Key exam priorities for the Securities and Exchange Commission in 2025
The Securities and Exchange Commission (SEC) has announced its key examination areas for 2025, with a primary emphasis on Regulation Best Interest, Form CRS, artificial intelligence and the fiduciary responsibilities of registered investment advisors.
The SEC plans to investigate both traditional compliance issues, such as disclosure practices and governance, and newer areas, like compliance with recent regulations, the integration of emerging technologies and the strength of controls designed to safeguard investor information, records and assets over the upcoming fiscal year.
This year, the SEC will place special attention on assets that may be vulnerable to higher interest rates or shifts in market conditions, including commercial real estate. Advisors managing commercial real estate strategies should note that the SEC is focusing more on this sector, particularly due to market volatility concerns.
Regulation Best Interest and fiduciary responsibility in focus
The SEC’s review of Regulation Best Interest will examine broker-dealers’ recommendations of complex or high-risk products to investors. These may include products with intricate fee structures, leveraged or inverse options, crypto assets, alternative investments, unregistered products or those that may present heightened risks to investors due to their complexity.
For fiduciary duty oversight, the SEC will investigate whether advisors’ recommendations align with their fiduciary obligations, especially when advising on high-cost products, unconventional or illiquid assets and those affected by market changes, like commercial real estate.
Looking into Form CRS and new requirements
The SEC’s Form CRS reviews will focus on broker-dealers’ explanations of the relationships and services offered to retail customers, including their fee structures, conflicts of interest and any disciplinary history. Examiners will check compliance with the requirement to file and provide customers with relationship summaries.
For dual registrants, the SEC will scrutinize practices related to account selection, including rollovers from brokerage to advisory accounts. Examiners will consider how potential financial conflicts might affect the advice provided, especially in instances with nonstandard fees.
With the T+1 settlement cycle now in effect, the SEC will assess compliance with updated recordkeeping requirements and review the technological changes firms have made to support a shorter settlement period.
AI and crypto concerns
The SEC will also examine the use of artificial intelligence and automated investment tools, looking into the risks these technologies may pose. Firms that rely on digital engagement practices, including automated advisory services, will face reviews on the accuracy of their representations to investors and the adequacy of their operational controls.
Regarding crypto assets, the SEC’s examinations will focus on whether advisors meet conduct standards when recommending these assets. The review will concentrate on advisors’ understanding of these products, especially when recommending them to retail investors or advising on retirement assets.
These 2025 priorities underscore the SEC’s ongoing focus on emerging market risks and help ensure that financial advisors and broker-dealers maintain compliance standards that safeguard investor interests in a rapidly evolving financial landscape.
How Wipfli can help
In an ever-changing regulatory landscape, it can be challenging to keep up with the latest guidance. But Wipfli’s team of dedicated professionals is always ready to react to new information and guide you to success. Schedule a consultation today and head into 2025 with confidence.
