SEC Exam Priorities Inform Investment Company Disclosures

As the Securities and Exchange Commission (SEC) enters the 2026 examination cycle, the Division of Examinations has published focus areas that provide insight into how RICs are likely to be evaluated in the year ahead. Separately and on an ongoing basis, disclosure review comments issued by the Division of Investment Management’s Disclosure Review and Accounting Office (DRAO) reflect recurring issues and emerging risks identified through risk-based reviews of RICs.

Key themes from the SEC’s “Fiscal Year 2026 Examination Priorities” and selected disclosure review comments issued by DRAO that relate to those priorities span the period from Jan. 1, 2022, through the date of publication. They are intended to provide context for RICs as they consider how current regulatory focus areas affect the transparency, consistency, and effectiveness of their disclosures and governance practices. Representative examples illustrating how these themes are applied in practice have been lightly edited for readability.

In under a minute

• The SEC’s 2026 examination priorities provide a road map for where examiners are expected to focus in the year ahead. For RICs, these priorities offer an opportunity to step back and ask a simple question: Do our disclosures and governance practices still reflect how the fund operates today, considering any changes in strategies, structures, or risks over time?
• The priorities emphasize core areas that continue to draw regulatory attention – including compliance programs, disclosures and filings, governance oversight, fund fees and expenses, and portfolio management practices – as well as higher-risk areas such as complex strategies, valuation, conflicts of interest, and liquidity.
• At a high level, the priorities reinforce long-standing expectations related to clarity, consistency, and decision-useful disclosure. What follows takes a closer look at how these expectations are applied in practice, using examples from recent SEC disclosure review comments to illustrate how regulatory focus areas are expressed and evaluated across filings and disclosures.

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Risk-based oversight: How examinations and disclosure reviews work together

Division examinations are conducted within a risk-based framework focused on promoting compliance, preventing fraud, monitoring risk, and informing policy. In practice, examinations consider whether compliance policies exist and whether disclosures and governance frameworks reflect how compliance programs, disclosure controls, and oversight processes are designed to function and are communicated consistently across required filings and investor communications.

This risk-based framework can accommodate innovation and evolving fund strategies where governance, documentation, and disclosure practices keep pace with changes. As RICs pursue new products, structures, or investment approaches, the examination program focuses on whether disclosures and governance frameworks have evolved accordingly to clearly communicate risks, controls, and oversight.

Disclosure reviews conducted by DRAO reinforce expectations for how effectively disclosures communicate key information, whether consistency across filings exists, and whether the disclosures describing controls and governance processes are adequate. Under the Sarbanes-Oxley Act of 2002, DRAO conducts regular, risk-based reviews of filing disclosures at least once every three years. Disclosure reviews include filings such as prospectuses, proxy statements, and shareholder reports for mutual funds, exchange-traded funds, closed-end funds, variable insurance products, unit investment trusts, and similar investment funds.

Examinations and disclosure reviews are mutually reinforcing. Findings from examinations might inform targeted disclosure scrutiny, while patterns identified in disclosure reviews can help shape future examination priorities. Together, these processes promote consistent regulatory expectations and provide registrants with greater clarity into how compliance, disclosure, and governance practices are viewed across the SEC’s oversight activities.

Crowe observation: The SEC’s current emphasis on disclosure effectiveness and governance reflects a continuation of long-standing regulatory expectations rather than a change in direction. For RICs, the examination priorities and related staff comment themes create a decision point for management and audit committees to consider whether disclosures and governance practices continue to keep pace with how the fund operates in practice, particularly as strategies, structures, and risks evolve in areas that remain central not only to regulatory focus but also to investor understanding and market confidence.

Exam priorities and related SEC DRAO comments

The following sections summarize exam priorities and illustrate how these themes are reflected in recent DRAO disclosure review comments.

Compliance programs, disclosure controls, filings, and governance oversight

DRAO comments focus on the design, implementation, and documentation of RIC compliance programs as described in required disclosures, certifications, and related filings. Rather than addressing solely the existence of policies, staff comments frequently examine whether disclosure controls, internal controls over financial reporting, and governance processes are clearly, completely, and consistently described in required disclosures.

For most RICs, these disclosure-based observations sit within the broader compliance and governance framework established under the Investment Company Act of 1940. In practice, SEC staff looks to required disclosures and related governance descriptions – including senior officer certifications, descriptions of audit committee oversight, and adherence to filing and public reporting requirements – as indicators of how a fund carries out its compliance and oversight responsibilities.

Example SEC comments:

• Valuation. Please explain how the company’s valuation procedures are consistent with Rule 2a-5 under the Investment Company Act of 1940.
• Cybersecurity. Item 106(c)(2)(i) of Regulation S-K requires that the company disclose the relevant expertise of the members of company management or persons who are members of any committees that are responsible for assessing and managing the company’s material risks from cybersecurity threats in such detail as necessary to fully describe the nature of the expertise. Please revise the company’s cybersecurity disclosure to satisfy this requirement.
• Disclosure controls and procedures. Please revise your disclosure to account for Item 16(a) of Form N-CSR, which requires disclosure of the conclusions of the registrant’s principal executive and principal financial officers, or persons performing similar functions, regarding the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of the report.
• Internal controls over financial reporting. Please revise your disclosure to include the language required by Item 11(b) of Form N-CSR and confirm whether there were any changes in the registrant’s internal control over financial reporting during the applicable period.
• Extensible business reporting language (XBRL) tagging and disclosure controls and procedures. Please confirm in correspondence that all required XBRL elements will be tagged in compliance with Form N-2, General Instruction I.1, and Regulation S-T Item 405. In addition, please describe the controls in place to review and evaluate such required tagging.
• Website disclosure. It appears that the fund’s website does not contain disclosure or a report including Items 7 through 11 of Form N-CSR as required by Rule 30e-1(b)(2)(i). Please update the fund’s website as soon as practicable and supplementally describe in correspondence how the registrant intends to ensure compliance with the rule in the future.

Crowe observation: These comments emphasize the importance of periodically reassessing disclosure controls and governance holistically – including how valuation oversight, cybersecurity governance, certifications, website postings, and XBRL tagging are coordinated and reviewed as part of a single disclosure process. Several of these observations, particularly those related to the online availability and accuracy of Form N-CSR information, are consistent with staff views reflected in Accounting and Disclosure Information (ADI) 2024-14, which documents common issues observed in the implementation of the tailored shareholder report framework.

Fund fees, expenses, and related waivers and reimbursements

DRAO comments continue to focus on the accuracy and completeness of fund fees and expense disclosures. Areas of emphasis include clear articulation of fee waivers, reimbursements, and recoupment arrangements; confirmation that expense caps reflected in fee tables satisfy minimum duration requirements; and alignment of fee and expense disclosures across prospectuses, financial statements, and related filings.

Example SEC comments:

• Fee waivers. It appears based on the financial statements that the structure of certain expense waivers might have changed or might not have been renewed. Explain in correspondence the effect of these changes on the expense limits and on any expenses subject to recapture and if disclosure should have been included.
• Fee waivers. Because the adviser charges no management fee, please revise the discussion of waivers and reimbursements to explain that the waiver provides only for fund expenses.
• Fee recoupment rights. To the extent there are recoupment rights under any waiver agreement and/or expense payment agreement, please concisely explain those rights. Explicitly and clearly describe the amount of expenses subject to recoupment, the expense ratio and distribution level at which recoupment may occur, and the expiration date(s) of the recoupable amount.
• Acquired fund fees and expenses. In the fee table, please add a subcaption titled “Acquired Fund Fees and Expenses” that discloses fees and expenses incurred indirectly by the company as a result of investments in shares of one or more acquired funds.
• Fee table. Please recompute and confirm the calculations in the referenced table for the one-year, three-year, five-year, and 10-year expense projections.
• Expense cap. Provide a completed fee and expense table in the response letter, and confirm in the correspondence that the cap will be for the duration of at least one year.
• Alignment of fee disclosures. Please verify the accuracy of each fund’s response to Item C.8.c of Form N-CEN regarding whether fees waived are subject to recoupment. The notes to financial statements indicate that fees are not subject to recapture, while the fee tables in the prospectus indicate that they are. Please clarify and make consistent.

Portfolio management practices and disclosure consistency

DRAO comments demonstrate that portfolio management practices are evaluated through the lens of GAAP presentation, classification, and consistency in the financial statements, including the schedule of investments, notes to financial statements, and related regulatory filings. Staff comments focus on whether a fund’s reported portfolio composition and related disclosures are consistent with accounting standards and accurately convey portfolio risks and concentrations to investors.

Staff comments in this area frequently reflect variations of a common theme – whether a fund’s portfolio holdings, investment strategy disclosures, and risk factors remain aligned as portfolio characteristics evolve over time.

Example SEC comments:

• Strategy alignment. Please explain how the fund’s investments, as reflected in the portfolio of investments, are consistent with the fund’s disclosed principal investment strategies.
• Strategy alignment and portfolio changes. We noted changes in the fund’s portfolio of investments that appear inconsistent with the fund’s stated investment strategy. Please explain supplementally and revise disclosure, as appropriate.
• Diversification status. In the annual reports, the funds disclosed that they are nondiversified. However, it appears that they are operating as diversified funds. If these funds have operated as diversified for more than three years, they will become de facto diversified funds. Please confirm that these funds will receive shareholder approval before changing back to nondiversified. See the Investment Company Act of 1940 Section 13a-1 and Rule 13a-1.
• Concentration risk disclosure. We noted that the fund has maintained a significant allocation to a particular industry over multiple reporting periods, as reflected in the portfolio of investments. Please revise the risk disclosure to address the risks associated with this concentration.
• Foreign investment risk. We noted that the fund’s portfolio of investments indicates that a substantial portion of the fund’s assets are invested in securities of foreign issuers. Please explain why the fund’s principal risk disclosure does not include foreign investment risk.
• Derivatives risk disclosure. We noted that the fund’s use of derivatives is reflected in the schedule of investments. Please revise the principal risk disclosure to more clearly describe the risks associated with the fund’s derivatives strategy.
• Schedule of investments classification. Section 12-12, footnote 2 of Regulation S-X requires that a registrant categorize the schedule of investments by 1) type of investment and then 2) by the related industry, country, or geographic location of the investment. Please revise the schedule of investments to appropriately categorize investments by type and by industry or geographic region, as applicable, in accordance with Regulation S-X.
• Cross-document risk consistency. Please ensure that risk disclosure in the financial statements aligns with current risk disclosure in the fund’s prospectuses and provide the reasoning for any alignment discrepancies between the fund’s prospectuses and financial statement disclosures.
• MD&A and period-to-period changes. Please consider reviewing and enhancing the disclosure in future filings to comply with Regulation S-K, Item 303(b): “Where the financial statements reflect material changes from period to period in one or more line items, including where material changes within a line item offset one another, describe the underlying reasons for these material changes in quantitative and qualitative terms.”

Crowe observation: These comments highlight the importance of maintaining ongoing alignment between portfolio characteristics and related strategy and risk disclosures as portfolios evolve. For RICs that might gain increased exposure to private or less liquid assets through product innovation or broader retail access, this alignment becomes especially important. Periodic reassessment of disclosure consistency – particularly as concentrations, leverage, valuation complexity, or less liquid instruments become more prominent – can help ensure that financial statement and prospectus disclosures continue to accurately reflect portfolio risks and investment characteristics in practice.

Developing areas of interest

The staff plans to monitor higher-risk areas, particularly for RICs that engage in mergers or similar transactions, have complex or novel strategies, or hold less liquid or illiquid investments. DRAO comments frequently focus on whether valuation judgments, liquidity conclusions, conflict-of-interest considerations, and related disclosures are appropriately supported and clearly communicated to investors.

Staff comments often reflect heightened expectations related to valuation governance under GAAP, liquidity risk management, and the transparency of Level 3 measurements and restricted securities, particularly when such characteristics are sustained or material to the fund’s operations.

The SEC’s Office of the Chief Accountant staff members have remarked in public forums, including at the 2025 AICPA Conference on SEC and PCAOB Developments, on the importance of robust valuation governance, valuation model validation, and the use of market-participant assumptions, particularly as private credit markets continue to expand.

Example SEC comments:

• Valuation methodology. Please supplementally advise the staff whether there have been any changes in the company’s valuation approach or valuation technique for any Level 2 or Level 3 investments. If there has been a change in the company’s valuation approach and/or valuation technique for any Level 2 or Level 3 investments, please disclose the change and the reason for making such change in future SEC filings, per Accounting Standards Codification (ASC) 820-10-50-2(bbb).
• Liquidity. We noted that 15.1% of net assets of the fund were fair valued as of year-end, 15% of which were a restricted holding. Please confirm if this holding has triggered the fund to breach its 15% limit on illiquid investments under its liquidity risk management plan.
• Restricted securities. Please disclose the acquisition date for each restricted security in accordance with Rule 12-12 under Regulation S-X.
• Joint venture and consolidation. We noted the joint venture appears to have a three-tier structure. Please advise how the structure complies with Section 12(d)(1) and Section 57(a) of the Investment Company Act of 1940. Please include a discussion of why this joint venture should not be consolidated with the company’s financial statements and the affiliated relationships noted in the disclosure. Please cite specifically the applicable provisions of the 1940 act and U.S. GAAP that were used to reach this conclusion.
• Affiliated transactions. With respect to the company’s co-lending arrangements, please confirm whether any co-lenders are affiliates and discuss how such arrangements comply with Section 57 of the Investment Company Act of 1940, including any reliance on exemptive relief.
• Asset coverage. In future filings, please include all disclosures required with respect to the adoption of the 150% asset coverage ratio in accordance with Section 61(a)(2)(B)(i) of the Investment Company Act of 1940, as amended.
• Significant subsidiary. In correspondence, please confirm that the registrant has performed the required significance tests under Regulation S-X, Item 1-02(w)(2), and explain whether any portfolio company meets the definition of a significant subsidiary. Please also verify whether the registrant has evaluated the applicability of the disclosure requirements of Rule 3-09 or Rule 4-08(g) to its investments.
• Unfunded commitments. We noted that the company had unfunded commitments during the reporting period. Please discuss in correspondence the accounting for unfunded commitments.
• Unitranche loans. Please confirm, on a supplemental basis, whether any of the loans held by the company are unitranche loans (that is, co-lending arrangements). Additionally, because “last out” lenders bear a greater risk in exchange for receiving higher interest rates, please provide risk disclosure in the notes to consolidated financial statements in future filings so that investors understand the risks associated with such investments.

Crowe observation: Crowe presents additional SEC perspectives in “Registered Closed-End Funds of Private Funds,” including information about ADI 2025-16, which highlights valuation oversight under Rule 2a-5, transparency around complex and illiquid investments, fee and expense layering considerations, and the importance of disclosures that clearly reflect how portfolio characteristics and risks manifest in practice.

The division also has indicated examinations will continue to prioritize never-before-examined and newly registered funds, reinforcing strong compliance and governance practices early in a fund’s life cycle.

Crowe observation: The amended fund names rule’s upcoming extended compliance dates might give added significance to portfolio alignment themes reflected in recent disclosure review comments, particularly for funds that have adopted an 80% investment policy and whose holdings, strategies, or related disclosures continue to evolve.

Questions for audit committees to consider

As part of their oversight of financial reporting, internal controls, and the external audit, audit committees might find it useful to answer the following questions.

Compliance programs and disclosure controls

• How does the fund’s disclosure control framework support the timely, complete, and consistent preparation of Form N-CSR disclosures, including certifications and required website postings?
• Are processes in place to ensure consistency across financial statements, shareholder reports, and other regulatory filings?
• For newly registered funds, are disclosure controls and governance processes sufficiently developed to support initial and ongoing filings, including consistency across early regulatory disclosures?

Valuation and fair value measurements

• How are valuation processes designed and overseen for investments requiring fair value measurements under ASC 820, including those involving significant judgment?
• How are valuation-related judgments, changes in methodologies, and Level 3 measurements communicated to the audit committee, and are they supported by appropriate documentation and governance oversight?

Liquidity and illiquid investments

• How does the fund’s liquidity risk management framework address restricted or less liquid investments, including classification and ongoing monitoring?
• How are liquidity considerations reflected in valuation processes and related financial statement disclosures?
• For newly registered funds, are liquidity risk management processes and related disclosures sufficiently developed to support initial investment activity, including the classification and monitoring of restricted or less liquid investments?

Fees, expenses, and related disclosures

• How do fee, expense, waiver, and reimbursement disclosures align with the fund’s operations and governing agreements across the prospectus and financial statements?
• Do any areas of fee or expense disclosure involve heightened judgment or complexity and warrant additional audit committee attention?
• For newly registered funds, do initial fee, expense, waiver, and reimbursement disclosures clearly reflect current arrangements and governing agreements, and are processes in place to update those disclosures as arrangements evolve?

Portfolio management practices and disclosure consistency

• How does the fund ensure that portfolio holdings, concentrations, and investment characteristics reflected in the schedule of investments are consistent with related strategy and risk disclosures?
• Have sustained portfolio characteristics or the use of complex instruments prompted enhanced focus on disclosure alignment and risk communication?

Developing areas and complex structures

• Do complex or novel strategies, affiliated transactions, leverage, or reliance on exemptive relief introduce additional financial reporting or disclosure risks?
• How are these risks identified, evaluated, and communicated to the audit committee as part of ongoing oversight?

Final thoughts

Taken together, the examination priorities and recurring disclosure review themes reinforce a consistent regulatory message: Effective compliance, governance, and disclosure are closely connected. Examinations and DRAO comments continue to focus not only on technical compliance with rules and accounting standards but also on whether disclosures clearly reflect how funds operate in practice and how risks, controls, and oversight are communicated on an ongoing basis.

For RICs, these priorities provide a practical lens for considering whether disclosures and governance practices remain aligned with evolving portfolio characteristics, fee structures, valuation judgments, and liquidity profiles.