Key Risks, Exam Priorities, and Policy Perspectives
KPMG Insights
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October 2024
In addition to a flurry of informational fall speeches, the Securities and Exchange Commission (SEC) Division of Examinations (Division) issues its annual report outlining examinations priorities for 2025. The Division accordingly looks to prioritize:
The SEC notes emerging risk such as fiduciary duty, standards of conduct, cybersecurity, and AI. The Division also notes that it will also assess compliance with new regulations, the use of emerging technologies, and the soundness of controls intended to protect investor information, records, and assets.
The table below summarizes key emerging risk areas that may impact investors or various market participants, as outlined in the report.
Risk Area | Summary |
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Cybersecurity | Focus on companies’ cybersecurity practices, data loss prevention, and responses to cybersecurity incidents. Additionally, companies will be assessed on their practices (and third-party practices) aimed at preventing interruptions to mission-critical services and protection of investor information, records, and assets. |
Regulation S-ID and Regulation S-P | Companies will be assessed on their compliance with Regulations S-ID and S-P. The focus will be on policies and procedures, internal controls, governance practices, and third-party oversight related to safeguarding customer records and information, preventing identity theft, and managing operational risks. |
Shortening of the Settlement Cycle (T+1) | Broker-dealers- will be evaluated on their compliance with amended books and records requirements associated with T+1. Examinations will also assess associated technology changes and areas that need further attention and/or resources (e.g., not settling in the required timeframe). |
Emerging Financial Technologies | The Division’s examination focus will extend to risks associated with services such as automated investment tools, AI, trading algorithms or platforms and other emerging technologies and alternative sources of data. Further, companies’ practices for ensuring fairness, accuracy, best interest, suitability, and regulatory compliance will also be examined. |
Crypto Assets | Registrants offering crypto asset-related services will be examined in areas of standards of conduct, risk disclosures, operational resiliency, and compliance with relevant laws (e.g., custody, BSA/AML, valuation). |
Regulation Systems Compliance and Integrity (SCI) | SCI entities’ written policies and procedures must ensure adequacy of their system's capacity, integrity, resiliency, availability, and security. Reviews will focus on:
|
Anti Money Laundering (AML) | The Division will review whether broker-dealers and certain registered investment companies’ (RICs) comply with BSA/AML and sanctions requirements. They will be assessed on whether they appropriately tailor AML programs, conduct independent testing, establish an adequate customer identification program, and meet SAR filing obligations. |
Market Participants | Examination Priorities |
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Investment Advisers | Focus on assessing Advisers’ adherence to fiduciary standards of conduct, including duty of care and duty of loyalty obligations (e.g., best interest, conflicts of interest). The Division will focus on recommendations related to:
For dual registrants and Advisers affiliated with broker-dealers, areas of focus will include: suitability; capacity in which recommendations are made; account selection practices (e.g., brokerage versus advisory); conflict of interest mitigation/disclosure; and the impact of conflicts on best execution. For Investment Advisers to private funds, areas of examination focus may include the:
The Division will focus on the effectiveness of compliance program policies and procedures in preventing Advisers from placing their interest ahead of clients’ interest. This will include:
The SEC will continue to prioritize the examination of Investment Advisers that are newly registered with the SEC or have never been examined or have not been examined recently. |
Investment Companies |
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Broker Dealers | Assessment of compliance with Regulation Best Interest (BI), Form CRS, financial responsibility rules, and trading related practices and services. Key focus areas will include:
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Self-Regulatory Organizations (SROs) | Scrutiny of SRO compliance with rules governing operations and enforcement activities (e.g., National Securities Exchanges and the Financial Industry Regulatory Authority (FINRA)), and review of fulfillment of regulatory duties (Municipal Securities Rulemaking Board (MSRB)). Focus areas will include:
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Clearing Agencies | Examinations of clearing agencies designated as systemically important are conducted at least annually, and focus on core risks, processes, and controls, among other areas. All other clearing agencies are subject to risk-based and examinations and corrective action reviews. These exams will review compliance with the SEC's Standards for Covered Clearing Agencies and other relevant requirements, including assessment of:
Areas of examination focus in 2025 may include:
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Other Market Participants | Focus areas for other market participants (e.g., Municipal Advisors, Transfer Agents, Security-Based Swap Dealers, Security-Based Swap Execution Facilities, and Funding Portals) will include:
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Note: The Division states that this list of examination areas is not a comprehensive compilation of the issues that it will address in examinations and will cover other areas and conduct examinations focused on new or emerging risks, products and services, market events, and investor concerns.
Separately, recent SEC Chair speeches highlight heightening focus on multifaceted risks and ethical challenges posed by AI/Gen AI within financial markets. Key areas of focus include:
To mitigate these evolving risks, the SEC calls for accountability measures to help ensure that investment advisers do not place their interests above those of customers and investors, thereby helping to safeguard consumer welfare.
SEC 2025 Priorities: Examinations and Perspectives
Key Risks, Exam priorities, and Policy Perspectives
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