The Division of Examinations said investment advisers, brokers, clearing agencies and other registrants should expect reviews of private fund fees, expenses and valuation practices. The heightened scrutiny of private fund pricing and credit comes as the agency weighs expanding which retail investors can participate in private markets - from private equity to early-stage startups that historically haven't been open to the public.
Examiners will also spend time on retail investor protection, with a particular focus on products that are complex, higher risk and hard to sell quickly. Private credit managers have recently faced a wave of redemption requests from investors seeking to cash out, adding to the backdrop.
Artificial intelligence has been on the priority list before, but this year's plan goes further to reflect rapid technological change, including cybersecurity. Examiners will evaluate potential impacts of AI-powered attacks on firms and clients, pointing to tactics such as phishing bait as well as the use of deepfake audio and video to conduct social-engineering schemes.
The SEC publishes its examination priorities annually to outline how it promotes compliance, detects fraud and monitors risks. Exam results may be referred to the agency's Enforcement Division to pursue additional investigation. The staff also reviews self regulatory organizations, including the Financial Industry Regulatory Authority.
This year's plan adds the Public Company Accounting Oversight Board - the U.S. audit watchdog - among the bodies that can be examined. Potential inquiries include whether the board is adhering to its own policies and procedures.
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The report debuts a section on working with the Commodity Futures Trading Commission, the derivatives overseer. Some firms straddle both the commodity futures arena and the equity options space, making them candidates for review by both agencies. The SEC and CFTC said they aim to coordinate exam planning to spot opportunities for joint or aligned reviews.
"Examinations are one of the Commission's most important tools for promoting compliance with the federal securities laws and helping protect investors," said SEC Chairman Paul S. Atkins in a statement.
In plain English: private market players should expect more questions about how they price assets, what they charge and how they guard against AI driven cyber threats. That can influence how private funds report values and what disclosures you see on fees and liquidity for complex, higher risk products aimed at retail investors.
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