Examiners at the Securities and Exchange Commission are investigating advisors’ integration of artificial intelligence into their operations, including portfolio management, trading, marketing and compliance.
According to the SEC Exam Division’s 2025 Priorities, released Monday, examiners may examine firms’ “compliance policies and procedures” regarding AI-related services or procedures and their disclosures to investors.
In addition to a previously reported SEC sweep looking into how firms use AI-based tools, it’s the latest indication of an ever-increasing focus by the commission on registrants’ use of AI in their daily practices. It’s all the more notable, considering artificial intelligence was barely mentioned in last year’s exam priorities and wasn’t cited in the 2023 release.
According to the SEC, the exam division will review registrants “regarding their AI capabilities or AI use for accuracy” and determine whether they’ve put adequate policies and procedures in place to supervise the use of AI, including for tasks related to fraud prevention and detection, back-office operations, anti-money laundering processes and trading functions.
“In addition, the division will examine how registrants protect against the loss or misuse of client records and information that may occur from the use of third-party AI models and tools,” the priorities document read.
According to the compliance services provider ACA Group, the SEC’s AI sweep included requests for information on how firms managed AI-related conflicts of interest, marketing materials mentioning AI, continuity plans around AI system failures and other related documents.
This focus comes despite a recent ACA Group survey indicating that 64% of advisory firms had no plans to build or use client-facing AI tools or predictive analytics models in the future (compared to 30% of firms who said they’re not currently doing so but are “exploring or actively building” such tools).
Though AI was mentioned in the 2024 priorities, it’s far more prominent this year, according to Lori Weston, director of product and strategy at STP Investment Services. Firms should be particularly vigilant, considering regulators are bringing enforcement actions against registrants for AI-related lapses.
Weston also said the SEC’s “increased focus” on outsourcing, particularly for advisors related to investment selection and management.
“Advisers should review their overall policies regarding the supervision and oversight of all third-party providers, with a particular focus on the third-party provider’s use of AI,” she said. “In today’s interconnected environment, AI risks can infiltrate a firm’s operations via third-party vendors.”
The commission has been weighing rules related to broker/dealer and RIA conflicts using predictive data analytics, AI and machine learning. However, according to regulatory information at the White House Office of Management and Budget, the commission is considering re-proposing those rules, pushing back their final stages even further.
As in previous years, examiners continue to watch investment advisors’ adherence to fiduciary duties and b/d’s compliance with Regulation Best Interest. They’ll focus on advisors’ recommendations related to high-cost products, unconventional instruments, illiquid and difficult-to-value assets and those assets sensitive to higher interest rates and changing marketing conditions, including commercial real estate.
For dual registrants, examiners are investigating account allocation and selection practices (including differentiating between brokerage and advisory, including when rolling over to an IRA), according to the exam priorities.
Like last year’s priorities, examiners are investigating registrants’ use of crypto assets. Climate and ESG-related concerns are not mentioned in the priorities for the second year after being focal points for several prior years.
