Examination Priorities

Fiscal Year 2026

Examination Priorities

Division of Examinations

DISCLAIMER: This statement represents the views of the staff of the Division of Examinations. It is not a

rule, regulation, or statement of the U.S. Securities and Exchange Commission (SEC or Commission). The

Commission has neither approved nor disapproved its content. This statement, like all staff statements, has no

legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations

for any person.

CONTENTS

MESSAGE FROM THE LEADERSHIP TEAM. . . . . . . . . . . . . . . . . . . . . . . . . . . 1

DIVISION OF EXAMINATIONS: FISCAL YEAR 2026 EXAMINATION PRIORITIES. . . . 5

I.

Investment Advisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

A. Adherence to Fiduciary Standards of Conduct . . . . . . . . . . . . . . . . . 5

B. Effectiveness of Advisers’ Compliance Programs. . . . . . . . . . . . . . . . 6

C. Never-Examined Advisers and Recently Registered Advisers. . . . . . . . . .7

II. Investment Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

III. Broker-Dealers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

A. Broker-Dealer Financial Responsibility Rules. . . . . . . . . . . . . . . . . . . .7

B. Broker-Dealer Trading-Related Practices and Services. . . . . . . . . . . . . 8

C. Retail Sales Practice, Including Compliance with Regulation Best Interest. . 8

IV. Self-Regulatory Organizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

A. National Securities Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

B. FINRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

C. Municipal Securities Rulemaking Board (MSRB). . . . . . . . . . . . . . . . . 9

V. Clearing Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

VI. Other Market Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

A. Municipal Advisors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

B. Transfer Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

C. Funding Portals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

D. Security-Based Swap Dealers (SBSDs). . . . . . . . . . . . . . . . . . . . . . 11

E. Security-Based Swap Execution Facilities (SBSEFs) . . . . . . . . . . . . . . 11

VII. Risk Areas Impacting Various Market Participants. . . . . . . . . . . . . . . . . . 11

A. Information Security and Operational Resiliency. . . . . . . . . . . . . . . . . 11

1. Cybersecurity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2. Regulation S-ID and Regulation S-P . . . . . . . . . . . . . . . . . . . . . . 12

B. Emerging Financial Technology. . . . . . . . . . . . . . . . . . . . . . . . . . 12

C. Regulation Systems Compliance and Integrity (SCI) . . . . . . . . . . . . . . 13

D. Anti-Money Laundering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

E X A M I N AT I O N P R I O R I T I E S : F I S C A L Y E A R 2 0 2 6

|

iii

“

Under the leadership of Chairman Atkins,

we have reassessed how best to deploy our

resources to meet growing responsibilities, as

well as evolving risks shaped by developments in

the U.S. capital markets and broader economic

”

and geopolitical forces.

—Division of Examinations Leadership Team

iv

|

D I V I S I O N O F E X A M I N AT I O N S

MESSAGE FROM THE

LEADERSHIP TEAM

C

hanges in the U.S. capital markets and at the SEC present new opportunities for growth,

innovation and refinement of our approach to delivering on the Commission’s mission to protect

investors, maintain fair and orderly capital markets, and facilitate capital formation. As the

Division of Examinations (the Division) embarks on a new fiscal year, we remain grounded in

advancing our Four Pillars to promote compliance, prevent fraud, inform policy, and monitor risk. At the

same time, we continue to adapt to evolving market forces to ensure the Division’s mission is met. This new

fiscal year marks an important time for the Division to build on our strengths, advance our mission with

renewed focus, and ensure that our examination program continues to align with the Commission’s overall

direction and the expectations of the investing public.

The dedication of our talented staff continues to be the backbone of the Division. While operating with

fewer resources, they have shown an unwavering commitment to serve as the “eyes and ears” of the

Commission. Maintaining connections with registrants, investors and other market participants through

their regular interactions, Division staff continue to provide invaluable insight into market trends, product

developments, and shifting risks that inform the Commission. They carry out their responsibilities with focus

and efficiency, ensuring that our risk-based examinations remain effective and responsive to the needs of

investors and the marketplace.

Under the leadership of Chairman Atkins, we have reassessed how best to deploy our resources to meet

growing responsibilities, as well as evolving risks shaped by developments in the U.S. capital markets and

broader economic and geopolitical forces. This involves reevaluating our risk-based priorities and how we

approach various trends in the markets, new and emerging products and services, and our processes to

ensure our examinations continue to be efficient and effective. Importantly, it also means exploring ways

to empower registrants and investors alike by providing transparency of key examination observations;

maintaining focused engagement through our national and regional outreach events; strengthening our

partnership with the Divisions of Trading and Markets and Investment Management; and publishing Risk

Alerts that highlight observed compliance approaches that registrants may consider in strengthening their

compliance programs. Committed to continuous improvement, the Division’s leadership has advanced

a series of strategic projects, including an operational effectiveness framework, to ensure increased

consistency across examinations and deepen connectivity with our partners in other divisions and offices

at the Commission. We believe these enhancements complement the structural evolution resulting from the

reshaping of our workforce.

E X A M I N AT I O N P R I O R I T I E S : F I S C A L Y E A R 2 0 2 6

|

1

As has long been true, promoting compliance is an essential part of our four-pronged mission. Effectively

delivering on this mission requires deliberate and active partnerships with compliance professionals who

serve with us on the front lines of protecting investors. We recognize that market participants are navigating

an increasingly complex and changing financial and regulatory environment. By sharing key observations

from examinations, conducting focused engagements with industry and market participants, and publishing

documents, such as our annual priorities, we strive to improve compliance in a way that that we believe is

both transparent and practical. Although it is the registrants’ responsibilities to maintain their own robust

compliance programs, we recognize the role the Division can play in supporting our shared interests in

protecting investors and facilitating efficient capital formation. When effectively implemented, our efforts

will support registrants, strengthen their ability to meet regulatory obligations and comply with federal

securities laws.

We accomplish our responsibility to inform policy primarily through collaboration and shared focus with

Trading and Markets, Investment Management, and other divisions and offices at the SEC. We share our

examination observations with other divisions and offices, providing firsthand, real-world insight that

informs their understanding of market activity and practices, and ensuring that our collective efforts remain

aligned and advances the broader mission of the Commission. Conversely, the policy divisions provide

invaluable information, insights and support to the Division through legal interpretation, subject matter

expertise and analytics, and training, among other activities. In that way, our priorities reflect a collaborative

process that draws on engagement and ongoing dialogue across the agency, as well as insights from Division

staff based on examinations and market observations. That collaboration is critical to the overall success of

the agency in delivering its mission to the American people.

2

|

D I V I S I O N O F E X A M I N AT I O N S

LEADERSHIP TEAM

Keith E. Cassidy

Director

Allison M. Fakhoury

Marshall M. Gandy

Kevin W. Goodman

National Investment

Adviser/Investment

Company Program Director

National FINRA and

Securities Industry

Oversight Program Director

Alexis L. Hall

Vanessa L. Horton

Michael G. Rufino

National Clearance and

Settlement Program

Director

National Technology

Controls Program

Director

National Investment

Adviser/Investment

Company Program Director

National Broker-Dealer

and Exchange Program

Director

E X A M I N AT I O N P R I O R I T I E S : F I S C A L Y E A R 2 0 2 6

|

3

DIVISION OF EXAMINATIONS:

FISCAL YEAR 2026

EXAMINATION PRIORITIES

T

he Division develops its examinations

priorities in coordination and

consultation with the other divisions

and offices throughout the SEC

and by considering, among other things, prior

years’ examinations, market events, information

gathered through participation in conferences and

conversations with investors, registrants, industry

groups, and other regulators. They reflect practices,

products, and services that the Division believes

present potentially heightened risks to investors

or integrity to the U.S. capital markets. They are

not the only areas the Division will address in

examinations. The Division will devote resources to

and cover other areas. The Division is continuously

assessing these risks and discussing with its

colleagues around the SEC how it can best support

the SEC’s mission and priorities. Further, the

Division’s priorities may shift in response to new

or emerging risks, products and services, market

events or investor concerns.

The Division welcomes comments and suggestions

regarding how it can better fulfill its mission to

promote compliance, prevent fraud, identify and

monitor risk, and inform SEC policy. Contact

information is available at SEC.gov/exams. If you

suspect or observe activity that may violate the

federal securities laws or otherwise operate to

harm investors, please notify the SEC at SEC.gov |

Welcome to Tips, Complaints, and Referrals.

I. INVESTMENT ADVISERS

A. Adherence to Fiduciary Standards

of Conduct

Examining investment advisers’ (adviser) adherence

to their duty of care and duty of loyalty obligations

remains a priority for the Division, particularly

with regard to aspects of their business that serve

retail investors.

The Division will review investment advice

and related disclosures provided to clients for

consistency with their fiduciary obligations, such

as: (1) the impact of advisers’ financial conflicts of

interest on providing impartial advice; (2) advisers’

consideration of the various factors associated

with their investment advice, such as generally the

cost, investment product’s or strategy’s investment

objectives, characteristics (including any special

or unusual features), liquidity, risks and potential

benefits, volatility, likely performance in a variety

of market and economic conditions, time horizon,

and cost of exit; and (3) advisers seeking best

execution with the goal of maximizing value for

their clients under the particular circumstances

occurring at the time of the transaction. Moreover,

the Division will focus on:

• Investment products with the following

strategies or characteristics: (1) alternative

investments (e.g., private credit and private

funds with investment lock-up for extended

E X A M I N AT I O N P R I O R I T I E S : F I S C A L Y E A R 2 0 2 6

|

5

periods); (2) complex investments (e.g.,

exchange-traded funds (ETF) wrappers on

less liquid underlying strategies, option-based

ETFs, and leveraged and/or inverse ETFs); and

(3) products that have higher costs associated

with investing (e.g., high commissions and

higher investment expenses than similar

products/investments).

• Investment recommendations for consistency

with product disclosures and the clients’

investment objectives, risk tolerance, and

financial/personal backgrounds, with emphasis

on: (1) recommendations to older investors

and those saving for retirement; (2) advisers to

private funds that are also advising separately

managed accounts and/or newly registered

funds (e.g., reviewing for favoritism in

investment allocations and interfund transfers);

(3) advisers to newly launched private funds;

(4) recommendations of certain products

that may be particularly sensitive to market

volatility; and (5) advisers that have not

previously advised private funds (e.g., reviewing

for regulatory awareness, liquidity, valuation,

fees, disclosures, and differential treatment of

investors, including use of side letters).

In addition, the Division will focus on particular

types of advisers and advisory services or business

practices that may create additional risks and

potential or actual conflicts of interest. Examples

include: (1) advisers that are dually registered as

broker-dealers, particularly where such advisers

have advisory representatives who are also dually

licensed as registered representatives and receive

compensation or other financial incentives that may

create conflicts of interest that must be addressed

(e.g., account recommendations and allocations);

(2) advisers utilizing third-parties to access clients’

accounts, where controls may be insufficient to

protect client assets and data; and (3) advisers that

6

|

D I V I S I O N O F E X A M I N AT I O N S

have merged or consolidated with, or been acquired

by, existing advisory practices, which may result

in accompanying operational and/or compliance

complexities or new conflicts of interest.

B. Effectiveness of Advisers’

Compliance Programs

The Division’s assessment of the effectiveness of

advisers’ compliance programs is a fundamental

part of the examination process. Examinations

focusing on this topic typically include an

evaluation of the core areas of advisers’ compliance

programs which include, as applicable and

appropriate for each examination, marketing,

valuation, trading, portfolio management,

disclosure and filings, and custody. In addition,

examinations on this topic typically include

an analysis of advisers’ annual reviews of the

effectiveness of their compliance programs.

In reviewing advisers’ compliance policies and

procedures, including those addressing advisers’

adherence to fiduciary principles, the Division

continues to broadly focus on whether the

policies and procedures address compliance with

the Investment Advisers Act of 1940 and the

rules thereunder and are reasonably designed to

address conflicts of interest, in light of a firm’s

particular operations, and to prevent advisers

from placing their interests ahead of clients’

interests. Areas on which examinations may focus

include: (1) whether the policies and procedures

are implemented and enforced; and (2) whether

disclosures address fee-related conflicts, with a

focus on conflicts that arise from account and

product compensations structures.

The Division’s focus may also shift depending

on an adviser’s practices or products, such as for

advisers with activist engagement practices (e.g.,

whether they are making late or inaccurate filings

on Schedules 13D and 13G; and Form 13F; Forms

3, 4, and 5; and Form N-PX). Examinations may

also focus on compliance practices when advisers

change their business models or are new to advising

particular types of assets, clients, or services.

C. Never-Examined Advisers and Recently

Registered Advisers

As with previous years, the Division will prioritize

examinations of advisers that have never been

examined, with particular emphasis on recently

registered advisers.

II. INVESTMENT COMPANIES

The Division continues to prioritize examinations

of registered investment companies (RICs or funds),

including mutual funds and ETFs, due to their

importance to retail investors, particularly those

saving for retirement.

Examinations of RICs will generally include their

compliance programs, disclosures, filings (e.g.,

summary prospectus) and governance practices.

RIC operations of particular focus include: (1) fund

fees and expenses, and any associated waivers and

reimbursements; and (2) portfolio management

practices and disclosures, for consistency with

statements about investment strategies or

approaches, with fund filings and marketing

materials, and the amended fund “Names Rule”1

(after the compliance date).

1

The Division will also continue to monitor certain

developing areas of interest. The following are

examples of staff areas of interest: (1) RICs that

participate in mergers or similar transactions,

including any associated operational and

compliance challenges; (2) certain RICs that use

complex strategies and/or have significant holdings

of less liquid or illiquid investments (e.g., closed end

funds), including any associated issues regarding

valuation and conflicts of interest; and (3) RICs

with novel strategies or investments, including

funds with leverage vulnerabilities.

As with adviser examinations, the Division will

continue its prioritization of never-before-examined

RICs, with particular emphasis on recently

registered RICs to help empower and encourage

RICs in building robust compliance programs.

III. BROKER-DEALERS

A. Broker-Dealer Financial

Responsibility Rules

Examinations will continue to focus on brokerdealer compliance with the net capital rule, the

customer protection rule and related internal

processes, procedures, and controls. Areas of

review will include the timeliness of financial

notifications and other required filings. Reviews

will focus on a firm’s operational resiliency

programs, including supervision of third-party/

vendor-provided services that contribute to

the records used to prepare financial reporting

information and change management for

SEC, Final Rule: Investment Company Names, Release No. IC-35000 (Sept. 20, 2023) (broadening the scope of the

requirement under the Investment Company Act of 1940 rule 35d-1 (the “Names Rule”) for certain funds to adopt a

policy to invest at least 80 percent of the value of their assets in accordance with the investment focus the fund’s name

suggests, and updating other names-related regulatory requirements, including by providing enhanced disclosure and

reporting requirements related to terms used in fund names and by establishing additional recordkeeping requirements).

See also SEC, Investment Company Names, Release No. IC-35500 (Mar. 14, 2025) (extending the compliance date for

the Names Rule amendments from Dec. 11, 2025, to Jun. 11, 2026, for larger fund groups and from Jun. 11, 2026, to

Dec. 11, 2026 for smaller fund groups).

E X A M I N AT I O N P R I O R I T I E S : F I S C A L Y E A R 2 0 2 6

|

7

broker-dealers. Examiners will also assess

broker-dealer credit, market, and liquidity risk

management controls to determine whether

firms have sufficient liquidity to manage stress

events. Finally, examinations will evaluate cash

sweep programs and prime brokerage activities,

including issues of concentration, liquidity, and

counterparty credit risks.

B. Broker-Dealer Trading-Related

Practices and Services

A focus on broker-dealer equity and fixed income

trading practices remains a Division priority.

Areas of review will include broker-dealer trading

practices associated with extended hours trading,

and municipal securities, including the rates reset

process on variable rate demand obligations,

priority of orders, and mark-ups disclosure. The

Division will also review broker-dealers’ routing

and execution of orders. These reviews will include:

(1) best execution; (2) the pricing and valuation of

illiquid instruments such as variable rate demand

obligations, other municipal securities, and

non-traded REITs; and (3) disclosures regarding

order routing and order execution information,

including as required by Rule 605 under

Regulation NMS.2

With respect to Regulation SHO, the Division will

review whether broker-dealers are appropriately

relying on the bona fide market making exception,

including whether quoting activity is away from the

inside bid/offer. Finally, the Division will examine

alternative trading systems, including a focus on

their compliance with the requirements to have

written safeguards to protect subscriber confidential

information under Rule 301(b)(1) under Regulation

ATS, alignment with their descriptions in the Form

ATS-N, disclosures, and risk controls.

2

8

17 CFR 242.605.

|

D I V I S I O N O F E X A M I N AT I O N S

C. Retail Sales Practice, Including

Compliance with Regulation Best Interest

The Division will continue to examine brokerdealer sales practices, including those related

to Regulation Best Interest, and focus on the

following areas of interest: (1) recommendations

with regard to products and investment strategies

(including account and rollover recommendations);

(2) conflict identification and mitigation practices,

in particular with respect to recommendations

of accounts, rollovers, and recommendations

involving limited product menus; (3) processes for

reviewing reasonably available alternatives; and

(4) processes for satisfying the Care Obligation,

including consideration of particular factors in a

customer’s investment profile and the product and

account type characteristics considered.

In particular, examinations will focus on those

recommended products that are complex or

tax advantaged, such as variable and registered

index-linked annuities; ETFs that invest in illiquid

assets such as private equity or private credit;

municipal securities, including 529 Plans; private

placements; structured products; alternative

investments; and other products that have complex

fee structures or return calculations, are based

on exotic benchmarks, are illiquid, or represent a

growth area for retail investment. Examinations

may also focus on recommendations: (1) that move

an investment to a substantially similar product;

(2) related to opening different account types such

as option, margin, and self-directed IRA accounts;

and (3) made to older investors and those saving

for retirement or college.

Examinations may also focus on dual registrants

and encompass reviews of firms’ processes

for identifying and mitigating and eliminating

conflicts of interest where dual registrants receive

compensation or other financial incentives that may

create conflicts of interest that must be addressed,

account allocation practices (e.g., allocation of

investments where an investor has more than one

type of account) and account selection practices

(e.g., brokerage versus advisory, including

when rolling over employer plans to an IRA or

transferring an existing brokerage account to an

advisory account, as well as recommendations to

open wrap fee accounts). Examinations may also

assess broker-dealer supervision of sales practices at

branch office locations.

The Division’s examinations will review the content

of a broker-dealer’s relationship summary (Form

CRS), such as how the broker-dealer describes:

(1) the relationships and services that it offers

to retail investors; (2) its fees and costs; (3) its

conflicts of interest; and (4) whether the brokerdealer accurately discloses its and its financial

professionals’ disciplinary history.

IV. SELF-REGULATORY

ORGANIZATIONS

A. National Securities Exchanges

The Division will examine the national securities

exchanges to assess whether they are meeting

their obligations to enforce compliance with

self-regulatory organization rules and the federal

securities laws. Examinations may focus on

regulatory programs and participation in National

Market System Plans.

B. FINRA

FINRA, among other things, promulgates rules

that govern its members, provides a forum for

securities arbitration and mediation, conducts

market regulation, including by contract for the

national securities exchanges, reviews broker-

dealer advertisements, administers the testing

and licensing of registered persons, and operates

industry utilities, such as Trade Reporting Facilities.

The Division conducts risk-based oversight

examinations of FINRA. It selects areas within

FINRA to examine through a risk assessment

process designed to identify those aspects of

FINRA’s operations important to the protection of

investors and market integrity, including FINRA’s

implementation of investor protection initiatives

such as Regulation Best Interest and Form

CRS. The assessment is informed by collecting

and analyzing extensive information and data,

regular meetings with key functional areas within

FINRA, and outreach to various stakeholders,

including investor and industry groups. Based on

the outcome of this risk assessment process, the

Division conducts inspections of FINRA’s major

regulatory programs. The Division also conducts

oversight examinations of FINRA’s examinations

of certain broker-dealers and municipal advisors

that are FINRA members. From its observations

during all of these inspections and examinations,

the Division makes detailed recommendations to

improve FINRA’s programs, its risk assessment

processes, and its future examinations.

C. Municipal Securities Rulemaking

Board (MSRB)

The Division also applies a risk assessment process,

similar to the one it uses to oversee FINRA, to

identify areas to examine at the MSRB.

V. CLEARING AGENCIES

Title VIII of the Dodd-Frank Act requires the

Commission to examine, at least once annually,

each clearing agency designated as systemically

important and for which the Commission serves

E X A M I N AT I O N P R I O R I T I E S : F I S C A L Y E A R 2 0 2 6

|

9

as the supervisory agency. These examinations will

focus on clearing agencies’ core risks, processes,

and controls, and will cover the specific areas

required by statute, including the nature of clearing

agencies’ operations and assessment of financial

and operational risk.

Additionally, the Division will conduct risk-based

examinations of other registered clearing agencies

that have not been designated by statute as

systemically important. The Division will examine

for compliance with the Commission’s Standards

for Covered Clearing Agencies, which are rules

requiring policies and procedures that address core

risk-management functions, including maintaining

sufficient financial resources, protecting against

credit risks, managing member defaults, and

mitigating operational risk.

Examinations of registered clearing agencies

include both risk-based examinations and

corrective action reviews, and are undertaken to

assess: (1) whether the clearing agencies’ respective

risk management frameworks comply with the

Securities Exchange Act of 1934 (Exchange Act)

and serve the needs of their members and the

markets they serve; (2) the adequacy and timeliness

of their remediation of prior deficiencies, including,

for example, the role of senior leadership in the

remediation process; and (3) other risk areas

identified in collaboration with other Commission

divisions and offices and other regulators. In

addition, the Division examines security-based

swap data repositories and entities operating

pursuant to a Commission order exempting them

from the clearing agency registration requirement

under Section 17A(b)(1) of the Exchange Act.

Areas of examination focus across registrant

types may include risk management of liquidity,

10

|

D I V I S I O N O F E X A M I N AT I O N S

default management, recovery and wind-down,

collateral management, operations, and operational

arrangements with other clearing agencies, among

other things.

VI. OTHER MARKET PARTICIPANTS

A. Municipal Advisors

The Division will continue to examine whether

municipal advisors have met their fiduciary duty to

municipal entity clients when engaging in municipal

advisory activities such as providing advice or

recommendations regarding the pricing or method

of sale of municipal securities (e.g., recommending

a competitive versus negotiated sale). The Division

will also continue to examine whether municipal

advisors have complied with MSRB Rule G-42,

which establishes the core standards of conduct

and duties applicable to non-solicitor municipal

advisors, including requirements to disclose

conflicts of interest and to document municipal

advisory relationships. Finally, the Division will

continue to assess whether municipal advisors have

made required filings with the Commission and

met their professional qualification, registration,

recordkeeping, and supervision requirements.

B. Transfer Agents

The Division will continue to examine transfer agent

processing of items and transfers, recordkeeping

and record retention, safeguarding of funds and

securities, and filings with the Commission.

Examinations will also focus on transfer agents

that use emerging technology to perform their

transfer agent functions. After the compliance

date, the Division will also examine transfer agents

for compliance with the 2024 amendments to

Regulation S-P, including the safeguards rule, the

disposal rule, and the requirement to establish

incident response programs.3

C. Funding Portals

The Division will focus on funding portal

arrangements with qualified third-parties

regarding the maintenance and transmission of

investor funds and examine whether funding

portals are making and preserving required

records. In addition, the Division will review

funding portals’ written policies and procedures

to assess if they are reasonably designed to

achieve compliance with applicable federal

securities laws and rules relating to its business

as a funding portal. After the compliance date,

the Division may also examine funding portals

for compliance with the 2024 amendments to

Regulation S-P, including the safeguards rule, the

disposal rule, and the requirement to establish

incident response programs.

D. Security-Based Swap Dealers (SBSDs)

The Division will continue to focus its

examinations on whether SBSDs are complying

with their obligations under Regulation SBSR to

accurately report security-based swap transactions

to security-based swap data repositories. As stated

in the Division’s Risk Alert,4 accurate and complete

security-based swap reporting that the investing

public and the Commission can rely upon is crucial

for the regulation and transparency of the securitybased swap markets. The Division also expects to

focus on SBSDs’ risk management practices and

compliance with capital, margin and segregation

requirements. Finally, the Division continues to

assess whether SBSDs have taken corrective action

to address issues identified in prior examinations.

E. Security-Based Swap Execution

Facilities (SBSEFs)

The Division expects to begin conducting

examinations of registered SBSEFs focusing on

the SBSEF’s rules and related internal policies

and procedures addressing trade monitoring,

trade processing, and participation. Moreover,

the Division plans to assess how SBSEFs establish

programs of risk analysis and oversight to identify

and minimize sources of operational risk.

VII. RISK AREAS IMPACTING VARIOUS

MARKET PARTICIPANTS

A. Information Security and Operational

Resiliency

1. Cybersecurity

The Division will continue to review registrant

practices to prevent interruptions to mission-critical

services and to protect investor information,

records, and assets. Operational disruption

risks remain elevated due to the proliferation of

cybersecurity attacks, firms’ dispersed operations,

3

SEC, Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Customer Information, Exchange

Act Release No. 100155 (May 16, 2024). (Adopting amendments to Regulation S-P that apply to broker-dealers,

funding portals, investment companies, SEC-registered investment advisers, and transfer agents registered with the

SEC or another appropriate regulatory agency (collectively, “covered institutions”) and are designed to modernize and

enhance the protection of consumer financial information by: (1) requiring covered institutions to develop, implement,

and maintain written policies and procedures for an incident response program that is reasonably designed to detect,

respond to, and recover from unauthorized access to or use of customer information; (2) requiring that the response

program include procedures for covered institutions to provide timely notification to affected individuals whose

sensitive customer information was, or is reasonably likely to have been, accessed or used without authorization; and

(3) broadening the scope of information covered by Regulation S-P’s requirements).

4

SEC, Risk Alert: Observations Related to Security-Based Swap Dealers (Jan. 10, 2024).

E X A M I N AT I O N P R I O R I T I E S : F I S C A L Y E A R 2 0 2 6

|

11

weather-related events, and geopolitical concerns.

The Division will also examine registrants’

procedures and practices to assess whether they

are reasonably managing information security and

operational risks.

A perennial examination priority, the Division’s

focus on cybersecurity practices by registrants

remains vital to help ensure the safeguarding of

customer records and information. Particular

attention will be on firms’ policies and procedures

pertaining to governance practices, data loss

prevention, access controls, account management,

and responses and recovery to cyber-related

incidents, including those related to ransomware

attacks. In addition, focus will be on training

and security controls that firms are employing to

identify and mitigate new risks associated with

artificial intelligence (AI) and polymorphic malware

attacks, including how they are operationalizing

information from threat intelligence sources.

Lastly, the Division will review firms’ operational

resiliency.

2. Regulation S-ID and Regulation S-P

The Division will assess compliance with

Regulations S-ID and S-P, as applicable.

Examinations will focus on firms’ policies

and procedures, internal controls, oversight of

third-party vendors, and governance practices.

Regarding Regulation S-ID, the Division will

focus on firms’ development and implementation

of a written Identity Theft Prevention Program

(Program) that is designed to detect, prevent, and

mitigate identity theft in connection with covered

accounts. Specifically, the Division will assess the

reasonableness of firms’ policies and procedures

5

12

included within their Programs, including

whether they:

• Are reasonably designed to identify and detect

red flags, particularly during customer account

takeovers and fraudulent transfers; and

• Include firm training on identity theft prevention.

In preparation for the compliance dates for the

Commission’s amendments to Regulation S-P,5 the

Division will engage firms during examinations

about their progress in preparing incident response

programs reasonably designed to detect, respond

to, and recover from unauthorized access to or

use of customer information. After the applicable

compliance dates, the Division will examine

whether firms have developed, implemented, and

maintained policies and procedures in accordance

with the rule’s new provisions that address

administrative, technical, and physical safeguards

for the protection of customer information.

B. Emerging Financial Technology

The Division remains focused on registrants’

use of certain products and services, such as

automated investment tools, AI technologies, and

trading algorithms or platforms, and the risks

associated with the use of emerging technologies

and alternative sources of data. As such, the

Division will, in particular, examine firms that

engage in activities such as automated investment

advisory services, recommendations, and related

tools and methods.

When conducting these reviews, assessments

generally will include whether: (1) representations

are fair and accurate; (2) operations and controls

SEC, Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Customer Information, Advisers Act

Rel. No. 6604 (May 16, 2024).

|

D I V I S I O N O F E X A M I N AT I O N S

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.

With respect to AI, the Division will focus on

recent advancements in AI and will review for

accuracy registrant representations regarding

their AI capabilities or AI. The Division will

assess whether firms have implemented adequate

policies and procedures to monitor and/or

supervise their use of AI technologies, including

for tasks related to fraud prevention and

detection, back-office operations, anti-money

laundering (AML), and trading functions, as

applicable. Reviews will also consider firm

integration of regulatory technology to automate

internal processes and optimize efficiencies.

C. Regulation Systems Compliance and

Integrity (SCI)

As part of the Division’s examination of SCI

entities, reviews will focus on:

• Policies and procedures related to incident

response and how SCI entities review the

effectiveness of these policies and procedures.

• SCI entities’ management of third-party vendor

risk and properly identifying vendor systems that

qualify as SCI systems or indirect SCI systems.

D. Anti-Money Laundering

The Bank Secrecy Act (BSA) requires certain

financial institutions, including broker-dealers

and certain RICs, to establish AML programs.

AML programs should be reasonably designed to

prevent these financial institutions from being used

for money laundering or the financing of terrorist

activities and to achieve and monitor compliance

with applicable BSA requirements. These programs

should be tailored to address the risks associated

with a firm’s location, size, and activities, including

the customers they serve, the types of products

and services offered, and how those products and

services are offered.

The Division will continue to focus on AML

programs and review whether broker-dealers and

certain RICs are: (1) appropriately tailoring and

updating their AML program to their business

model and associated AML risks, including

accounting for risks associated with omnibus

accounts maintained for foreign financial

institutions; (2) adequately conducting independent

testing; (3) establishing an adequate customer

identification program, including for beneficial

owners of legal entity customers; and (4) meeting

their Suspicious Activity Report filing obligations.

Examinations of certain RICs will also review

policies and procedures for oversight of applicable

financial intermediaries.

Lastly, the Division will review whether brokerdealers, advisers, and RICs are monitoring the

Department of the Treasury’s Office of Foreign

Assets Control sanctions and ensuring compliance

with such sanctions.

E X A M I N AT I O N P R I O R I T I E S : F I S C A L Y E A R 2 0 2 6

|

13

This page intentionally left blank.

14

|

D I V I S I O N O F E X A M I N AT I O N S

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549