On October 23, 2026, the SEC Division of Examinations (the Division or Exams) published its fiscal year 2027 examination priorities.¹ In announcing the priorities, Chairman Paul Atkins noted, “Examinations provide critical insight into emerging risks, evolving business practices, and market developments across our financial system.” Exams Director Keith Cassidy likewise emphasized that as markets continue to evolve rapidly, “the examination program must evolve with them.”² As we observed last year, the Division took a back-to-basics approach centered on investor protection and market integrity, and we expect much the same again this year.³

This year’s examination priorities are organized similarly to last year’s, and the core examination themes remain largely intact. The most notable changes reflect developments in the markets rather than a fundamental shift in the Division’s examination philosophy. Such notable developments include the increased availability of private credit and other complex products to retail investors, the increasing use of artificial intelligence, and the reshaping of market infrastructure. 

Below we highlight certain aspects of the annual report, including selected priorities relevant to investment advisers, investment companies and broker-dealers.

Message From Division Leadership

There are several notable points in the “Message from the Leadership Team” section of the annual report. Division leadership noted that a central focus this year is improving how registrants access examination observations and engage with staff throughout the examination process. The message highlighted the Division’s outreach program, its risk alerts and the new SEC Exam Handbook,⁴ which, as we noted earlier this month, largely consolidates existing practice.⁵ Division leadership also highlighted enhanced memoranda of understanding with the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) that provide for “joint or aligned examinations.”⁶ For firms subject to oversight by both the SEC and CFTC (and in turn, NFA), that increased coordination makes consistency across regulatory submissions, examination responses and other communications particularly important. Additionally, Division leadership underscored recent strategic projects, including an examination projection model to improve risk-based resource allocation and a metric-based framework to help leadership assess the Division’s overall effectiveness. Finally, Division leadership’s message noted that the Division is intensifying its efforts to understand how the expanding use of generative artificial intelligence in core business functions (including investment and non-investment functions) influences outcomes and whether firms continue to comply with their existing “technology-neutral” obligations.

Focus Areas

The core focus areas of the 2027 Examination Priorities remain largely consistent with those identified for FY 2026, including investment advisers’ fiduciary obligations, broker-dealer financial responsibility, Regulation Best Interest (Reg BI), cybersecurity and the protection of customer information. That said, in our view, several developments stand out as areas of likely examination focus and potential enforcement risk.

Investment Advisers and Registered Investment Companies

Private credit and illiquid products. Last year, private credit appeared as an example of an alternative investment product that the Division will evaluate. This year, the press release accompanying the annual report lists “[p]rivate funds, private credit, and other complex investment strategies” as a key area of focus. Private credit comes up throughout the annual report, including in discussions of adviser recommendations, registered fund holdings, broker-dealer valuation practices and Reg BI. This focus follows the September 28, 2026 joint staff statement by the SEC’s Chief Accountant and the Director of the Division of Investment Management on fair value measurement and disclosure for private assets,⁷ which we discussed in detail in our October 8, 2026 client alert.⁸

The Division highlighted that it will monitor funds holding private credit or other less liquid assets and funds with leverage vulnerabilities, including business development companies and leveraged and inverse exchange-traded funds (ETFs). For advisers and funds with exposure to these assets, valuation, liquidity, disclosures and related controls will continue to be important areas of focus in examinations. Firms should consider revisiting their valuation policies and procedures and related practices, including the methodologies and inputs used to value illiquid assets, testing against available market evidence, oversight of third-party pricing services, documents supporting valuation judgments, and related investor disclosures regarding valuation methodologies, credit quality and liquidity.

Relatedly, the annual report’s focus on retail investors’ expanding access to complex, sometimes illiquid investments fits the SEC’s broader emphasis on retail investor protection related to complex and alternative products. The SEC’s press release underscores this focus, expressly identifying the protection of retail investors in connection with “complex, higher-risk, and illiquid products” as a key FY 2027 examination priority.⁹ Firms offering these products to retail clients should expect examiners to focus on whether their due diligence, investment allocation policies and practices, recommendations, and disclosures appropriately address the products’ risks and characteristics.

Registered fund expenses and portfolio management disclosures. More generally in the registered fund space, the Division will focus particularly on fund operations relating to (i) fund fees and expenses, including any related waivers or reimbursements, and (ii) portfolio management practices and whether related disclosures align with stated investment strategies, fund filings and marketing materials.

Fiduciary duty and conflicts of interest. As a perennial concern, examiners will review investment advisers’ compliance with their fiduciary duties, including full and fair disclosure of material facts and conflicts and due diligence on recommended products and valuation, with a particular emphasis on retail and older investors. The Division will continue to prioritize economic conflicts, but this year’s annual report describes them with greater particularity, citing fee rebates, fee and expense calculations, cash management, and quid pro quo arrangements. That specificity dovetails with Exams’ June 9, 2026 risk alert on disclosures regarding economic conflicts of interests, which identified issues with disclosures related to cash management recommendations, revenue sharing arrangements, and fees and expenses.¹⁰

Artificial intelligence/ “super intelligence.” Following the September 29, 2026 executive order directing federal agencies to use the term “super intelligence,”  the 2027 Examination Priorities use “super intelligence”¹¹ (SI) to describe artificial intelligence and related technologies that registrants increasingly incorporate into their businesses. The 2027 Examination Priorities state that SI use ranges from research, drafting and client communications to advisory and portfolio management functions, including compliance monitoring. As the use of these technologies becomes more integrated into firms’ operations, Exams is increasingly focused on assessing whether firms’ use of SI is consistent with their obligations under the federal securities laws.¹² Accordingly, firms using SI in investment recommendations, portfolio management or other advisory functions should be prepared to demonstrate how those uses operate within their existing fiduciary, compliance and supervisory frameworks.

Exams is also integrating SI into its own examination and risk-assessment processes. As part of a broader modernization initiative, the Division is seeking to use SI-supported tools to strengthen analysis, improve workflow efficiency, and identify patterns and risks across complex datasets while emphasizing that such tools will supplement, rather than replace, examiner judgment.

Cybersecurity. Cybersecurity likewise remains a significant examination priority, as well as an area of focus for the Division of Enforcement, with examinations focusing on firms’ information security practices, operational resiliency and compliance with Regulations S-ID and S-P. FY 2027 will mark the first full examination cycle following the compliance dates for the Regulation S-P amendments, which were December 3, 2025, for larger entities and June 3, 2026, for smaller entities. 

Perhaps not coincidentally and to highlight the SEC’s focus on custody and cybersecurity, on the same day Exams released its priorities, the SEC announced settled charges against an investment adviser for violations of the Custody Rule and Rule 201 of Regulation S-ID. Among other things, the order finds that the adviser failed to implement its written identity theft prevention program, including by failing to undertake internal reviews and to update it periodically to address red flags it had detected. The adviser agreed to a cease-and-desist order, a censure and a $175,000 civil penalty.¹³

Although neither SI nor cybersecurity is a new examination priority, Exams is signaling greater attention to how firms use and govern technology in practice. Firms should therefore be prepared for examinations that test not only the existence of policies, procedures and governance frameworks but also how those frameworks operate in practice and whether controls are implemented as designed. 

Proxy voting/beneficial ownership reporting. The Division highlighted that it will examine advisers that use outside proxy advisory firms, with a focus on how such advisers evaluate the firms’ recommendations, examine their investor/client bases, identify potential conflicts of interest and determine whether that reliance satisfies applicable legal obligations. This follows the December 11, 2025 executive order on proxy advisers, which, among other things, directed SEC staff to examine whether registered investment advisers’ use and reliance on proxy advisers with respect to nonpecuniary factors is consistent with their fiduciary duties and directed the SEC Chairman to consider enhanced transparency regarding proxy advisers’ recommendations, methodologies and conflicts of interest.¹⁴ Proxy advisory firms that are themselves registered investment advisers have also been a focus of examinations. For example, in March 2026, the Division began an examination of Institutional Shareholder Services, Inc. (ISS), and sought information concerning its proxy recommendations and votes; the SEC subsequently filed a subpoena enforcement action in September 2026 seeking to compel ISS to produce the requested records.¹⁵

Although the 2026 Examination Priorities also addressed advisers’ beneficial ownership filings (i.e., Schedules 13D and 13G), this year’s annual report makes particular note of advisers with “activist engagement practices.” That emphasis follows closely on the SEC’s October 7, 2026 report of investigation under Section 21(a) of the Securities Exchange Act of 1934 (the Exchange Act) of certain members of Climate Action 100+, which was the SEC’s first Section 21(a) report in eight years.¹⁶

The Section 21(a) report cautioned that coordinated engagement among investors can result in the formation of a “group” implicating beneficial ownership reporting requirements under Section 13(d) of the Exchange Act. The Section 21(a) report also cautioned that participating in efforts to change or influence control of a specific issuer may be inconsistent with eligibility to report on Schedule 13G, the short-form beneficial ownership report. Against that backdrop, advisers should pay close attention to their interactions with each other and how those might be interpreted by the SEC as well as activity that could be perceived as an exercise of influence, which might result in a reassessment of an adviser’s Schedule 13G eligibility. 

Broker-Dealers

Treasury clearing reforms and tokenization. Treasury clearing reforms and tokenization are now an express focus, and extended trading hours and straight-through processing feature prominently in Exams’ discussion of trading-related practices and services. 

In addition to testing compliance with the Net Capital and Customer Protection Rules, examiners will review liquidity risk management and prime brokerage risks. The Division will also review overnight trading operations, the readiness of liquidity providers, best execution and, as we have highlighted, the valuation of illiquid instruments such as private credit.¹⁷

Notably, crypto is no longer identified as a separate examination priority. Instead, digital assets will likely play a secondary role in examinations focused on market structure and tokenization. 

Broker-dealer supervision. Supervision is now broken out as a priority, which suggests that examiners will treat supervisory systems as a separate line of inquiry. Examiners will evaluate whether broker-dealers maintain supervisory systems, written policies and procedures, and internal controls reasonably designed to comply with federal securities laws. The SEC’s press release likewise identifies broker-dealer supervision as a key FY 2027 area of focus.¹⁸

Anti-money laundering (AML). The 2027 Examination Priorities place AML as a risk within the “Broker-Dealers” section, rather than across regulated areas as in FY 2026. Examiners will continue to focus on whether programs are appropriately tailored and updated, independent testing, ongoing customer due diligence and Suspicious Activity Report filing. Examiners will also look at trading in foreign-based companies, including pump-and-dump schemes, in coordination with the SEC’s Cross-Border Task Force. In addition, examiners will review due diligence on foreign omnibus and nested accounts. 

Reg BI and retail account recommendations. Examiners will continue to focus on product and account recommendations, conflicts, consideration of reasonably available alternatives, and disclosure and care obligations. Products of particular interest include variable and registered index-linked annuities, low-priced securities, zero-days-to-expiration options, single-stock ETFs, private placements and structured products. Dual registrants’ account allocation practices, including account selection practices and allocation of investments where an investor has more than one type of account, remain a focus.

Takeaways

The FY 2027 priorities largely build on those from FY 2026 but also reflect meaningful change in the products, technologies and market practices through which examiners will apply these priorities. Firms are therefore cautioned against treating this year’s priorities as simply a repeat of those from prior years. In particular, advisers, investment companies and broker-dealers should consider whether their existing compliance frameworks address the specific risks presented by private credit and other illiquid investments, economic conflicts, SI, cybersecurity and evolving market infrastructure. 

WilmerHale’s Securities and Financial Services Department has deep experience advising registrants across the examination, enforcement and policymaking functions. Our team includes recent senior leadership of the Division of Investment Management, Division of Examinations and Division of Enforcement. Reach out to your contact at WilmerHale or a member of our Securities and Financial Services Department with any questions or for additional guidance.