The U.S. Securities and Exchange Commission (“SEC”) Division of Examinations (the “Division”) released its 2026 examination priorities on November 17, 2025 (the “2026 Priorities”). As expected from the new leadership, the 2026 Priorities signal less (but still present) focus on private fund advisers and more focus on retail advisers and emerging technologies such as AI and algorithmic advice. Overall, the extremely high overlap in priorities from prior years is notable, leading our main takeaway from the 2026 Priorities to be whether and how the Division Staff will emphasize public messages such as Risk Alerts and Exam Observations compared to private actions like detailed deficiencies and numerous referrals to the Enforcement Division.

Priorities Relevant for Investment Advisers and Broker-Dealers

• Cybersecurity. Consistent with prior years, the Division will focus on reviewing registrant practices to prevent service interruptions and protect investor information, records, and assets. The Division will also examine registrants’ procedures to manage information security and operational risks in light of elevated operational disruption risks due to cyberattacks, weather-related events, and geopolitical concerns. This explicitly includes governance practices, data loss prevention, access controls, account management, cyber-related incident response and recovery, and training and security controls responding to artificial intelligence and polymorphic malware attacks.

• Regulation S-ID and Regulation S-P. As expected with the pending compliance dates for the amendments to Regulation S-P (December 3, 2025 for larger entities and June 3, 2026 for smaller entities), the Division will focus on firms’ policies and procedures, internal controls, oversight of third-party vendors, and governance priorities. For Regulation S-ID, firms’ Identity Theft Prevention Program features being reviewed include those designed to identify and detect red flags, particularly regarding customer account takeovers and fraudulent transfers, and training policies on identity theft prevention. For Regulation S-P, the Division will focus in particular on firms’ policies and procedures relating to administrative, technical, and physical safeguards for protecting customer information.

• Emerging Technologies and Artificial Intelligence. The Division continues to focus on registrants’ use of emerging technologies, including automated investment tools, AI technologies, and trading algorithms or platforms, as well as associated risks. Examination areas will generally include whether: (1) representations are fair and accurate; (2) operations and controls in place are consistent with disclosures made to investors; (3) algorithms lead to advice or recommendations consistent with investors’ investment profiles or stated strategies; and (4) controls to confirm that advice or recommendations resulting from automated tools are consistent with regulatory obligations to investors, including retail and older investors. Regarding AI specifically, the Division will review whether registrants are accurately representing their AI capabilities and assess whether firms have implemented adequate policies and procedures to monitor AI usage for tasks including fraud prevention and detection, back-office operations, anti-money laundering, and trading functions.  

• We expect this area to continue to generate Enforcement referrals for advisers to retail clients or investors given the Administration and SEC stated goals of encouraging innovation and use of these technologies in U.S. markets.
  
  
  • The focus on controls to confirm that advice or recommendations are consistent with regulatory obligations could signal the Examination Staff’s intent to address issues of concern that were cited as a driver behind the now-withdrawn rule proposal governing the use of AI as well as other “covered technology” (the “Predictive Data Analytics Proposal”) from the prior administration, which would have required investment advisers and broker-dealers to “eliminate or neutralize” any conflicts of interest posed by the use of such technology.

Priorities Specific to Investment Advisers

Key areas highlighted in the 2026 Priorities for registered advisers include:

• Adherence to Fiduciary Standards of Conduct. This perennial priority area remains, with express areas of examination covering the duty of care and duty of loyalty obligations, particularly with regard to retail investors, financial conflicts of interest, advisers’ consideration of the various factors associated with their investment advice, and best execution.

The Division identified the following investment products as focus areas: (1) alternative instruments, such as private credit and private funds with extended lock-up periods; (2) complex investments, such as option-based ETFs, leveraged or inverse ETFs, and ETFs with less liquid underlying strategies; and (3) products with higher costs associated with investment compared to similar products.

• Effectiveness of Advisers’ Compliance Programs. As expected, the Division’s evaluations of advisers’ compliance programs will focus on marketing, valuation, trading, portfolio management, disclosure and filings, and custody, as well as advisers’ review of their own compliance systems, and whether advisers begin to offer advising on new types of assets, clients, or services. The 2026 Priorities also call out examinations regarding late or inaccurate filings on Schedules 13D and 13G and other applicable forms as focus areas for advisers with activist engagement practices. This is a continued focus from the last administration, which saw multiple enforcement cases involving late or deficient filings.

• Never-Examined Advisers and Recently Registered Advisers. This focus is consistent with that of prior years, but with fewer Staff and resources, whether a meaningful reduction in time between exams and time until first exam occurs remains to be seen.

Priorities Specific to Broker-Dealers

Key areas highlighted in the 2026 Priorities for broker-dealers include:

• Financial responsibility rules. Examinations will continue to prioritize compliance with the net capital rule and customer protection rule, review of which will include focus on operational resiliency and supervision of third-party vendors and vendor-provided services. The Division will also prioritize assessments of whether broker-dealers have adequate liquidity to manage stress events, reviewing credit, market and liquidity risk management controls accordingly. Evaluation of cash sweep programs and prime brokerage activities are likewise on the priority list.

• While not discussed in the 2026 Priorities, in December of 2024, the SEC amended the customer protection rule to require carrying broker-dealers with $500 million or more in average total credits to perform daily reserve computations. The amendments went into effect in June of 2025, and compliance with the daily computation requirements may be a point of focus in examinations of broker-dealers subject to the requirement.

• Trading-Related Practices and Services. The Division will continue to prioritize broker-dealer equity and fixed income trading practices, including review of trading practices associated with extended hours trading, municipal securities, priority of orders, and disclosure of mark-ups. Review of order routing and execution also remains a priority, including review of best execution, pricing and valuation of illiquid instruments, and order routing and execution disclosures, such as those required by Rule 605 of Regulation NMS.

• Regulation SHO. Consistent with prior years, the Division will examine the appropriateness of broker-dealer reliance on the bona fide market maker exception, including whether quoting activity is away from the inside bid/offer. In 2022 and 2023, respectively, the Division brought cases against broker-dealers for violations of Rule 203(b)(1) of Regulation SHO.  

• Alternative Trading Systems. Broker-dealers with alternative trading systems will continue to be examined for compliance with Rule 301(b)(1) of Regulation ATS’s requirement to have written subscriber confidentiality safeguards. The Division will also examine the alignment of alternative trading systems’ descriptions across their Form ATS-N, disclosures, and risk controls.

• Regulation Best Interest. The Division noted that it will continue to examine broker-dealer sales practices, including those related to Regulation Best Interest, with a focus on the following: (1) product and investment strategy recommendations (including account and rollover recommendations); (2) conflict identification and mitigation practices, particularly regarding recommendations of accounts, rollovers, and those involving limited product menus; (3) processes for reviewing reasonably available alternatives; and (4) processes for satisfying the Care Obligation, including consideration of a customer’s investment profile and product and account type characteristics. The Staff stressed a particular focus on complex and tax-advantaged recommended products such as variable and index-linked annuities, ETFs that invest in illiquid assets like private credit and private equity, municipal securities (including 529 plans), private placements, structured products, and alternative investments. These examinations will possibly focus on recommendations that (1) move a customer’s investment to a substantially similar product; (2) relate to opening new account types, such as option, margin or self-directed IRA accounts; and (3) are made to those saving for retirement or college. In 2025, the Division brought separate cases against a dually registered broker-dealer and investment adviser and against a registered representative of a dual registrant for violations of Regulation Best Interest.

• Conflicts of Interest. This perennial priority area will include reviews of dual-registrants’ account allocation and selection practices and their processes for identifying and mitigating or eliminating conflicts of interest where dual registrants receive financial compensation or other incentives. Examinations may also focus on broker-dealer supervision of sales practices at branch offices.

• Form CRS.  In addition to the sales practices outlined above, the Division will focus on the compliance with Form CRS for broker-dealers with retail customers’, which will include review of how a broker-dealer describes its offered services, fees and costs, conflicts of interest, and disclosure of its and its financial professionals’ disciplinary history.

• Regulation SCI. The Division will focus on policies and procedures related to incident response and how SCI entities review the effectiveness of their policies. The Division will also review SCI entities management of third-party vendor risk and the identification of vendor systems that qualify as SCI systems.

• Under the prior administration, the SEC had proposed a rule that would have dramatically expanded the applicability of Reg SCI and amended certain requirements under Reg SCI. That proposal has been withdrawn under the new administration.

• Anti-Money Laundering. Continuing a priority from previous years, the Division will focus on AML programs and review whether regulated entities such as broker-dealers are (1) appropriately tailoring and updating their AML program to their business model and associated AML risks; (2) adequately conducting independent testing; (3) establishing an adequate customer identification program; and (4) meeting their Suspicious Activity Report filing obligations.

Priorities Relevant for Registered Investment Companies

Key areas highlighted in the 2026 Priorities for registered investment companies include:

• Fund Fees and Expenses. The Division indicated a focus on fund fees and expenses, and more specifically any associated waivers or reimbursements tied to such fees and expenses. This indicates a continued trend towards ensuring that reimbursements of administrative or other expenses by business development companies (“BDCs”) and registered funds align with both contractual provisions tied to such reimbursements and disclosures around the nature and extent of expenses that may be subject to reimbursement. In addition, as expense limitation agreements have become increasingly common for both BDCs and registered closed-end funds that have historically had higher expense ratios than their open-end fund counterparts, we expect the Division to pay particular attention to the calculations tied to any associated waivers under such agreements, as well as the timing and amount of any subsequent recoupment of previously waived amounts.

• Fund Mergers. As merger activity involving both registered funds and BDCs has increased in recent years, the Division has unsurprisingly indicated a focus on operational and compliance challenges that may arise as a result of such combinations. While mergers of affiliated funds will likely be included in that focus, we would expect that the Division may pay particular attention to mergers that involve the integration of two previously separate investment teams, or where a manager may assume oversight of a portfolio with an investment focus outside of its prior experience. That scrutiny may also be heightened where the new portfolio focuses on more illiquid or novel asset classes.

• Complex or Illiquid Strategies. The Division has indicated it will also focus on registered funds and BDCs that have complex investment strategies, or that tend to focus primarily on illiquid asset classes. This aligns with the significant growth of alternative asset-focused funds targeting private wealth channels, but also reflects the increasing investment by some traditional open-end funds in illiquid asset classes – including private funds and both private equity and venture capital-style investments – as part of their overall investment strategy. Not surprisingly, the Division has indicated that issues associated with both valuation and conflicts of interest will be a key point of consideration. We would expect the Division to pay particular attention to the nature and level of sophistication of an adviser’s valuation process, the use of third party valuation firms, and the board oversight function with respect to that valuation process during the course of examinations involving funds that primarily invest in assets with no readily available market quotations. In addition, we expect the Division to look closely at transactions that may involve affiliated funds, including those effected pursuant to co-investment exemptive orders.

• Novel Investment Strategies. Given the trend towards differentiated investment strategies, including those that may utilize either direct or indirect leverage as a key component, the Division has indicated a further focus on novel investment strategies adopted by registered funds and BDCs, including those that may indicate leverage vulnerabilities. Notably, while the Investment Company Act of 1940, as amended (the “1940 Act”), imposes fairly low direct leverage limits on registered funds, BDCs can utilize significantly greater leverage under the 1940 Act, while Rule 18f-4 provides a pathway for registered funds to utilize derivatives in a way that can create indirect leverage within a portfolio. Other registered funds and BDCs have also increasingly targeted investments in otherwise levered asset classes, such as collateralized loan obligations and other structured credit assets. We expect that the Division’s attention will focus not only on compliance with the 1940 Act restrictions on leverage, including the use of derivatives under Rule 18f-4, but also on the investment-related risks associated with “hidden” leverage reflected in inherently levered portfolio investments.

In the 2026 Priorities, there are some consistent themes, in line with other public statements of the SEC’s priorities: (1) a focus on retail accounts and the rise in retail use of ETFs with complex underlying strategies and other more complicated products; (2) a focus on technology, particularly cyber-security and AI; and (3) a focus on market volatility and exogenous events, ensuring firms are operationally resilient in the event of market dislocation, trading interruption, or cyberattack and that safeguards are in place with respect to complex products sold to retail customers that may be especially sensitive to market shocks. What remains to be seen is whether the Division will respond to examination issues more through dialogue and less through examination deficiencies or enforcement referrals. SEC Chairman Paul Atkins highlighted that “Examinations are an important component to accomplishing the agency’s mission, but they should not be a ‘gotcha’ exercise.” There is still a real risk that examinations could lead to enforcement activity, as seen in recent enforcement actions. Thus, the right strategy and constructive dialogue with the Division remains important for registrants facing examination.