SEC Division of Examinations Announces 2027 Examination Priorities

On October 23, 2026, the SEC’s Division of Examinations (the “Division”) announced its examination priorities for fiscal year 2027. Consistent with the Division’s 2026 examination priorities, the Division will continue to focus on: (1) investment adviser adherence to fiduciary obligations; (2) adviser compliance programs; (3) registered investment company (“RIC”) fund fees and expenses and portfolio management practices; (4) information security and operational resiliency; (5) cybersecurity risks associated with emerging technologies and third-party service providers; and (6) compliance with Regulations S-ID and S-P. The Division highlighted several additional areas of focus, including advisers’ business combinations, illiquid investment products, private credit, third-party service providers and proxy advisory firms, and registrants’ use of artificial intelligence, which the Division refers to as super intelligence (“SI”), and related cybersecurity risks.

The Division publishes its annual examination priorities to inform investors and the industry about key areas where it intends to focus its resources, namely those areas that it believes present heightened risks to investors and the integrity of the U.S. capital markets. The priorities are intended to promote compliance and transparency regarding the Division’s examination program.

Although the priorities address numerous categories of registrants, this client alert focuses on investment advisers and investment companies.  The Division stated that it will continue to prioritize examinations of advisers that have never been examined, including recently registered advisers, as well as registered investment companies that have not previously been examined.

I. Examination of Investment Advisers

A. Fiduciary Standards of Conduct

The Division continues to prioritize examinations of advisers’ compliance with their fiduciary duties, particularly with respect to practices affecting retail investors, older investors, and those saving for retirement.

Investment Advice and Economic Conflicts of Interest. The Division will continue to assess whether advisers provide full and fair disclosure of all material facts relating to advisory relationships, conduct reasonable due diligence concerning recommended products and services, maintain effective compliance policies and procedures, and utilize reasonable valuation methodologies. Economic conflicts of interest, which were previously the subject of a June 2026 Risk Alert, are also an area of examination focus. The Division noted that examinations will assess whether advisers’ financial conflicts may affect the impartiality of their advice. Areas of focus include fee rebates, fee and expense calculations, cash management practices, quid pro quo arrangements, and deposit and withdrawal practices.

Formulation of Investment Advice. The Division also will review advisers’ formulation of investment advice, including whether advisers appropriately consider factors such as liquidity, risk profile, volatility, projected performance under various market conditions, time horizons, and investment costs, including exit costs. Particular attention will be given to unique features that may impact the suitability or performance of investment recommendations.

Alternative, Complex and Illiquid Products. As in prior years, the Division will focus on recommendations involving difficult-to-trade, illiquid, or complex products. Examples specifically identified by the Division include loans originated by private funds and business development companies (“BDCs”), investments in private companies through special purpose vehicles, exchange traded funds (“ETFs”) based on less liquid assets, option-based funds, inverse ETFs, single-stock ETFs, and zero-days-to-expiration options.

Private Fund Advisers. Examinations of private fund advisers will focus on whether compliance policies, procedures, and controls adequately address fund-level and investment-level risks and whether disclosures regarding investment risks are consistent with fiduciary standards. Areas specifically identified by the Division include investment and allocation disclosures, the use of debt and fund-level lines of credit, affiliated service provider arrangements, and fee and expense calculations at both the fund and portfolio investment levels.

Scrutiny of Certain Third-Party Service Providers and Proxy Voting Practices. The Division will continue to focus on advisers that utilize certain third-party service providers. In particular, examinations will review advisers that use third parties to access client accounts where controls may be insufficient to protect client assets and data. Examinations also will assess advisers’ reliance on proxy advisory firms, including how advisers evaluate recommendations, assess underlying analyses, identify potential conflicts of interest, and determine whether reliance on such recommendations satisfies applicable legal obligations. Earlier this year, the SEC signaled that it would be focused on adviser proxy voting responsibilities and the Division appears to have begun a sweep focused on proxy voting practices, including the use of proxy advisory firms.

B. Compliance Programs

The Division’s assessment of compliance program effectiveness remains a fundamental component of adviser examinations.

Compliance Program Reviews. Examinations will review key elements of advisers’ compliance programs, including policies and procedures relating to marketing, valuation, trading, portfolio management, disclosures and regulatory filings, and custody, as appropriate. The Division also will continue to assess advisers’ annual compliance reviews.

Conflicts of Interest. The Division remains focused on whether compliance policies and procedures are reasonably designed to identify and address conflicts of interest and prevent advisers from placing their interests ahead of clients’ interests. Examinations will review whether policies and procedures are implemented and whether disclosures adequately address fee-related conflicts, including conflicts arising from compensation arrangements and product structures.

Focus on M&A and Branch Office Oversight. One of the more notable aspects of the 2027 priorities is the Division’s continued focus on the compliance practices of advisers that have experienced certain changes in their businesses, such as changing business models or expanding into new asset classes or service offerings. Examinations will also focus on advisers that have completed mergers or acquisitions or grown through other means or that operate through geographically dispersed branch office structures.

Activist Regulatory Filings. The Division also will review whether advisers engaging in activist strategies are making timely and accurate filings on Schedules 13D and 13G and Forms 13F, 13H, 3, 4, 5, and N-PX, as applicable.

II. Examination of Investment Companies

The Division continues to prioritize examinations of RICs, including mutual funds and ETFs, due to their significance to retail investors, particularly older investors and those saving for retirement. Examinations of RICs generally will assess compliance programs, disclosures, governance practices, and regulatory filings, including summary prospectuses.

As in prior years, the Division identified two principal areas of focus for RIC examinations: (1) fund fees and expenses, including the application of fee waivers and expense reimbursements; and (2) portfolio management practices and related disclosures, including whether actual investment activities remain consistent with disclosed investment strategies, fund filings, and marketing materials.

The Division also identified several developing areas of interest. In particular, examinations may focus on RICs holding complex, less liquid, or illiquid investments, including private credit investments, and the related valuation, redemption, disclosure, and conflict-of-interest considerations associated with those holdings. The Division will also review RICs utilizing novel or complex investment strategies, including funds with leverage-related vulnerabilities, such as BDCs, inverse ETFs, and leveraged ETFs.  In addition, examinations may assess RICs that operate pursuant to exemptive orders.

III. Risk Areas Impacting Various Market Participants

A. Information Security and Operational Resiliency

Cybersecurity. The Division will continue to prioritize examinations relating to information security and operational resiliency, with a particular emphasis on cybersecurity. Consistent with prior years, examinations will review firms’ policies and procedures relating to governance practices, data loss prevention, access controls, account management, and response and recovery protocols for cyber-related incidents, including ransomware attacks.

In addition, the Division noted that examinations will assess risks associated with registrants’ increasing use of third-party service providers and shared technologies, including the effectiveness of risk management in these areas.

Super Intelligence and Emerging Financial Technologies. The 2027 priorities include a discussion of SI and emerging technologies, noting that registrants are increasingly incorporating SI into core business operations, including investment analysis, customer management, compliance functions, trading operations, and software development.

The Division will focus on registrants’ preparedness for SI-related cybersecurity threats, including the use of SI by threat actors to automate and accelerate cyberattacks. Examinations may assess whether firms’ policies and procedures are designed to address risks associated with SI-generated phishing attempts, deepfake audio and video content, synthetic identities, and other forms of social engineering.

The Division also will prioritize review of policies and procedures governing firms’ use of SI technologies, including their use in fraud prevention and detection, back-office operations, anti-money laundering compliance, and trading functions.  More broadly, the Division remains focused on the use of automated investment tools, trading algorithms, digital engagement practices, and alternative data sources.

Examinations generally will assess whether: (1) representations regarding these technologies are fair and accurate; (2) firms’ operations and controls are consistent with disclosures made to investors; and (3) algorithms and automated tools produce recommendations that are consistent with investors’ profiles, objectives, and stated investment strategies.

The accompanying message from the Division’s leadership team noted an ongoing effort to integrate SI into examinations and risk assessment, including through SI-supported tools designed to augment enhance analysis, examination staff capacity, and identify patterns and risks.

Regulation S-ID and Regulation S‑P. The Division will focus on whether firms have developed, implemented, and maintained policies and procedures reasonably designed to address administrative, technical, and physical safeguards for protecting customer information.

Examinations will assess firms’ incident response programs, including policies and procedures for responding to unauthorized access to or use of customer information, customer notification processes, and oversight of service providers. The Division indicated that it will also review how firms address operational and technology-related risks as part of their overall customer-information protection framework.

With respect to Regulation S‑ID, examinations will focus on firms’ policies and procedures for identifying, detecting, and responding to red flags intended to prevent and mitigate identity theft, particularly in connection with customer account takeovers and fraudulent transfers. The Division specifically noted that firms should evaluate emerging threats, including risks associated with SI technologies and stolen credentials, when updating their Identity Theft Prevention Programs.

IV. Seward & Kissel Observations

While the 2027 priorities are broadly consistent with prior years, several themes received increased emphasis. The Division placed particular emphasis on economic conflicts of interest, reflecting its focus on whether advisers’ financial incentives are appropriately disclosed and managed in accordance with their fiduciary obligations. Private credit and other alternative investments also feature more prominently, with particular attention to private fund and BDC lending, special purpose vehicles, affiliated service providers, and fee and expense practices. Finally, the 2027 priorities significantly expand the discussion of SI, focusing both on firms’ use of SI and the risks posed by SI-enabled cyber threats. The Division also highlighted its increasing use of SI in examination and risk-assessment activities.

Taken together, the 2027 priorities reinforce the Division’s longstanding focus on fiduciary duties and compliance program effectiveness while signaling increased scrutiny of economic conflicts, private credit and other alternative investments, and the opportunities and risks presented by SI technologies. Advisers should consider whether their disclosures, compliance programs, and risk-management frameworks adequately address these evolving examination priorities.

If you have any questions regarding the examination process, or need help preparing for or navigating an SEC examination, please contact an attorney in the Investment Management Group at Seward & Kissel LLP.