SEC FY 2026 Exam Priorities: What Investment Advisers, Funds & Broker-Dealers Can Expect

The SEC’s Division of Examinations has released its Fiscal Year 2026 Priorities (2026 Priorities), signaling where examiners will focus—and where firms should review their compliance programs—over the coming year. Although many themes carry over from FY 2025, the SEC’s announcement signals a more collaborative tone and eliminates crypto from its 2026 Priorities for the first time in eight years. The Priorities underscore heightened attention on retail investor protection, cybersecurity, AI and emerging tech, and the effectiveness of compliance programs.

Key Highlights:

• Retail investor protection leads: Fiduciary obligations, conflicts disclosures, best execution, and recommendations to older or retirement-focused investors remain front and center.
• Compliance programs under scrutiny: Examiners will assess policies, procedures, and implementation particularly in the areas of annual reviews, marketing/valuation/trading controls, custody, and how programs adapt to business changes.
• Cyber, privacy & identity theft: Focus on incident response, ransomware readiness, AI-enabled cyber risks, and compliance with Regulations S-ID and S-P.
• AI and emerging tech: Expect scrutiny of automated tools and alternative data—accuracy of disclosures, supervisory controls, and suitability of algorithm-driven advice.
• Shift on crypto & tone: Crypto examinations are no longer included as a priority and the SEC explicitly stated a goal for more constructive dialogue and transparency in exams.

The SEC’s Division of Examinations (Division) published its annual examination priorities for the 2026 fiscal year. 

Many of the 2026 Priorities are the same as fiscal year 2025. For instance, there continues to be an emphasis on activities and investments that affect (or have the potential to affect) retail investors. Relevant topics include investment adviser fiduciary duties and broker-dealer sales practices, cybersecurity, operational resiliency, emerging financial technologies with an emphasis on AI, and the effectiveness of compliance programs. And, as typical, the Division underscores that the 2026 Priorities are not exhaustive; exams may still cover other areas based on firm operations, history, products, or market events. 

Although a lot of the substance remains the same, the tone of the 2026 Priorities is a notable departure from prior years, expressing a desire for a constructive dialogue between the Division and registrants. Indeed, in announcing those priorities, Chairman Paul Atkins emphasized that examinations “should not be a ‘gotcha’ exercise” and, instead, “[s]hould enable firms to prepare to have a constructive dialogue with SEC examiners” and “provide transparency.”¹

Another notable (but unsurprising) departure is that, for the first time in eight years, the Division does not include crypto assets-related examinations as a priority. This is consistent with the SEC’s more welcoming approach to crypto assets. 

Key Priorities For Investment Advisers, Investment Companies, and Broker-Dealers

Investment Advisers

The SEC will continue its perennial scrutiny of (1) advisers’ adherence to their fiduciary obligations and (2) the effectiveness of advisers’ compliance programs.

The SEC will prioritize examinations of newly registered advisers and those who have not been examined previously

Adherence to Fiduciary Standards of Conduct 

• Key topics relevant to the Division’s assessment of an adviser’s adherence to its fiduciary obligations include whether advisers are acting in the best interests of clients (duty of care/duty of loyalty) especially retail clients.
• Disclosure of conflicts of interest, and whether advice provided is impartial given product costs, investment objectives, liquidity, risk/volatility characteristics, exit costs, time horizon, etc.
• Best execution, including how advisers select products, strategies, commission/fee arrangements, etc.
• Recommendations to older investors or those saving for retirement.
• Alternative or complex investments (e.g., private funds, private credit, ETFs with leveraged/inverse structures, less-liquid underlying strategies) or high-cost products.
• Advisers managing both private funds and separately managed accounts/newly launched funds (potential issues of favoritism, side-letters, allocation/transfers).
• Dual registrants (i.e., advisers that are also broker-dealers or have advisory representatives who are also registered representatives) will face extra scrutiny around account recommendations, allocation practices, and compensation incentives.

Compliance Program Effectiveness

The Division’s evaluation of the design and implementation of an adviser’s compliance program is foundational to the examination process. This generally includes an assessment of key elements, including:

• Marketing, valuation, trading, portfolio management, disclosure/filings, custody arrangements.
• Annual review of the effectiveness of its compliance program.
• Policies addressing fee/product account conflicts.
• Implementation—not just existence, but how the compliance program works in practice.
• Practices when there is a change in business model and/or new types of assets, clients, or services. 

Investment Companies (Mutual Funds, ETFs, Closed-End Funds)

• The Division pays particularly close attention to investment funds, which many retail investors utilize for retirement savings. Key focus areas for the 2026 Priorities include: Fees and expenses, associated waivers, and reimbursements.
• Portfolio management practices and disclosures for consistency with stated investment strategies and approaches, including the amended fund “Names Rule.”
• Funds that may face operational and compliance challenges resulting from mergers or similar transitions.
• Funds that use complex or novel strategies/investments or have significant illiquid investments.

Broker-Dealers

The Division will continue to scrutinize 1) compliance with financial responsibility rules, 2) trading practices, and 3) retail sales practices, including compliance with Regulation Best Interest (Reg BI). For example, the 2026 Priorities include the following key areas for examination:

• Net capital and consumer protection rules, including internal policies, procedures, controls and timely reporting.
• Operational resiliency programs, including oversight of third-party related services, (vendors), liquidity, counterparty, and concentration risks, including a focus on cash sweep and prime brokerage arrangements.
• Equity and fixed income trading practices, including extended hours trading and municipal securities.
• Order routing and execution practices, including compliance with best execution, valuation of illiquid instruments, and disclosures concerning order routing and execution information, including Regulation SHO and whether broker-dealers are appropriately relying on the bona fide market-making exception.
• Alternative Trading Systems and compliance with written requirements to safeguard subscriber confidential information.
• How broker-dealers comply with Reg BI, particularly regarding product and investment-strategy recommendations, identification and mitigation of conflicts, and processes for reviewing reasonably available alternatives and meeting broker-dealers’ Care Obligation.
• Complex or tax-advantaged products (variable and registered index-linked securities), including: ETFs that invest in illiquid assets such as private equity or private credit; municipal securities; 529 Plans; private placements; structured products; alternative investments; and products with complex fee structures or return calculations, including those based on exotic benchmarks.
• Recommendations made to older investors and those saving for retirement, those involving moving investment to substantially similar product, and those relating to opening different account types (e.g., margin, options).
• Dual registrants (i.e., broker-dealer and investment adviser) and firms’ processes for identifying, mitigating, and eliminating potential conflicts of interest related to compensation or other financial incentives.

Examination Risk Areas Affecting All Market Participants

Cybersecurity

Registrant cybersecurity practices are a longstanding priority. The Division emphasizes reviewing registrant practices designed to prevent disruptions to mission-critical services and to safeguard investor information, records, and assets. Key areas for potential examination include assessing firm policies and procedures pertaining to incident response and recovery (especially for cyber-incidents such as ransomware), processes to mitigate new risks associated with AI-enabled cyber risk (polymorphic malware), governance practices, data loss prevention, access controls, and account management. 

Regulation S-ID (Identity Theft Safeguards) & S-P (Privacy Safeguards)

• For Reg S-ID., examiners will evaluate whether firms have a written Identity Theft Prevention Program designed to identify “red flags” and detect account takeover risk and whether firms provide prevention training.
• For Reg S-P, now that 2024 amendments are in place for some firms and the remaining firms by June 2026, the SEC will focus on incident-response programs to detect, respond to, and recover from unauthorized access or use of customer data. 

Emerging Financial Technology

The Division will continue scrutinizing firms’ use of automated tools, AI, algorithms, and alternative data. Key topics for examination include whether 1) representations about these tools and services are accurate; 2) operational controls align with disclosures; 3) advice generated by algorithms is consistent with investor profiles and regulatory obligations to investors, in particular for retail and older investors; and 4) firms have effective policies/procedures to supervise AI usage. 

Anti-Money Laundering (AML)

The Division will continue to assess whether broker-dealers and certain investment companies have AML programs that are tailored to their business models and risk profiles, include independent testing, have effective customer identification procedures, are filing required Suspicious Activity Reports, and ensure compliance with OFAC (Office of Foreign Assets Control) sanctions.

Key Takeaways

Although many of the 2026 Priorities remain the same, in preparing for the possibility of an SEC examination, firms should consider reviewing their compliance programs (policies, procedures, and implementation) for alignment with the Division’s areas of focus and scrutiny, with particular attention to:

• Adherence to fiduciary and fiduciary-like standards across advisers, funds, and broker-dealers—particularly for retail and older investors—covering advice quality, costs and fees, liquidity, and risk.
• New business lines, mergers/acquisitions, use of new technologies, complex or illiquid products, and vendor/third-party access and data security.
• Identification, management, and disclosure of conflicts of interests.
• Suitability and due-diligence processes (especially for alternative/complex investments), supervisory frameworks for AI/tools, incident-response plans (for cybersecurity/data breaches) and governance over emerging risks.

¹ See, https://www.sec.gov/newsroom/press-releases/2025-132-sec-division-examinations-announces-2026-priorities 

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Jim Bowman, an O’Melveny partner licensed to practice law in California; Mark A. Racanelli, an O’Melveny partner licensed to practice law in New York; Sharon M. Bunzel, an O’Melveny partner licensed to practice law in California; Jorge deNeve, an O'Melveny partner licensed to practice law in California; Andrew J. Geist, an O’Melveny partner licensed to practice law in New York; Mia N. Gonzalez, an O’Melveny partner licensed to practice law in New York; Tracie Ingrasin, an O'Melveny partner licensed to practice law in New York; Michele W. Layne, an O’Melveny of counsel licensed to practice law in California, and Waqas A. Akmal, an O’Melveny counsel licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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