Federal securities examiners plan to step up scrutiny of financial firms’ use of artificial intelligence, as well as their defenses against AI-powered cyberattacks.
The Division of Examinations of the Securities and Exchange Commission (SEC) on Oct. 23 released its priorities for 2027.
The document will guide reviews of more than 34,000 SEC-registered firms and market entities, including investment advisers, broker-dealers, clearing agencies, and securities exchanges.
The division said it will focus on whether firms are complying with existing rules as they increasingly use AI for investment research, coding, customer and portfolio management, and compliance.
It will also monitor how the regulated market is dealing with emerging trends such as extended trading hours and tokenized securities, which are digital tokens on blockchain networks that represent ownership of real-world assets.
“As these capabilities grow more sophisticated and embedded in daily business processes, the Division is intensifying its efforts to understand how the technologies influence outcomes and whether firms continue to comply with existing, technology-neutral obligations,” the agency said.
AI and Cybersecurity
Examiners will look at how firms are preparing for AI-enabled cyberthreats, including phishing messages and deepfake audio and video designed to deceive employees or customers.
The division will also review how firms oversee their own use of AI in areas such as fraud detection, back-office operations, anti-money-laundering programs, and compliance with Regulation Best Interest.
That rule requires broker-dealers to act in the best interests of retail customers when they make investment recommendations.
Automated investment tools and trading systems will receive particular attention.
Examiners will review whether firms accurately describe how those systems work, whether their internal controls match what they tell investors, and whether automated recommendations are consistent with a customer’s investment profile and stated strategy.
Cybersecurity remains a broader priority. The SEC said examiners will review firms’ protections for sensitive data, controls over who can access systems, responses to ransomware and other cyberincidents, and their reliance on outside technology providers.
Focus on Retail Investors
Retail investor protection is another major focus for 2027, as more complex and less liquid investments become available to individual investors.
The SEC said examiners will pay particular attention to recommendations involving products that are difficult to sell quickly or have unusual structures.
Those include loans provided by private funds, investments in private companies through special purpose vehicles, and exchange-traded funds based on less liquid assets.
The heightened scrutiny comes as the SEC itself moves to broaden access to private markets.
In September, the commission proposed changes aimed at making it easier for retail investors to gain private-market exposure through regulated funds.
Among other things, the proposals would modernize rules for interval funds, which allow investors to redeem shares only at specified times, and expand circumstances in which advisers can receive performance-based compensation.
The SEC is also considering additional ways for individuals to qualify as accredited investors, including through professional credentials or a potential investor-qualification exam.
Emerging Market Trends
The SEC’s 2027 priorities also reflect major changes underway in the infrastructure of U.S. markets.
In April, the SEC approved Nasdaq’s plan to extend trading in U.S.-listed stocks to 23 hours a day, five days a week.
The change has raised questions about whether sufficient liquidity will be available during overnight hours and how brokers will handle order routing and risk when traditional markets are less active.
The Division of Examinations said it will review those issues, including whether liquidity providers are available during extended trading periods, and whether firms are meeting their best-execution obligations.
Tokenization is another growing focus. In September, the SEC granted temporary exemptions allowing limited trading of tokenized versions of stocks listed on U.S. exchanges through certain blockchain-based venues.
The SEC noted that the priorities are not an exhaustive list and may change as new risks emerge.
The report refers to artificial intelligence as “super intelligence,” or “SI,” following President Donald Trump’s Sept. 29 executive order directing federal agencies to use the new terminology.
