/>iAs we head further into 2025, the landscape of SEC exams and enforcement is poised for significant shifts. How will the SEC adapt to emerging trends and evolving market dynamics? In the first issue of Beyond the Deal in 2025, four of our regulatory lawyers weigh in on what to expect. From new regulatory priorities to potential enforcement challenges, they offer key insights into how the SEC’s approach to private fund manager exams and enforcement may evolve in the year to come.
Partner, Securities Litigation
"Although the exam staff will aim to maintain their coverage of registered firms, they may be more willing to provide guidance compared to prior years. Enforcement resources and staff may shift away from labor-intensive crypto registration cases, reallocated to investigations involving individual investor fraud. Some types of matters may be deprioritized, such as off-channel text messaging sweeps and strict enforcement of the SEC’s pay-to-play rule. In settlement negotiations, I expect a more collaborative approach, including greater transparency into the Staff’s evidence and testimony record, increased flexibility in penalty discussions, and more credit for remediation and cooperation."
Partner, Securities Enforcement
"We anticipate the new SEC Chair to roll back many of the more aggressive policies of former Chair Gensler and revert to more traditional enforcement cases. While standalone compliance cases may become less frequent, investigations and examinations will still focus on a firm’s culture of compliance. Weak internal controls or inadequate policies are often viewed as “red flags,” prompting Staff to dig deeper and identify other potential problems. Despite a shift in enforcement priorities, investment advisers should continue to prioritize compliance and uphold their fiduciary obligations."
Partner, Private Funds
"At least in the near term, it may not be obvious that there have been many changes in the Division of Examinations. Exam planning cycles frequently extend months in the future and staff may have already been assigned to particular exams. The division is also geographically dispersed and has a very large head count, which will challenge even the most capable division director as they seek to shift priorities. Depending on the level of attrition the agency experiences, we could over time see examinations narrowing in scope. The percentage of advisers examined each year has held steady at about 15% through each of the past two administrations and there will be substantial pressure to keep this number from dropping; narrowing the scope of examinations would allow the division to examine the same percentage of advisers with fewer resources."
Partner, Private Funds
"Burdensome new rulemaking should decrease dramatically under the new Republican administration, although the SEC will remain focused on many of the same core compliance areas as under the prior Democratic administration. As such, I expect SEC Examinations and Enforcement staff to maintain scrutiny over fees and expenses, allocations, valuations, cross-fund transactions, other undisclosed conflicts, misleading marketing practices (particularly in the retail context) and related matters. While the threshold for referring a violation from Examinations to Enforcement may rise, these focus areas will remain as central to the agency’s oversight efforts as they have been for over a decade, including under the previous Republican administration."
