On November 17, 2025, the SEC’s Division of Examinations (the “Division”) announced its examination priorities for fiscal year 2026. Consistent with the Division’s 2025 examination priorities, the Division will continue to focus on: (1) investment adviser adherence to duty of care and duty of loyalty obligations, (2) adviser compliance programs, (3) investment adviser adherence to recently adopted SEC rules1, (4) registered investment company (RIC) fund fees and expenses (5) information security and operational resiliency, and (6) anti-money laundering (AML) practices and procedures. The Division will also continue to focus on RIC portfolio management practices and disclosures for consistency with statements about investment strategies or approaches with fund offering materials, along with risks associated with artificial intelligence (AI). Notably, the Division did not discuss a focus on crypto assets in its examination priorities for the coming year. The 2026 priorities focus more heavily on products and services that serve retail investors.
The Division publishes its annual examination priorities to inform investors and the industry about key areas where the Division intends to focus its resources (i.e., those areas the Division believes present the highest risk areas to investors and the markets) and is part of its effort to foster compliance with proactive communication and transparency. Although the Division’s examination priorities identify various market participants, this client alert focuses on investment advisers and investment companies.
As with previous years, the Division will prioritize examinations of advisers and registered investment companies RICs that have never been examined with a continued focus on newly registered advisers and RICs. Unlike prior years, the Division did not specifically mention prioritizing advisers and RICs that have not been recently examined.
Examination of Investment Advisers
A. Fiduciary Duty
Examining for investment advisers’ adherence to their duty of care and duty of loyalty obligations remains the Division’s priority, particularly regarding areas of their business that serve retail investors:
Investment Advice. Investment advice and related disclosures provided to clients will be reviewed for consistency with the adviser’s fiduciary obligations. The Division will review for: (1) the impact of advisers’ financial conflicts of interest on providing impartial advice; (2) advisers’ consideration of the various factors associated with their investment advice, such as generally the cost, investment product’s or strategy’s investment objectives, characteristics (including any special or unusual features), liquidity, risks and potential benefits, volatility, likely performance in a variety of market and economic conditions, time horizon, and cost of exit; and (3) advisers seeking best execution with the goal of maximizing value for their clients under the particular circumstances occurring at the time of the transaction. In addition, the Division will focus on products with the following strategies or characteristics: (1) alternative investments (e.g., private credit and private funds with extended investment lock-ups); (2) complex investments (e.g., ETF wrappers on less liquid underlying strategies, option-based ETFs and leveraged and/or inverse ETFs); and (3) products that have higher costs associated with investing (e.g., high commissions and higher investment expenses than similar products/investments). Finally, the Division will review investment recommendations for consistency with product disclosures and clients’ investment objectives, risk tolerance and financial/personal backgrounds, with emphasis on: (1) recommendations to older investors and those saving for retirement; (2) advisers to private funds that are also advising separately managed accounts and/or newly registered funds (e.g., reviewing for favoritism in investment allocations and interfund transfers); (3) advisers to newly launched private funds; (4) recommendations of certain products that may be particularly sensitive to market volatility; and (5) advisers that have not previously advised private funds (e.g., reviewing for regulatory awareness, liquidity, valuation, fees, disclosures, and differential treatment of investors, including use of side letters).
Dual Registrants. The Division will focus on dually registered advisers, particularly where such advisers have advisory representatives who are also dually licensed as registered representatives and receive compensation or other financial incentives that may create conflicts of interest that must be addressed (e.g., account recommendations and allocations).
Advisers Participating in Business Transactions. The Division will also focus on advisers that have merged or consolidated with, or been acquired by, existing advisory practices, which may result in accompanying operational and/or compliance complexities or new conflicts of interest.
Using Third-Parties for Client Access. The Division will focus on advisers utilizing third-parties to access clients’ accounts, where controls may be insufficient to protect client assets and data.
B. Compliance Programs
The Division will continue to focus on whether advisers’ policies and procedures address compliance with the Advisers Act and the rules thereunder and are reasonably designed to address conflicts of interest, in light of a firm’s particular operations, and to prevent the advisers from placing their interests ahead of clients’ interests. Furthermore, the Division’s assessment of the effectiveness of advisers’ compliance programs will continue to be a fundamental part of the examination process.
Compliance with the Advisers Act. Areas on which examinations may focus include: (1) whether advisers’ policies and procedures are implemented and enforced; and (2) whether disclosures address fee-related conflicts, particularly with respect to conflicts related to account and product compensation structures.
Compliance Program Effectiveness. Examinations focusing on this topic typically include an evaluation of the core areas of advisers’ compliance programs which include, as applicable and appropriate for each examination, marketing, valuation, trading, portfolio management, disclosure and filings, custody and an analysis of advisers’ annual reviews of the effectiveness of their compliance programs.
Risk Identification. The Division’s focus may shift depending on an adviser’s practices or products. For example, the Division will focus on the accuracy and timeliness of Schedules 13D and 13G, Form 13F, Forms 3,4 and 5 and Form N-PX filings for advisers with activist engagement practices. Examinations may also focus on compliance practices when advisers change their business models or are new to advising particular types of assets, clients, or services.
Examination of Investment Companies
The Division continues to prioritize examinations of RICs, including mutual funds and exchange-traded funds, due to their importance to retail investors, particularly those saving for retirement. Examinations of RICs will generally review their compliance programs, disclosures, filings (e.g., summary prospectus) and governance practices. RIC operations of particular focus include: (1) fund fees and expenses, and any associated waivers and reimbursements; and (2) portfolio management practices and disclosures, for consistency with statements about investment strategies or approaches, with fund filings and marketing materials, and the amended fund “Names Rule” 2.
The Division will also continue to monitor certain developing areas of interest, such as (1) RICs that participate in mergers or similar transactions, including any associated operational and compliance challenges; (2) certain RICs that use complex strategies and/or have significant holdings of less liquid or illiquid investments (e.g., closed end funds), including any associated issues regarding valuation and conflicts of interest; and (3) RICs with novel strategies or investments, including funds with leverage vulnerabilities.
Risk Areas Impacting Various Market Participants
A. Information Security and Operational Resiliency
Cybersecurity. The Division will continue to review registrant practices to prevent interruptions to mission-critical services and to protect investor information, records, and assets from operational disruption risks resulting from cybersecurity attacks, firms’ dispersed operations, weather-related events and geopolitical concerns. The Division will also examine registrants’ procedures and practices to assess whether they are reasonably managing information security and operational risks.
Particular attention will be on firms’ policies and procedures, governance practices, data loss prevention, access controls, account management, responses to, and recovery from, cyber-related incidents, including those related to ransomware attacks, as well as firms’ operational resiliency. The Division will also focus on training and security controls employed by firms to identify and mitigate new risks associated with AI and polymorphic malware attacks, including how firms are operationalizing information from threat intelligence sources.
Regulation S-ID and Regulation S-P. Examinations will focus on firms’ policies and procedures, internal controls, oversight of third-party vendors, and governance practices. For Reg S-ID, the Division will focus on the development and implementation of a written identity theft prevention program that is designed to detect, prevent, and mitigate identity theft in connection with covered accounts. Specifically, the Division will assess the reasonableness of firms’ policies and procedures, including whether they (1) are reasonably designed to identify and detect red flags, particularly during customer account takeovers and fraudulent transfers; and (2) include firm training on identity theft prevention. In advance of the compliance dates for the amendments to Regulation S-P, the Division will assess firms’ progress in preparing incident response programs reasonably designed to detect, respond to, and recover from unauthorized access to or use of customer information and after the relevant compliance dates, the Division will examine whether firms have developed, implemented, and maintained policies and procedures in accordance with the rule’s new provisions that address administrative, technical, and physical safeguards for the protection of customer information.
B. Emerging Financial Technologies
The Division remains focused on registrants’ use of certain products and services, such as automated investment tools, AI technologies, and trading algorithms or platforms, and the risks associated with the use of emerging technologies and alternative sources of data. The Division will, in particular, examine firms that engage in automated investment advisory services, recommendations and related tools and methods.
When conducting its reviews, the Division generally will assess whether: (1) representations are fair and accurate; (2) operations and controls in place are consistent with disclosures made to investors; (3) algorithms produce advice or recommendations consistent with investors’ investment profiles or stated strategies; and (4) controls to confirm that advice or recommendations resulting from digital engagement practices are consistent with regulatory obligations to investors, including retail and older investors.
Artificial Intelligence. The Division will focus on recent advancements in AI and will review registrant representations regarding AI or their AI capabilities for accuracy. In addition, the Division will assess whether firms have implemented adequate policies and procedures to monitor and/or supervise their use of AI technologies, including for tasks related to fraud prevention and detection, back-office operations, AML, and trading functions, as applicable. Reviews will also consider firm integration of regulatory technology to automate internal processes and optimize efficiencies.
C. Anti-Money Laundering
The Division will continue to focus on AML programs and review whether broker-dealers and certain RICs are: (1) appropriately tailoring their AML program to their business model and associated AML risks, including risks associated with omnibus accounts maintained for foreign financial institutions; (2) adequately conducting independent testing; (3) establishing an adequate customer identification program, including for beneficial owners of legal entity customers; and (4) meeting their SAR filing obligations. Examinations of certain RICs will also review policies and procedures for oversight of applicable financial intermediaries. In addition, the Division will review whether advisers are monitoring the Department of Treasury’s Office of Foreign Assets Control sanctions and ensuring compliance with such sanctions. Given that the AML rule amendments for registered investment advisers have been delayed until January 1, 2028[3], the Division did not address AML programs with respect to registered investment advisers.
Seward & Kissel Observations
While remaining consistent with many of its priorities for 2025, there were some noteworthy changes in the 2026 priorities, including the absence of crypto assets as a priority for 2026. Additionally, while the priorities emphasized retail investors and products more heavily than in prior years and did not include a dedicated section regarding private fund advisers, the Division did specifically call out private funds with extended lockups, private credit, advisers to both private funds and separately managed accounts and new private fund advisers as focus areas for examinations in 2026.
If you have any questions regarding the foregoing, or require assistance preparing for an examination, please contact your primary Seward & Kissel attorney or a member of the Investment Management Group.