SEC Announces FY 2027 Examination Priorities: Key Compliance Considerations for Investment Advisers and Broker-Dealers

On October 23, 2026, the SEC’s Division of Examinations released its Fiscal Year 2027 Examination Priorities. The report identifies the practices, products, and services the Division believes present heightened risk to investors or market integrity in the coming year. It covers more than 34,000 registrants, including investment advisers, broker-dealers, investment companies, clearing agencies, municipal advisors, transfer agents and funding portals.

The priorities reflect Division staff views, do not establish new legal obligations and are not exhaustive. They provide insight into risks the Division has identified and can help firms prioritize risk-based compliance reviews and testing. The priorities also reference recent Division publications, including its June 2026 Risk Alert on adviser economic conflicts of interest and its Exam Handbook. 

Key Focus Areas for FY 2027

• Investment adviser fiduciary obligations, with emphasis on economic conflicts of interest and fee practices,  how investment advice is formulated, and compliance program effectiveness
• Retail and older investor protection, particularly for complex, higher-risk, and illiquid products
• Private funds, private credit, and other complex investment strategies
• Broker-dealer financial responsibility, trading practices, Regulation Best Interest, supervision, and anti-money laundering compliance
• Operational resiliency, cybersecurity, and protection of customer information, including under amended Regulation S-P and Regulation S-ID
• Emerging technologies, including what the Division refers to as super intelligence (SI), both in firms’ business activities and as a source of cybersecurity and fraud risks
• Market infrastructure changes, including Treasury clearing reforms and tokenization

Read the SEC's Full Report

Investment Advisers

Economic conflicts: The Division will prioritize economic conflicts that may affect the impartiality of advice, specifically naming fee rebates, fee and expense calculations, cash management, quid pro quo arrangements, deposits, and withdrawals. The report cites the Division’s June 2026 Risk Alert, which described undisclosed or incomplete conflict disclosures and billing practices inconsistent with advisory agreements.

How advice is formulated: Examiners will evaluate the range of factors an adviser considers when recommending products and strategies and whether those factors are consistent with client profiles, investment objectives, risk tolerance, and mandates. Named factors include liquidity, volatility, projected performance across market conditions, time horizons, and costs, including exit costs. The Division will pay particular attention to products that are illiquid, difficult to trade, or have unusual features, such as loans provided by private funds or BDCs, investments in private companies through special purpose vehicles, ETFs based on less liquid assets, option-based, inverse, and single-stock ETFs, and zero-days-to-expiration options.

Private funds: Reviews will assess investment-related risk disclosures and whether controls address both fund-level and investment-level risks, including allocations, use of debt and fund-level lines of credit, affiliated service providers, and the accuracy of fee and expense calculations.

Third parties: The Division will examine advisers that use third parties to access client accounts where existing controls may be insufficient to protect client assets and data. It will also examine advisers that rely on proxy advisory firms, including how they evaluate those recommendations and identify related conflicts.

Compliance programs and firms in transition: Examiners will typically analyze the adviser’s annual compliance review and will focus on whether conflict policies are implemented, particularly for fee-related conflicts arising from account and product compensation structures. Advisers that have changed business models, added client types, asset classes, or services, grown through mergers or acquisitions, or operate from geographically dispersed branch offices should expect questions about whether the compliance program adapted. Never-examined and recently registered advisers remain a priority, and advisers with activist engagement practices will be reviewed for timely and accurate filings on Schedules 13D and 13G and Forms 13F, 13H, 3, 4, 5, and N-PX, as applicable.

Investment Companies

Registered fund examinations will focus on fees and expenses, including waivers and reimbursements, and on whether portfolio management practices align with stated strategies, filings, and marketing materials. The Division continues to monitor funds holding private credit and other less liquid or illiquid investments, funds with leverage vulnerabilities such as BDCs and leveraged or inverse ETFs, funds operating under exemptive orders, and never-examined funds.

Broker-Dealers

Financial responsibility: Compliance with the Net Capital and Customer Protection Rules, including recent amendments concerning daily customer reserve computations; separately, the operational and financial implications of U.S. Treasury clearing reforms, liquidity stress readiness, and prime brokerage risks.

Trading practices: Extended-hours trading and liquidity provider availability, best execution, and the pricing and valuation of illiquid instruments such as private credit and private equity.

Regulation Best Interest: Account and rollover recommendations, switches to substantially similar products, recommendations to open options, margin, or self-directed IRA accounts, and complex products such as variable and registered index-linked annuities, private credit and private equity vehicles, structured products, and private placements.

Form CRS and dual registrants: How firms describe services, fees, and conflicts; the accuracy of disciplinary history disclosures; and account selection and allocation practices.

Unregistered persons: Supervision of payments to finders and of transaction-based compensation paid to personal-service entities not registered as broker-dealers.

AML and sanctions: Program tailoring, independent testing, foreign omnibus and nested accounts, “pump-and-dump” and “ramp-and-dump” risks in foreign-based companies, ongoing customer due diligence, SAR filing, and OFAC sanctions compliance.

Supervision: Whether supervisory systems and procedures cover new business activities and products, and whether qualified individuals have been designated with supervisory authority.

Technology, Cybersecurity, and Data Protection

The Division will continue reviewing cybersecurity governance, data loss prevention, access controls, account management, and incident response, including ransomware readiness and risks from third-party service providers and shared technologies.

For super intelligence (SI), examiners will look at how firms are preparing for SI-enabled threats such as SI-generated phishing and synthetic or deepfake voice and video used for social engineering; how firms monitor their own use of SI in fraud prevention, back-office operations, AML and Reg BI compliance, and trading; and, for automated investment tools and algorithms, whether representations are fair and accurate, operations match disclosures, and advice is consistent with investor profiles or stated strategies.

Under amended Regulation S-P, staff will evaluate incident response programs, customer notification procedures, and service provider oversight. Under Regulation S-ID, they will assess whether Identity Theft Prevention Programs address account takeovers and fraudulent transfers and have been updated for emerging risks such as SI and stolen credentials.

Actionable Takeaways for Compliance Teams

Investment advisers should consider:

1. Reviewing and updating a written inventory of economic conflicts, including direct and indirect compensation, cash sweep economics, revenue sharing, custodial benefits, and fee rebates; assessing whether conflicts are appropriately addressed and disclosed; and reconciling relevant disclosures with Form ADV Part 2A and client agreements.
2. Testing a sample of client invoices against the fee terms in the governing advisory agreement, including householding, breakpoints, and billing on cash.
3. Documenting due diligence for complex and illiquid products, including liquidity, exit costs, and performance under adverse market conditions, and assessing whether the recommendation process satisfies the adviser’s fiduciary duty of care in light of the client’s objectives and circumstances.
4. Documenting how the risk assessment, policies, and Form ADV were updated if the firm has merged, acquired a practice, opened branches, or added new client types, asset classes, or services.
5. Assessing whether the annual compliance review evaluates the effectiveness of policies and procedures through appropriate testing and documents identified deficiencies and corrective actions (see our annual compliance review summary).
6. Identifying third parties with access to client accounts, documenting the controls around that access, and documenting the firm’s process for evaluating any proxy adviser recommendations it relies on.

Broker-dealers should consider:

1. Re-testing Reg BI Care Obligation documentation for rollovers, account-type recommendations, and complex products, including how reasonably available alternatives were considered.
2. Confirming that Form CRS content, including disciplinary history, reflects current services, fees, and conflicts.
3. Inventorying payments to finders and to unregistered personal-service entities, and evaluating the related supervisory controls.
4. Separately assessing the applicability and implementation dates of amendments concerning daily customer reserve computations and U.S. Treasury clearing, and testing the relevant financial responsibility procedures.
5. Reviewing AML risk assessments and due diligence for foreign omnibus and nested accounts, along with independent testing and OFAC screening.

Both broker-dealers and investment advisers should consider:

1. Conducting a tabletop exercise to evaluate incident response, customer notification procedures, and service provider oversight under the amended Regulation S-P.
2. Reviewing Identity Theft Prevention Program red flags (Regulation S-ID) for account takeovers, synthetic or deepfake voice and video, and compromised credentials.
3. Maintaining an inventory of emerging technology tools in use, with appropriate approval, oversight, and recordkeeping controls, and checking that public statements accurately describe the firm’s use of those tools.
4. Preparing for the SEC's exam process itself using the Division’s new Exam Handbook (see our Exam Handbook overview).

Gaps between a firm’s disclosures, policies, and actual practices may increase regulatory exposure and result in examination findings or additional remediation efforts. Bates Group helps compliance and risk leaders at broker-dealers and investment advisers assess their programs in light of these priorities. Our consultants can assist with conflicts inventories and Form ADV reviews, fee billing testing, Reg BI and Form CRS assessments, mock examinations, and reviews of cybersecurity, Regulation S-P, and Regulation S-ID programs, as applicable. We also work with leadership to prioritize and document remediation.

Contact Bates Group today to discuss how we can support your firm’s SEC compliance needs.