The SEC’s Division of Examinations has released its 2026 Examination Priorities, outlining key focus areas for the coming year. Under the leadership of Chairman Atkins, the Division is taking a strategic approach to deploying resources while adapting to evolving market forces and emerging risks in the financial services industry.
As the Division continues to advance its four pillars (promoting compliance, preventing fraud, informing policy, and monitoring risk), fund managers should understand how these priorities may impact their operations and compliance programs.
Investment Adviser Priorities: Fiduciary Duty Takes Center Stage
The Division will maintain its focus on investment advisers’ adherence to their fiduciary obligations, particularly regarding retail investors. Examinations will scrutinize whether advisers are providing impartial advice despite financial conflicts of interest and whether recommendations align with client investment objectives and risk tolerance.
Complex and Alternative Investment Products Under the Microscope
Advisers recommending the following products should expect heightened scrutiny:
- Alternative investments such as private credit and private funds with extended lock-up periods
- Complex investments including ETF wrappers on less liquid underlying strategies, option-based ETFs, and leveraged or inverse ETFs
- High-cost products with elevated commissions and investment expenses
Special attention will be given to advisers serving older investors and those saving for retirement, as well as advisers managing private funds alongside separately managed accounts or newly registered funds. The Division will review for potential favoritism in investment allocations and interfund transfers.
Dually Registered Advisers Face Additional Review
Advisers who are also registered as broker-dealers should ensure they have robust policies addressing conflicts of interest arising from dual compensation structures. The Division will examine how these firms handle account recommendations and allocations when representatives receive financial incentives that could compromise their fiduciary duty.
Compliance Program Effectiveness Remains Critical
The Division continues to make compliance program assessments a fundamental part of examinations. Key areas under review include:
- Marketing practices and disclosures
- Valuation methodologies
- Trading and portfolio management
- Custody arrangements
- Annual compliance program reviews
Advisers should ensure their policies and procedures not only exist on paper but are actually implemented and enforced. Fee-related conflicts deserve particular attention, especially those arising from account and product compensation structures.
Special Focus: Activist Advisers
For advisers engaged in activist strategies, the Division will review the timeliness and accuracy of required filings, including Schedules 13D and 13G, Form 13F, Forms 3-5, and Form N-PX.
Investment Companies: Fee Transparency and Portfolio Management
Registered investment companies, including mutual funds and ETFs, remain a priority given their importance to retail investors and retirement savers. Examinations will focus on:
- Fund fees and expenses, including waivers and reimbursements
- Portfolio management practices and consistency with stated strategies
- Compliance with the amended fund Names Rule (after the June 2026 compliance date)
- Mergers and operational transitions
- Complex strategies and holdings of illiquid investments
- Novel strategies or investments, including funds with leverage vulnerabilities
Broker-Dealer Examinations: Trading Practices and Regulation Best Interest
Financial Responsibility
The Division will continue examining broker-dealer compliance with net capital and customer protection rules, assessing operational resiliency programs and liquidity risk management controls. Cash sweep programs and prime brokerage activities will receive particular attention regarding concentration, liquidity, and counterparty credit risks.
Trading-Related Practices
Reviews will encompass extended hours trading, municipal securities (including variable rate demand obligations), best execution, pricing and valuation of illiquid instruments, and disclosures required by Rule 605 under Regulation NMS.
Retail Sales Practices and Regulation Best Interest
The Division maintains its focus on broker-dealer compliance with Regulation Best Interest, particularly examining:
- Recommendations of complex or tax-advantaged products (variable and registered index-linked annuities, illiquid ETFs, municipal securities, structured products)
- Conflict identification and mitigation practices
- Processes for reviewing reasonably available alternatives
- Care Obligation procedures for considering customer investment profiles
- Account type recommendations (options, margin, self-directed IRAs)
- Recommendations to older investors and those saving for retirement or college
Emerging Technologies: AI and Cybersecurity
Artificial Intelligence Integration
The Division has significantly expanded its focus on how AI is integrated into advisory operations, portfolio management, and compliance functions. Registrants should ensure:
- AI representations and capabilities are accurate
- Adequate policies and procedures govern AI use
- Proper supervision exists for AI-deployed tasks including fraud prevention, AML, and trading functions
Cybersecurity and Operational Resiliency
Cybersecurity remains a perennial priority. The Division will examine:
- Governance practices and data loss prevention
- Access controls and account management
- Response and recovery procedures for cyber incidents, including ransomware
- Training and security controls for AI-related risks and polymorphic malware
- Operational resiliency programs
Regulation S-ID and S-P Compliance
After the applicable compliance dates, the Division will examine whether firms have developed incident response programs designed to detect, respond to, and recover from unauthorized access to customer information. Reviews will assess identity theft prevention programs, including policies for detecting red flags during customer account takeovers and fraudulent transfers.
Never-Examined and Recently Registered Firms
As in previous years, the Division prioritizes examinations of advisers and RICs that have never been examined, with particular emphasis on recently registered entities. This approach aims to help newer registrants build robust compliance programs from the outset.
Anti-Money Laundering and OFAC Compliance
The Division will continue reviewing whether broker-dealers and certain RICs have AML programs appropriately tailored to their business models. Key areas include:
- Program design addressing specific AML risks
- Independent testing adequacy
- Customer identification programs, including beneficial ownership verification
- Suspicious Activity Report filing obligations
- Monitoring and compliance with OFAC sanctions
What Should Fund Managers Do Now?
To prepare for potential examinations in 2026, fund managers should:
- Review the complete 2026 Examination Priorities document to understand all areas relevant to your business
- Conduct internal assessments of your compliance programs against these priorities
- Evaluate technology integration, particularly AI usage and cybersecurity measures
- Strengthen documentation around fiduciary duty considerations and conflict identification
- Assess third-party relationships and vendor risk management practices
- Update policies and procedures to reflect current regulatory requirements and industry best practices
Get Expert Guidance
The Division’s 2026 priorities reflect an evolving regulatory landscape that balances traditional investor protection concerns with emerging technological and market developments. Fund managers who proactively evaluate their practices against these priorities and work with experienced compliance professionals will be better positioned to meet their regulatory obligations.
For assistance navigating the 2026 examination priorities and ensuring your compliance program is examination-ready, contact Steve Vlasak, Business Development Partner in Richey May’s Alternative Investments Practice.
