The U.S. Securities and Exchange Commission (SEC) Division of Examinations has published its Fiscal Year 2026 Priorities, signaling a heightened focus on systemic risk, emerging technology, and governance of complex investment products. For investment advisers, particularly those operating in the private markets (e.g., private equity, venture capital, private credit), these priorities necessitate a strategic review of compliance infrastructure, operational resilience, and investor disclosure practices.
The institutional focus: Private funds and alternative investments
The SEC continues its rigorous scrutiny of the private funds industry. The focus remains on areas where conflicts of interest and lack of transparency can detrimentally affect limited partners:
- Valuation and liquidity. Examination of the methods and controls surrounding the fair valuation of illiquid assets, especially in periods of market volatility. This includes assets held by private credit funds and funds with extended lock-up periods.
- Fees, expenses, and conflicts. Scrutiny of the allocation of fees and expenses, including operating costs, portfolio company expenses, and the rationale supporting these allocations. Examiners will specifically look at side-by-side management, where a fund manager advises both private funds and separately managed accounts, looking for preferential treatment.
- Newly launched funds and managers. Increased attention on advisers who are new to the private fund space or have recently launched new products. Examiners will assess regulatory awareness, adequate liquidity management, and fundamental compliance structures (e.g., adequate disclosures, valuation processes).
- Complex products. Focus on investment vehicles that pose elevated risk due to structure or underlying assets, including funds with leverage vulnerabilities.
Emerging technology and operational resilience
The rapid integration of sophisticated financial technology, including artificial intelligence (AI), presents new compliance challenges. The SEC is pivoting from broad cybersecurity checks to detailed audits of governance and operational integrity.
- AI and algorithmic governance: AI has revolutionized asset management, but it comes with new risks. An AI compliance framework is nonnegotiable for funds employing or considering AI services. This framework should engage interdisciplinary expertise, ensuring AI algorithms meet ethical and practical standards and align with regulatory guidance.
- Cybersecurity and data integrity: Cybersecurity threats remain high on the SEC’s radar with continued focus on the implementation and enforcement of cybersecurity policies, including incident response plans, data loss prevention, and access controls. The SEC will prioritize training and controls designed to mitigate risks from advanced threats.
- Third-party vendor oversight (outsourcing risk): Heightened scrutiny of firms relying on external providers for critical operational functions (e.g., recordkeeping, cloud services, data migration). The SEC will examine the fund’s due diligence, contractual oversight, and ongoing monitoring of these vendors to ensure operational resiliency.
Compliance program integrity and fiduciary duty
The SEC continues to emphasize the foundational duty of investment advisers to act in the best interests of their clients. This includes strict adherence to the fiduciary standard and robust compliance with recent regulatory changes.
- Fiduciary duty and conflicts of interest: Prioritization of all aspects of fiduciary duty, with a heavy emphasis on identifying, mitigating, and disclosing conflicts of interest that could influence investment recommendations or fund management practices.
- Compliance with new rules: Focused examinations on compliance with recently adopted regulations, such as amendments to Regulation S-P (privacy of consumer financial information) and the “Investment Company Names Rule.”
- Post-transaction integration and anti-money laundering (AML): A continued review of whether firms have appropriately tailored their AML programs to their business models, including adequate customer identification programs and timely filing of suspicious activity reports. Note that the requirement for investment advisers to comply with AML regulations, originally set for Jan. 1, 2026, has been postponed to Jan. 1, 2028.
Looking ahead: Proactive strategies for investment advisers
While the 2026 examination priorities aren’t prescriptive rules or a compliance checklist, they’re a clear directive for risk management and strategic governance. The SEC is moving toward a more nuanced assessment of how firms manage complexity — in their assets, their technology, and their organizational structure.
Investment advisers should view these priorities as an opportunity to reinforce investor trust and enhance institutional credibility:
- Prioritize an internal risk-based audit on AI governance and private fund valuation.
- Review and enhance outsourcing due diligence for critical technology and operational vendors.
- Document all fiduciary decisions concerning fees, expenses, and differential treatment among investors.
Proactive, well-documented compliance will not only mitigate regulatory risk, but it’ll also strengthen investor trust and market integrity for sustainable growth.
