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The SEC’s annual Examination Priorities list is a helpful indicator for firms, detailing topics where an examiner is most likely to focus, and where firms will need to be prepared for additional scrutiny.
Some of the compliance priorities in the latest list, like AML, are well known. Some are new, or at least the focus on them is. As we plan for the year ahead, it’s well worth understanding the SEC’s priority areas for 2025 in more detail alongside the broader geopolitical currents.
The compliance priorities you expect
The SEC is always at pains to ensure relevant firms are fulfilling their fiduciary duty to clients and this year is no different. Priorities in 2025 include unconventional instruments, illiquid and difficult-to-value assets, and commercial real estate.
None of this comes as a surprise and nor should a spotlight on private funds. The SEC’s 2023 Private Funds Rule was vacated by an appeals court before it came into force in 2024. Nevertheless, it can be taken as a signal of the Commission’s intent.
In particular, the determination to “protect private fund investors by increasing transparency, competition and efficiency in the private funds market” remains, and will likely be a key driver of compliance activity over the next 12 months.
What is the compliance hot topic for 2025?
Predictably, the headlines in this year’s list are made by artificial intelligence (AI) and other emerging technologies. In 2025 there will be a significant focus on the use of automated investment tools, trading algorithms and AI use across front and back offices.
AI adoption may be in its early stages, but the SEC is likely to want to see evidence of the human intelligence behind your artificial number crunching. That means the policies and procedures you have in place to monitor its use.
If you’re using AI for fraud prevention, back office functions, trading or anything else, you need to have an AI compliance policy and the documentation to prove it. You should also be able to evidence proper due diligence around third-party applications.
Regulations around AI will develop over time. For now, the SEC really wants to see that your guardrails are in place.
What does the SEC say about cybersecurity and crypto?
That’s also true of cybersecurity and data protection. Again, these are long-term SEC priorities, but the advent of generative AI has added an extra layer of risk.
There’s no one-size-fits-all strategy here, but firms should be aware that AI demands extra controls around data. Examiners will also seek evidence of comprehensive staff training in the use of AI and the data it relies on.
One further tech-based priority for 2025 is crypto. The SEC has struggled to regulate the space up to now, but this year’s list suggests a redoubling of efforts to enforce compliance, especially in scenarios involving retail investors and retirement assets.
With the focus on AI and crypto, businesses should be prepared for the possibility of sweep examinations, where SEC investigators analyse one area of potential risk across multiple firms.
The culture of compliance: a new administration
The priorities list is useful and clients should be aware of it, but the compliance landscape in 2025 will also be shaped by external factors. President Trump’s second term is an obvious case in point.
Under a deregulatory administration, the SEC may be told to make fewer rules and employ a lighter touch. If funding is reduced, examinations may concentrate on key risks and leave more trivial compliance matters alone. By contrast, the America-first agenda may increase scrutiny on offshore investments.
Certainly, this is no time to drop your compliance guard. The Commission is well practiced in doing more with less, and 2025 is likely to see more streamlined collaboration between regulatory bodies, domestically and globally. The order for government employees to return to the office means more exams may take place in person.
Against this backdrop, firms should look to comply with the most restrictive regulatory approach they come up against. Use the SEC’s priority list to renew your own compliance strategy, taking emerging technologies firmly into account.
How we can help
We support many of our clients domestically and overseas to review their compliance frameworks against key focus areas and address any deficiencies ahead of regulatory scrutiny. We ensure firms are adequately prepared through mock examinations and can actively support throughout a live examination. Contact us to discuss any support you need.
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