SEC Division of Examinations Releases its 2027 Examination Priorities

Who may be interested: Registered Investment Companies; Directors of Registered Investment Companies; Investment Advisers; Compliance Officers

Quick Take: The staff of the SEC Division of Examinations (Staff) recently released its 2027 examination priorities. The timing of the release aligns with the start of the SEC’s fiscal year to provide transparency and inform market participants of the Staff’s focus areas in the upcoming fiscal year. In its release, the Staff indicated that examinations will continue to focus on core areas such as review of compliance programs and governance practices, disclosures to investors, and advisers’ adherence to their fiduciary duties, as well as several areas of heightened focus, including economic conflicts of interest, private credit and other less liquid investments, super intelligence (formerly referred to as artificial intelligence) and other emerging technologies, cybersecurity preparedness, and compliance with Regulations S-P and S-ID.

In its release, the Staff identified a broad range of examination priorities, which covered various market participants.

Registered Funds

The Staff will continue to prioritize examinations of registered investment companies, including mutual funds and ETFs, focusing on compliance programs, governance practices, disclosures to investors, and regulatory filings. The Staff identified the following areas of focus:

• fund fees and expenses, including fee waivers and expense reimbursements;
• portfolio management practices and related disclosures, including consistency between a fund’s investment strategy, filings, and marketing materials;
• funds holding complex products and less liquid or illiquid investments, including private credit, and related valuation, redemption, conflict of interest, and disclosure considerations;
• funds utilizing novel or complex investment strategies or products, including BDCs and inverse and leveraged ETFs; and
• funds operating in reliance on exemptive orders, including implementation of and compliance with the conditions of such orders.

The Staff also indicated that it will continue to prioritize examinations of funds that have not previously been examined.

Registered Investment Advisers

As in prior years, the Staff indicated that it will continue to focus on advisers’ adherence to their fiduciary obligations. The Staff stated that examinations will focus on:

• disclosures relating to advisory relationships;
• due diligence regarding products and services recommended to clients;
• valuation processes and methodologies;
• economic conflicts of interest, including those relating to fee rebates, fee and expense calculations, cash management arrangements, quid pro quo arrangements, client deposits and withdrawals; and
• whether investment recommendations are consistent with clients’ objectives, risk tolerances, liquidity needs, and other mandates.

The Staff also noted that examinations will assess advisers’ recommendations of products that are difficult to trade, have unusual features, or are illiquid. Examples include loans provided by private funds and BDCs, investments in private companies through special purpose vehicles, ETFs based on less liquid assets, option-based funds, inverse ETFs, single-stock ETFs, and zero-days-to-expiration options. Examinations will also continue to focus on advisers’ compliance programs, including key components relating to marketing, valuation, trading, portfolio management, disclosures and regulatory filings, custody, conflicts of interest, and annual compliance reviews.

Particular attention may be given to advisers that have changed business models, expanded into new asset classes or services, grown through mergers or acquisitions, or operate through geographically dispersed branch offices. Examinations may also review whether advisers with activist engagement practices are making timely and accurate filings on Schedules 13D and 13G and Forms 13F, 13H, 3, 4, 5, and N-PX, as applicable.

Finally, as in prior years, examinations will continue to prioritize recently registered advisers and advisers that have not previously been examined.

Private Fund Advisers

The Staff indicated that examinations of private fund advisers will focus on whether investment-related disclosures are consistent with advisers’ fiduciary obligations and whether compliance policies, procedures, and controls address both fund-level and investment-level risks. Areas of focus include:

• investment and allocation disclosures;
• the use of debt and fund-level lines of credit;
• affiliated service providers;
• fund-level and investment-level fee and expense calculations; and
• disclosures regarding investment risks and conflicts of interest.

The Staff also noted that it will review advisers’ use of third-party service providers, including those with access to client accounts, and advisers’ reliance on proxy advisory firms.

Other Examination Priorities

Information security and operational resiliency remain examination priorities, with a continued emphasis on cybersecurity and protection of customer information. The release also highlights the growing use of super intelligence, as well as continued focus on compliance with Regulations S-P and S-ID.

The release also covered examination priorities relating to broker-dealers, self-regulatory organizations, clearing agencies, transfer agents, municipal advisers, funding portals, security-based swap dealers, and other market participants.

For more detailed information, the Staff’s 2027 examination priorities are available here, while the SEC’s press release on the Staff’s 2027 examination priorities is available here.