SEC to Focus on Conflicts, Complex Products, Private Markets in 2027 Exams

Wall Street’s watchdog has officially set its new year’s resolutions. 

The Securities and Exchange Commission recently published its fiscal year 2027 examination priorities, which guide compliance reviews for its more than 34,000 registrants, including advisors, broker-dealers, investment companies, clearing agencies and more. 

“This year’s examination priorities continue to underscore several longstanding areas of focus for registered investment advisors, particularly those involved with complex or higher-risk products,” said Erin Galipeau, special counsel in Seward & Kissel’s investment management group. 

Not Dropping the Ball  

When it comes to those complex products, the SEC calls out exchange-traded funds based on less liquid assets, single-stock ETFs, inverse ETFs, option-based funds and zero-days-to-expiration options as areas of attention, Galipeau noted. 

While many of the investment advisor priorities, such as economic conflicts of interest and controls related to third-party service providers, are fairly consistent with last year’s list, there are some key takeaways to note: 

• An important new priority is proxy voting and engagement, including an examination of advisors’ use of proxy advisory firms, said Sara Crovitz, partner and co-chair of the investment management department at Stradley Ronon. Examinations appear to have already included a module related to proxy voting recently, she said. Now, the priorities specifically reference ensuring that advisors with “activist engagement practices” are making timely and accurate filings. 
• For investment companies, “an interesting but not unexpected focus relates to less liquid investments, including private credit and associated valuation issues,” Crovitz added. 

Toasting Tomorrow’s Tech: Emerging technology including “super intelligence” (the name President Trump asked agencies to use for artificial intelligence) that may affect market operations, compliance, fraud prevention and investor protection will also be top of mind, the SEC stated. “Advisors should expect examination staff to leverage these tools to process, review and analyze information and should be prepared to discuss their own use of super intelligence during examinations,” Galipeau said.