Securities and Exchange Commission examiners will step up scrutiny of private fund valuations and artificial intelligence, the latest sign of regulatory concerns about emerging market risk.
Investment advisers, brokers, clearing agencies and others can expect staffers at the Wall Street watchdog to focus on fees, expenses and valuations in private funds, according to the agency’s Division of Examinations priorities released Friday. The agency also plans to zoom in on how firms prepare for AI-related cyberattacks.
The focus on private fund valuations and credit comes as the SEC considers expanding retail investor access to private markets, including private equity and early-stage startups that have been historically off-limits to the general public.
See more: The Hidden Costs of AI: Are You Paying Attention?
At the same time, private credit managers have faced a wave of redemption requests as anxious investors try to cash out. Examiners will spend time on what the SEC calls retail investor protection, particularly for complex, higher-risk, and illiquid products, the agency said.
Although artificial intelligence has been listed as a priority for examiners in previous years, the SEC went into further details this year to reflect rapid changes in technology, including cybersecurity.
Examiners will focus on how AI-fueled attacks may affect firms’ businesses or customers, such as through phishing messages and deepfake voice and video used for social engineering.
The SEC publishes its examinations priorities every year to signal how it aims to promote compliance, identify fraud, and monitor risks. Exam staffers sometimes escalate findings to the agency’s enforcement division for further investigation.
