The SEC’s Division of Examinations (EXAMS) has released its examination priorities for fiscal year 2027. Focus areas for investment advisers include:
Fiduciary duty, including the adequacy of disclosures, diligence and suitability of products and services recommended to clients, adequacy of written compliance policies and procedures, reasonableness of valuation practices, and handling of economic conflicts of interest.
Investment recommendations, including how advisers formulate investment advice and whether recommended products and strategies are consistent with client risk profiles and objectives.
Private fund advisers, including investment-related risk disclosures and whether compliance controls address both fund-level and investment-level risks such as the allocation of investment opportunities, use of debt and fund-level lines of credit, use of affiliated service providers, and the accuracy of fee and expense calculations at both the fund and investment levels.
Information security practices, including governance, data loss prevention (DLP), access controls, oversight of service providers, incident response and recovery, Regulation S-ID identity theft programs, and compliance with the recent amendments to Regulation S-P regarding incident response and notification requirements.
Emerging technologies, including use of artificial intelligence (AI), AI-enabled threats such as deepfakes and phishing, automated investment tools, and trading algorithms and platforms.
Examiners will also continue to evaluate the effectiveness of advisers’ compliance programs in core areas such as marketing, valuation, trading, portfolio management, disclosures and filings, and custody, and will typically assess the adviser’s annual compliance review (see the recent Risk Alert on that topic). Priorities related to advisers’ compliance programs include reviewing whether:
Written compliance policies and procedures are tailored to the firm’s operations and implemented as written.
Fee-related conflicts are adequately disclosed, particularly where the conflicts arise from compensation structures across different accounts and products.
The compliance program has kept pace with significant changes in the adviser’s business, including advising new types of clients, recommending new asset classes, providing new services, and meaningful growth through mergers and acquisitions or other means.
Advisers that pursue activist strategies are making timely and accurate filings on Schedules 13D and 13G and Forms 13F, 13H, 3, 4, 5 and N-PX.
In selecting firms for examination, EXAMS will continue to prioritize never-examined advisers, with an emphasis on recently registered firms, as well as advisers that recommend illiquid, complex or hard-to-trade products, including originated loans, investments made through special purpose vehicles (SPVs), and certain exchange-traded funds (ETFs) such as inverse ETFs, single-stock ETFs, and ETFs that hold less liquid assets. EXAMS will also focus on advisers that rely upon certain third-party service providers to access client accounts or proxy advisory firms for voting client proxies.
Advisers should take this opportunity to revisit their policies and procedures, practices, and disclosures related to these examination priorities to confirm they align with SEC expectations. Apogee is available to help assess readiness and prepare for SEC scrutiny in each of these areas.