SEC Announces 2026 Exam Priorities
On November 17, the SEC Division of Examinations (the “Division”) released its 2026 Fiscal Year Examination Priorities (the “2026 Priorities”)—the first announcement of exam priorities under Chairman Paul S. Atkins. In announcing the 2026 Priorities, Chairman Atkins stated, “[e]xaminations are an important component to accomplishing the agency’s mission, but they should not be a ‘gotcha’ exercise.”
The shutdown-delayed announcement includes traditional areas of focus, including fiduciary duties, standards of conduct and the custody rule, and specifically signals a focus on risks related to artificial intelligence, cybersecurity, illiquid investments, market volatility and privacy. That the priorities do not specifically address certain topics does not mean those areas will not be examined. While the 2026 Priorities do not reference cryptocurrencies, for example, that does not necessarily mean that examiners will ignore transactions involving digital assets.
In general, the release signals a more collaborative approach with advisers under examination than in recent years and an emphasis on services provided to retail investors.
Investment Adviser Priorities
As in the first Trump administration, the Division emphasized its focus on fiduciary duties, especially “with regard to aspects of [an investment adviser’s] business that serve retail investors.” Consistent with this focus, the 2026 Priorities signal scrutiny of financial conflicts of interest, factors considered for investment recommendations and best execution designed to maximize investor value. The 2026 Priorities specifically identify fee-based conflicts as an area of interest, which is consistent with recent enforcement actions filed under Chairman Atkins’ tenure (see our prior client alert here). The announcement also flags conflicts related to dual registrants, such as situations where dually licensed representatives have incentives related to recommendations and allocations, and advisers that are merging advisory practices, which may result in operational or compliance complexities and conflicts of interests.
When evaluating investment recommendations, the Division will review an adviser’s consideration—and documentation—of investor objectives, investment costs, special or unusual product features, liquidity, volatility, performance across market and economic conditions, time horizons and exit costs. The 2026 Priorities specifically highlight recommendations to older investors and investors saving for retirement, along with recommendations concerning products that are sensitive to market volatility. Advisers taking on retail investors, including older clients, should ensure robust, written disclosures when recommending less liquid, illiquid or high-volatility-risk investments.
While private funds are no longer identified as a distinct area of focus, the report calls for scrutiny of advisers’ practices recommending funds with alternative investment strategies, including private credit strategies, along with extended lock-ups and allocation practices for separately managed accounts (SMAs). The 2026 Priorities also forecast scrutiny of complex investments, such as ETF wrappers on less liquid underlying strategies, option-based ETFs and leveraged/inverse ETFs, and products with higher costs relative to other available options (for instance, with higher commissions or expenses).
Advisers to private funds that manage SMAs or newly launched funds are identified as candidates for increased scrutiny for undisclosed conflicts, as are advisers new to managing private funds. Advisers can expect a particular focus on their own areas of specialization. For example, advisers with activist practices are flagged for examination on the timeliness and accuracy of filings on Schedules 13D and 13G, as well as Forms 3, 4, 5, 13F and N-PX.
Effective Compliance Programs
Consistent with years past, the 2026 Priorities include an express focus on the effectiveness of compliance programs, including an assessment of marketing, valuation, trading, portfolio management, disclosures, filings, custody and annual compliance reviews. Firms can expect spot checks on the implementation and enforcement of policies and procedures related to these identified areas of focus. Also consistent with years past, the 2026 Priorities identify newly registered advisers, never-examined advisers, advisers changing their business models and advisers embracing new types of assets, clients or services as priorities for examination.
Cybersecurity, Artificial Intelligence and Privacy
For all market participants, information security, operational resiliency and new technologies are identified areas of focus. The Division will review firms’ plans and practices for preventing service interruptions, protecting investor data and responding to cyber-related incidents. This will include a review of training and security controls for identifying and mitigating risks associated with AI and polymorphic malware attacks (a reference to malicious software designed to change its code to evade antivirus detection). The Division will also review procedures for collecting and acting on threat intelligence.
With respect to advisers’ use of AI, the 2026 Priorities identify risks related to automated investment tools, data sources and AI washing as areas for review. The Division specifically plans to assess whether firms have designed and implemented policies and procedures to monitor and supervise their use of AI technologies for fraud prevention and detection, back-office operations, anti-money laundering (AML) and trading functions.
Regulations S-ID (detecting, preventing and mitigating identity theft) and S-P (protecting private personal information) will be a focus following the applicable compliance dates for amendments to Regulation S-P (e.g., in December for larger firms under Regulation S-P). The design and implementation of incident response plans, procedures for providing timely notice to affected individuals and accounting for the broadened scope of information covered by amended Regulation S-P are identified as focal points. In preparing to comply, advisers should consider specific risks and contractual provisions related to vendors with access to client data who may become bottlenecks in providing timely notice of breaches.
Shared Purpose in Protecting Retail Investors
Consistent with Chairman Atkins’ publicly stated priorities for the Commission, the Division’s goal to protect retail investors, particularly those saving for retirement, is an area of repeated emphasis. At the same time, the 2026 Priorities convey a recognition that firms face an “increasingly complex and changing financial and regulatory environment,” and the Division proposes to assist firms in protecting investors through increased transparency, consistency across examinations and “deliberate and active partnerships with compliance professionals.” This may signal a pivot from an increased bias toward referrals to the Division of Enforcement to a more collaborative approach with opportunities for remediation and improvement within the exam context. Notably, the release explicitly mentions the importance of the Division’s collaboration with the Division of Investment Management and the Division of Trading and Markets, but does not mention Enforcement by name.
Investment Company Considerations
For registered investment companies, areas of focus include newly registered or never-before examined registrants, fund fees and expenses (including waivers and reimbursements), portfolio management practices and disclosures (in particular, consistency across statements in fund filings and marketing materials) and the amended names rule (Rule 35d-1 under the Investment Company Act of 1940, as amended). The release also identifies an interest in mergers and consolidations, closed-end funds and funds with leverage-related vulnerabilities.
Broker-Dealer Considerations
Areas of focus for broker-dealer compliance continue to include the net capital rule and the customer protection rule. Examinations will also focus on operational resiliency, including supervision of vendor-provided services. Risks related to credit, markets and liquidity, including whether firms can manage stress events, remain areas of focus. Cash sweep programs and prime brokerage services, including issues related to concentration, liquidity and counterparty credit risk, are expressly identified for examination, along with best execution, pricing and valuation of illiquid instruments, municipal securities, non-traded REITs and disclosures regarding order routing and execution. With respect to Regulation SHO, the Division will review whether broker-dealers are appropriately relying on the bona fide market making exception, including spot checks on quoting activity.
The Division will continue to examine practices related to Regulation BI, including account and rollover recommendations, conflict identification and mitigation practices, processes for reviewing similar, available alternatives and processes for satisfying the Care Obligation—another reference to retail customers. Complex or tax-advantaged products, ETFs invested in illiquid assets, private placements, structured products, alternative investments and other products with complex fee structures or return calculations are specifically identified as areas of focus, as are moves between similar products, recommendations about different account types (e.g., option, margin and self-directed IRA accounts) and recommendations to older investors.
AML and OFAC Sanctions
The 2026 Priorities include a focus on meeting AML obligations and efforts by advisers, broker-dealers and investment companies to monitor the Department of the Treasury’s Office of Foreign Assets Control sanctions and ensure compliance with those sanctions. These are areas that require regular attention.
