On October 21, 2024, the Examination Division of the United States Securities and Exchange Commission (“SEC”) (“Examination Division”) announced its 2025 examination priorities (“Report”).1 Investment advisers and broker-dealers should ensure that policies, procedures and oversight efforts related to these priorities address the concerns highlighted in the report.
The Division of Examinations conducts inspections of entities registered with the SEC, including investment advisers and broker-dealers. Although the report is not exhaustive of the Examinations Division’s focus areas, it does highlight particular areas of risk. Additionally, the Examining Division’s priorities often lead to enforcement actions focused on those same priorities, so the list serves as a guide to potential areas of enforcement.
As in previous years, the Examination Division released its priorities to coincide with the start of the SEC’s fiscal year to:
“ensure more transparency and as early as possible to give registered companies more opportunities to evaluate their compliance efforts.”2
The report covers the Reviews Division’s enduring priorities as well as emerging risk areas. Three notable areas of risk that are relevant to most financial market participants include: (1) emerging financial technologies based on artificial intelligence (“AI”); (2) information security and operational resilience; and (3) crypto assets.
Emerging financial technologies:
The Examinations Division seeks to examine registrants’ use of services such as automated investment tools, AI and trading algorithms. Specifically, the report highlights that with respect to AI, the Examinations Division will evaluate registrants’ policies and procedures relating to monitoring controls, fraud prevention, anti-money laundering and protection against the loss or misuse of customer information. This priority comes after a year in which the SEC repeatedly reiterated its concerns about AI risks. Companies and individual actors have an obligation to ensure accurate AI information, as described in our previous article. alert.
Information security and operational resilience:
In 2025, the Examinations Division will continue to prioritize its review of cybersecurity practices, with particular attention to the protection of investor information, records and client assets. The Examinations Division will review policies in place for data loss prevention, access controls, and cybersecurity incident responses. The SEC suggests that filers should consider third-party services and products when assessing cybersecurity risks and planning for cyber resilience for essential business operations. See our alert for additional suggestions.
Crypto assets:
Building on its priorities for 2024, the Examinations Division will remain committed to closely monitoring and, where appropriate, conducting examinations of registrants offering investments involving crypto assets. The Examinations Division indicated that it will review whether the registrant follows appropriate standards when recommending crypto assets and will review and strengthen its compliance practices and disclosure of risks related to these products. We expect crypto to remain a priority for the SEC given the recent high profile crypto enforcement measures this year.
The Examination Division has identified several other priorities, including assessing enrollee compliance with S-ID and SP regulations and updating all required policies and procedures regarding the protection of client records and information. Additionally, the Examinations Division will continue to prioritize anti-money laundering (“AML”) programs and assess whether broker-dealers and registered investment companies are complying with rules regarding adaptation of their business model, conducting independent testing and complying with SAR filing obligations. The Division of Examinations also noted that it may begin examining registered securities swap execution facilities in late fiscal year 2025 after adopting new regulations in late 2023.
Olivia Hussey (White & Case, Law Clerk, New York) contributed to the development of this publication.
1 2025 Review Priorities, US Sec. & Ex. Comm’n Div. exams (October 21, 2024), https://www.sec.gov/files/2025-exam-priorities.pdf.
2 Priorities for the 2025 exams, supra note 1.
White & Case means the international law firm comprising White & Case LLP, a limited liability company registered in the State of New York, White & Case LLP, a limited liability company incorporated under English law and all other partnerships, affiliated companies and entities.
This article is prepared for the general information of interested persons. It is not exhaustive and does not claim to be. Due to the general nature of its contents, it should not be considered legal advice.
© 2024 White & Case LLP
