As we settle into 2025, financial advisors face a dynamic regulatory landscape that demands our attention and adaptation. While we can’t pretend to have a crystal ball to know exactly what’s coming, we’re watching some themes and areas of interest. Let’s explore these potential developments and how they could impact your practice.
SEC Examination Priorities: What's on the Radar?
The SEC's Division of Examinations has made it clear that certain areas will be under intense scrutiny this year. Regulation Best Interest (Reg BI) remains a cornerstone of their examination program, with particular attention to how advisors handle complex or high-risk product recommendations. If you haven't recently reviewed your Reg BI compliance procedures, now is the time.
Form CRS compliance continues to be a priority. We're seeing increased attention to the technical accuracy of these relationship summaries, as well as their clarity and accessibility to clients. Remember, it's not enough to simply provide the form — the SEC expects meaningful disclosure that clients can understand and act upon.
One of the most significant shifts this year is the heightened oversight of digital tools and AI usage. As more firms integrate artificial intelligence into their operations, regulators are watching closely to ensure these technologies don't introduce conflicts of interest or lead to unsuitable recommendations.
Here are some other areas to keep an eye on this year:
Strengthening Your AML Framework
The updates to the Bank Secrecy Act are bringing notable changes to anti-money laundering requirements. Financial advisors need to ensure their AML programs align with national AML/CFT priorities. This means updating your policies and implementing more robust processes for identifying and reporting suspicious activities.1
Cryptocurrency: A Shifting Landscape
Crypto is still the new kid on the block, so we expect some action in the regulatory approach to digital assets. We're seeing indications of a more accommodating regulatory framework for cryptocurrency, balanced with appropriate risk management measures. This shift brings new responsibilities for advisors, particularly in client education. Your clients will look to you for guidance on navigating the opportunities and risks in this space.2
Cybersecurity: No Longer Optional
The SEC's new cybersecurity rules are expected to be finalized this year, bringing enhanced reporting requirements for cybersecurity incidents. The message is clear: protecting client data is non-negotiable. Firms will need to implement stronger safeguards and maintain robust incident response plans.
Managing Outsourced Services
For those relying on third-party vendors, new outsourcing rules will likely take effect this year. The key takeaway? You can delegate tasks but not responsibility. Advisors must conduct thorough due diligence on vendors and maintain oversight of outsourced functions to ensure they meet regulatory standards.
Private Markets Under the Microscope
If your practice includes private market investments, expect increased scrutiny of valuation practices and risk disclosures. The SEC is particularly focused on ensuring accurate valuations and comprehensive disclosure of risks associated with private equity and credit investments.
Enforcement: A More Active Approach
The regulatory environment is becoming more assertive, with increased violation penalties and more frequent examinations. Regulators are particularly focused on conflicts of interest, fiduciary duty, and fee transparency. This heightened enforcement atmosphere makes proactive compliance more critical than ever.
Looking Ahead
These potential regulatory changes underscore the importance of maintaining robust compliance programs and staying informed about evolving requirements. Success in 2025 will require understanding and effectively implementing these changes in your practice.
At Pilot, we're committed to helping advisors navigate these regulatory waters. Remember, compliance isn't just about avoiding problems — it's about building a stronger, more trustworthy practice that better serves your clients.
Stay tuned for more detailed guidance on specific aspects of these regulatory changes throughout the year. In the meantime, consider reviewing your current compliance procedures against these upcoming requirements to identify areas that may need attention.
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