SEC Division of Examinations Announces 2026 Priorities

The Securities and Exchange Commission’s Division of Examinations (the Division) recently released its 2026 examination priorities. In addition to continuing its longstanding focus on alternative investments, conflicts of interest, and fees and expenses, the Division identified several emerging areas of focus that could be precursors to enforcement actions, such as use of automated investment tools, AI, trading algorithms and compliance with amendments to SEC Regulation S-P.

These are the first examination priorities issued under new SEC Chairman Paul Atkins. In a press release, Chairman Atkins expressed the Division’s desire to be transparent about its priorities and stated that SEC examinations “should not be a ‘gotcha” exercise.”

The Division’s published list of priorities is not exhaustive. This client alert addresses certain key priorities related to registered investment advisers (including private fund advisers) and broker-dealers but does not address all the priorities that the Division identified. Investment advisers, broker-dealers and other SEC-regulated entities should familiarize themselves with the Division’s priorities, confirm that their written policies and procedures adequately address the priorities and, where appropriate, consult with outside counsel to adopt or enhance policies and procedures to demonstrate compliance during an SEC examination.

Below are some key priorities for which certain regulated firms should prepare during the 2026 examination cycle.

Risk Areas Affecting Various Market Participants

The Division identified information security and emerging financial technology as examination priorities that apply broadly to advisers to private funds, retail investment advisers and broker-dealers.

With respect to information security, the Division will focus on firms’ policies and procedures related to information governance, data loss prevention, access controls, vendor management,  oversight and incident response. The Division emphasized the upcoming compliance dates for the amendments to Regulation S-P (e.g., Dec. 3, 2025, for registered investment advisers with over $1.5 billion in assets under management and June 3, 2026, for registered investment advisers with less than $1.5 billion in assets under management). In advance of the compliance dates, the Division will evaluate whether firms’ incident response programs reasonably are designed to detect, respond to and recover from unauthorized access to or use of customer information. After the compliance dates, the Division will examine whether firms are complying with the rule’s administrative, technical and physical safeguard requirements for protecting customer information. Given this potential focus during an examination, firms should ensure they have made appropriate adjustments in their compliance policies and procedures relating to the Regulation S-P amendments.

With respect to emerging financial technology, the Division will focus on risks associated with automated investment tools, AI technologies and trading algorithms. The Division will assess whether firms’ representations regarding these technologies are accurate, whether firms’ operations and controls are consistent with disclosures to investors, whether use of such tools leads to advice or recommendations consistent with investor profiles and strategies and whether controls are in place to monitor such advice and recommendations. With respect to AI in particular, the Division will focus on whether firms accurately are disclosing their AI capabilities and whether firms have appropriate controls to monitor their use of AI.

Risk Areas Affecting Advisers to Private Funds

For the first time in several years, the Division’s list of priorities does not contain a section specifically dedicated to advisers to private funds. However, the Division still highlighted several areas applicable to them, with a specific focus on private credit funds and other alternative investments with extended lock-up periods. Other relevant examination priorities include traditional areas of focus such as conflicts of interest and whether advisers’ disclosures to investors are consistent with their actual practices. In particular, the Division will examine advisers to private funds that also are advising separately managed accounts and will look for instances of favoritism in investment allocations and interfund transfers.

The Division also will place emphasis on advisers to newly launched private funds and advisers that have not advised private funds previously to review for regulatory awareness regarding several Division focus areas, including issues relating to liquidity, valuation, fees, disclosures and differential treatment of investors, such as the use of side letters. As indicated below, advisers to private funds that also sponsor products sold to retail investors should expect additional focus on those products.

Risk Areas Affecting Investment Advisers Generally

The Division remains focused on fiduciary standards, particularly with respect to advisers serving retail investors. Examinations will focus on complex investments (such as exchange traded fund (ETF) wrappers on less liquid underlying strategies, option-based ETFs and leverage or inverse ETFs) and products that have higher commissions and investment expenses than similar products.

The Division will examine the core areas of advisers’ compliance programs, including marketing, valuation, trading, portfolio management, disclosure, filings and custody. The Division will focus broadly on whether policies and procedures meet the standards under the Investment Advisers Act of 1940 and whether advisers’ policies and procedures reasonably are designed to address conflicts of interest and to prevent advisers from placing their own interests ahead of client interests. As always, the Division will look for evidence that advisers’ policies and procedures are enforced reasonably.

The Division indicated that it may tailor an examination’s focus depending on an adviser’s practices or products, such as examining advisers with activist engagement practices to determine their compliance with filing requirements on Schedules 13D and 13G and Forms 13F, 3, 4, 5 and N-PX.

Risk Areas Affecting Broker-Dealers

The Division’s examinations of broker-dealers will focus on three main categories: financial responsibility rules, trading-related practices and services and retail sales practices. The Division will examine, among other things, broker-dealers’ operational resiliency, supervision of third-parties, cash sweep and prime brokerage activities, routing and execution of orders, valuation of illiquid investments and sales practices and compliance with Regulation Best Interest.

The Division will examine broker-dealer recommendations involving complex or tax-advantaged products, with a focus on variable and registered index-linked annuities, ETFs that invest in private equity or private credit, 529 plans, private placements, structured products, alternative investments and products that have complex fee structures or return calculations or that are illiquid or based on exotic benchmarks.

Dual-registered broker-dealers and investment advisers should pay particular attention to the risks posed by conflicts of interest arising from compensation or other financial incentives associated with allocation of investments to investor accounts and account selection practices. In dual registration situations, firms and investment personnel must be careful to act transparently, apply the appropriate standard of care and make accurate representations to customers.

Looking Ahead

The Division’s published list of examination priorities can be an indicator of where the SEC will focus its enforcement efforts for SEC-regulated entities. Despite the change in administration, the 2026 examination priorities indicate that, as in prior years, the Division will continue to conduct robust examinations on a broad range of topics. Even though the SEC has indicated that it may have fewer resources and that examinations should not be a “gotcha” exercise, firms must continue to be vigilant in updating, maintaining and implementing their compliance programs and should take appropriate action to prepare for SEC examinations.