Increased AI adoption, cyberattack risk and cryptocurrency trading may bring new scrutiny to advisors’ affairs. Additional regulations, processes and exam foci are possible. The greatest influence, though, could be the changing of the guard at the US Securities and Exchange Commission. To better understand the 2025 regulatory outlook, SmartBrief asked Michelle L. Jacko, CEO of compliance consultancy Core Compliance, about all of these factors and how advisors should prepare.
SmartBrief: How may SEC leadership changes affect advisors?
Michelle L. Jacko: While only time can tell, we can expect an overall shift in approach. New Chair Paul Atkins served as SEC Commissioner from 2002 to 2008 and was known for advocating for market efficiencies and reducing regulatory burden, along with applying principal-based guidelines. Under his direction, we can expect an SEC focused on fraud prevention and the protection of retail investors from investment losses and material harm, not necessarily rapid new rulemaking.
The SEC has announced the formation of a Crypto Task Force led by Hester Peirce. Peirce, who recognizes that the crypto industry is in limbo following many proposed rules, wants to allow for innovation while keeping fraud at bay. We can expect rulemaking to focus on the status of crypto assets under securities laws, and, potentially, temporary relief for free trade of coin and token offerings (providing certain provisions are met), as well as additional guidance on registration and custody solutions for advisers.
SB: How have SEC examination focus areas evolved for 2025?
MJ: The SEC has increased attention on evolving risks, including the use of AI, alternative revenue streams (e.g., selling non-securities products such as real estate, insurance and tax planning services to clients), appropriateness and accuracy of disclosures (such as fee-related conflict disclosures and best interest analysis for the conversion of broker-dealer accounts to advisory accounts).
Additionally, the SEC is placing greater scrutiny on private fund adviser oversight, such as consistency of disclosures with actual practices, clear allocation of fees and expenses, and compliance with recently adopted rules, including Form PF.
The SEC will also continue to focus on oversight of remote workers and vendors.
SB: What are some other hot topics you’re seeing from the SEC?
MJ: Regulators have shown a heightened focus on:
- Broker-Dealer to Advisory Account Conversions: Regulators are scrutinizing how firms transition clients to ensure accurate fee disclosures, suitability is being demonstrated, advisory fees impacts are understood and changes align with the client’s best interest.
- Regulation S-P Amendments: The SEC has strengthened client data protection requirements, particularly in response to cyber threats. Terms include the development, implementation and maintenance of policies and procedures to detect, respond to and recover from unauthorized access to or use of customer information, as well as notification to clients in the event of a privacy breach.
- Anti-Money Laundering: The new AML requirements for certain advisers and ERAs remain a hot topic. Requirements include risk-based policies, procedures and controls to prevent money laundering and terrorism. While advisers can still delegate the implementation of the AML program (assuming certain conditions are met), they will ultimately be held responsible.
- Off-Channel Communications: Defined as business-related communications conducted over devices or platforms that have not been approved for business use and are not monitored by the firm, off-channel communications must be closely supervised. The SEC continues to crack down on firms that fail to properly capture and supervise these types of communications.
SB: Do you see any new regulations on the horizon?
MJ: Commissioner Peirce has made plain her ideal of a framework that allows crypto projects to develop freely while keeping fraud in check. With the creation of the Crypto Task Force, a temporary “Safe Harbor Rule” for token offerings could be in the works. Peirce has commented on the possibility of recommending the Commission provide temporary relief for coin or token offerings, as long as the issuing entity (or other entity) ensures certain information is kept accurate and updated.
We also believe that the SEC will provide guidance on the use of generative AI, with expectations on how registrants fully vet AI products, supervise its use and safeguard client data to fulfill fiduciary duty obligations.
SB: From a compliance perspective, what does the rise of AI mean for advisers?
MJ: In addition to being a focus area within the 2025 Exam Priorities, the SEC has established a working group specifically focused on artificial intelligence. As industry adoption grows, so does the need for robust oversight. The SEC is prioritizing review of firms’ representations of their AI capabilities and use, adequacy of disclosures and procedures governing AI use in applications such as fraud prevention, back-office operations, AML, trading and protection against the loss or misuse of sensitive information when using third-party AI systems. Consequently, advisers should begin developing adequate policies and procedures to monitor and supervise their firm’s use of AI to mitigate associated risks.