, examination topics include:

  • Fiduciary obligations of advisers that outsource investment selection and management.
  • Alternative sources of revenue or benefits advisers receive.
  • The appropriateness and accuracy of fee calculations and the disclosure of fee-related conflicts.

The Division may expand upon the detail and scrutiny of an adviser’s compliance program depending on the practices and products offered. Advisers that offer illiquid or difficult-to-value assets or those that integrate artificial intelligence (AI) into their advisory operations may experience heightened focus on their compliance programs.

Advisers to Private Funds

Investment advisers to private funds represent a sizable portion of the SEC-registered investment adviser population. The Division’s examination will focus on:

  • If advisers met their fiduciary obligations in times of market volatility and exposure to interest-rate fluctuations.
  • The accuracy of calculations and allocations of private-fund fees and expenses.
  • Disclosures of conflicts of interest.
  • Compliance with recently adopted SEC rules, including amendments to Form PF and the updated rules related to investment adviser marketing.

The Division may place additional focus on examinations of advisers to private funds that have experienced inferior performance, had significant withdrawals of capital or hold leverage or difficult-to-value assets.

Investment Companies

Registered investment companies (RICs), including mutual funds and exchange traded funds (ETFs), will also be prioritized for examinations due to their importance to retail investors — particularly older investors saving for retirement. Examinations of RICs will generally include the review of compliance programs, disclosures and governance practices. Topics of focus include:

  • Fund fees and expenses for those RICs that charge separate advisory fees to different share classes or for those RICs that charge higher advisory fees compared to industry peers.
  • Oversight of service providers.
  • Portfolio management practices and disclosures.
  • Issues associated with market volatility.

In addition, certain developing areas of interest — such as RICs with exposure to commercial real estate or difficult-to-value assets and compliance with new and amended rules — will also be subject to the Division’s examination review.

Broker-Dealers

Regulation Best Interest outlines the standard of conduct for broker-dealers and requires that they act in the best interest of their retail customers when making investment recommendations. Examinations of broker-dealer practices will focus on recommendations related to:

  • Products that are complex, illiquid or present a higher risk to investors (i.e., crypto assets, alternative investments or investments with complex fee structures).
  • The use of automated tools or other digital engagement practices.
  • Opening different account types.
  • Certain types of investors, such as older investors or those saving for retirement or college.

Regarding a broker-dealer’s compliance with Regulation Best Interest, the Division’s examination will also focus on:

  • Disclosures to investors and information on Form CRS regarding fees and costs, relationships, conflicts of interest and disciplinary history (Disclosure Obligation).
  • Compliance with the Net Capital Rule and the Customer Protection Rule and the related internal processes, procedures and controls.
  • Accounting practices that are impacted by recent regulatory changes and timeliness of financial notifications and other required filings.
  • Operational resiliency programs and the supervision of third-party vendor provided services.
  • Controls to ensure firms have sufficient liquidity to manage stress events.
Clearing Agencies

As required by Title VIII of the Dodd-Frank Act and the Consumer Protection Act, the Division will conduct at least one annual risk-based examination of each clearing agency designated as systemically important and for which the SEC serves as the supervisory agency.

These examinations will focus on the core risks, processes and controls of clearing agencies. The assessment will cover the nature of their operations, as well as their financial and operational risk. 

In addition, the Division will conduct risk-based examinations of other clearing agencies — focusing on compliance with the SEC’s Standards for Covering Clearing Agencies — which require maintaining sufficient financial resources, protecting against credit risks, managing member defaults and managing operational and other risks.

The Division will also conduct risk-based examinations or corrective-action review examinations to assess:

  • Whether a clearing agency’s risk management framework is in compliance with the Securities Exchange Act of 1934.
  • The adequacy and timeliness of remediation of prior deficiencies.
  • Risk areas identified by other industry regulators.

Other Market Participants

Municipal Advisors

Examinations will review whether municipal advisors have met their fiduciary obligation to municipal clients. Specifically, examiners will review if municipal advisors have complied with MSRB Rule G-42, which establishes the core standards of conduct and duties applicable to non-solicitor municipal advisors. As part of its exam, the Division will review disclosures of conflicts of interest and documentation of client relationships.

Transfer Agents

The Division will continue to examine the core functions of transfer agents, which include the timely turnaround of transfers, recordkeeping and retention, the safeguarding of funds and securities and filings with the SEC.

Security-Based Swap Dealers (SBSDs)

Examinations of security-based swap dealers (SBSDs) will assess if policies and procedures related to compliance with security-based swap rules (SBSR) are in place. The Division will also review if obligations under Regulation SBSR are fulfilled which require SBSDs to accurately report security-based swap transactions to data repositories. Compliance with capital, margin and segregation requirements will also be subject to review.  

Security-Based Swap Execution Facilities (SBSEFs)

On November 2, 2023, Regulation SE under the Securities Exchange Act of 1934 was adopted. This regulation implements a set of rules and forms for the registration and regulation of SBSEFs. As a result of the formal registration, the Division may begin conducting examinations of registered SBSEFs in late fiscal year 2025.

Funding Portals

Funding portals will also be subject to examination by the SEC Division, which will assess if funding portals make and preserve: 1) required records of security transactions and 2) records related to issuers who offer and sell securities through funding portals.

The Division will also review written policies and procedures of the funding portals to assess if they are reasonably designed to achieve compliance with applicable federal securities laws and rules.

Risk Areas Impacting Various Market Participants 

Information Security and Operational Resiliency

Cybersecurity

The Division will examine the procedures and practices of SEC registrants related to information security and operational risks — with the objective of ensuring these are reasonably designed to protect investor information, records and assets.

Operational disruptions from cybersecurity attacks remain elevated. The Division will pay particular attention to a firm’s policies and procedures, governance practices, data loss prevention, access controls, account management and responses to cyber-related incidents (including ransomware attacks). The cybersecurity risks of a registrant’s service providers will also be examined.  

Regulation S-ID and Regulation S-P

SEC Regulation S-ID and Regulation S-P require that SEC registrants develop written policies, procedures and related controls that protect the personal and financial information of investors and customers. As part of the examinations, the Division will focus on:

  • Registrant identification and detection to prevent and protect against identity theft.
  • Company controls and practices to prevent account intrusions and safeguard customer assets.
  • Personnel training on identity-theft prevention programs.

In addition, the Division will review firms and evaluate their progress on preparing incident response programs and assess if these programs are reasonably designed to detect, respond to and recover from unauthorized access or use of customer information.  

Shortening of Settlement Cycle

Rule 15c6-1 under the Securities Exchange Act of 1934 has reduced the standard settlement cycle for most securities to the day after the trade date (T+1). 

As part of their examinations, the Division will evaluate an adviser’s compliance with this rule and the associated books-and-records requirements. In addition, examinations will assess the registrant’s technological changes associated with shortening the settlement cycle.  

Emerging Financial Technologies

Automated investment tools — such as artificial intelligence (AI), trading algorithms and digital investment advisory — will be another examination focus for the Division. 

The Division will assess if SEC registrants have implemented adequate policies and procedures to monitor and supervise these technologies while managing customer accounts. The Division will also review disclosures made regarding the use of these technologies. They will assess for reasonableness and that the fiduciary duty of registrants is not compromised by the use of AI and trading algorithms.  

Crypto Assets

As a result of increased volatility and trading in the crypto-asset markets, the Division will place a focus on SEC registrants that offer crypto-asset related services to customers.

Examinations will focus on the offer, sale recommendation, advice, trading and other activities related to crypto assets. The Division will assess a registrant’s compliance programs and standards of conduct associated with crypto assets, as well as the technological risks associated with the use of blockchain and distributed ledger technology.  

Regulation Systems Compliance and Integrity (SCI)

SCI entities must maintain written policies and procedures that help ensure the operational capability of their systems that promote fair and orderly markets.

The Division will focus its examination of these policies to ensure they include incident response plans. Also reviewed will be policies regarding operational/business-continuity planning and testing practices, as well as security management tools.  

Anti-Money Laundering (AML)

Financial institutions, registered investment advisers and broker-dealers are required to establish anti-money laundering (AML) programs which should include policies, procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act. This includes customer due diligence, monitoring suspicious activity and filing suspicious activity reports (SARs) when appropriate.

We Can Help

The PKF O’Connor Davies team includes auditors, white-collar forensic accountants, prior financial services executives and former SEC examiners. Together, we are uniquely qualified to assist with policy and procedure reviews, compliance testing, readiness assessments and remediation plans. Our specialized knowledge allows us to provide comprehensive support and guidance to help ensure your organization’s compliance, as well as effectively mitigate its risks.

More to Come…

A summary of the SEC’s enforcement results for 2024 is expected to be released later this month. Stay tuned for a follow-up piece where we will take a deeper look at the intersection of the SEC’s top examination priorities for 2025 and the SEC’s top enforcement actions in 2024.

Contact Us

If you would like to learn more about our tailored risk-based services, please contact your PKF O’Connor Davies client service team or:

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