SEC Unveils 2025 Examination Priorities to Address Emerging Risks
All Fintech
Compliance Operations
October 31, 2024
The Case
The SEC's Division of Examinations announced its 2025 priorities, focusing on areas that pose heightened risk to investors and market integrity. Key areas include adherence to fiduciary duty and standards of conduct, cybersecurity measures, the use of artificial intelligence in financial services, and compliance with new SEC rules.
These priorities aim to promote compliance, prevent fraud, monitor risk, and inform policy in a constantly evolving financial landscape.
Regulatory Implications
The SEC’s Division of Examinations 2025 priorities emphasize its continued focus on protecting investors and ensuring market integrity. Firms should pay close attention to the following areas:
Fiduciary Duty and Standards of Conduct:
Investment advisers and broker-dealers must adhere to the highest standards of client care, ensuring that recommendations and advice align with clients' best interests.
Examinations will scrutinize fee arrangements, conflicts of interest, and disclosures related to investment strategies.
Cybersecurity Measures:
Firms are expected to safeguard investor information and assets against cyber threats.
The SEC will evaluate the robustness of firms’ controls, including incident response plans and data protection policies.
Artificial Intelligence and Emerging Technologies:
The use of AI in decision-making processes, including trading strategies and client recommendations, will be a focus.
Firms must demonstrate appropriate oversight and risk management for AI-driven tools and platforms.
Compliance with New Rules:
The Division will prioritize adherence to recently adopted SEC rules, assessing how effectively firms have integrated new requirements into their compliance programs.
By focusing on these areas, the SEC aims to ensure that firms proactively address risks while fostering trust in capital markets.
Practical Guidance for Firms
Firms should proactively address the SEC’s 2025 examination priorities by strengthening their compliance frameworks and operational controls. Key steps include:
Evaluate and Enhance Compliance Programs:
Review fiduciary practices, including fee structures and conflict disclosures, to ensure alignment with regulatory expectations.
Conduct internal audits to identify and mitigate compliance gaps.
Strengthen Cybersecurity Protocols:
Update cybersecurity policies to reflect evolving threats.
Test incident response plans regularly and provide training to staff on identifying and mitigating cyber risks.
Assess the Use of Artificial Intelligence:
Implement governance structures for oversight of AI tools.
Document and monitor AI-driven decisions to ensure they meet regulatory and ethical standards.
Prepare for New Rules:
Review and integrate new SEC rules into policies and procedures.
Conduct training sessions for employees to ensure awareness and compliance.
Engage in Ongoing Risk Monitoring:
Use risk assessments to identify vulnerabilities related to your firm’s operations, products, and services.
Adapt compliance programs to address emerging risks highlighted in the SEC’s priorities.
InnReg assists firms in aligning with SEC priorities by offering tailored solutions, including compliance program management and cybersecurity program development for products leveraging emerging technologies like AI. Our expertise helps firms address risks efficiently and prepare for regulatory examinations with confidence.
RIAs
The SEC recently brought settled enforcement actions against two registered investment advisers for failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information (MNPI), in violation of Section 204A of the Investment Advisers Act of 1940 (Advisers Act) and the Compliance Rule.
RIAs
On Sep. 4, 2024, FinCEN published a final rule (Final Rule) adding certain RIAs and ERAs (collectively, Covered Advisers) to the definition of “financial institution” under the regulations implementing the BSA, and imposing on Covered Advisers broad AML and CFT program requirements, as well as other BSA recordkeeping and reporting requirements.
Broker-Dealers
On November 22, the SEC announced (here) that broker-dealers Webull Financial LLC, Lightspeed Financial Services Group LLC, and Paulson Investment Company, LLC agreed to settle charges that they filed with law enforcement SARs that failed to include required information.
