The Securities and Exchange Commission has published the Spring update to its agency rule list: Agency Rule List – Spring 2023 Securities and Exchange Commission. While none of this is carved in stone it does give us some sense of what the SEC is working on, what it has given up on, and when things may come out.
The first item on my mind is the proposed Private Fund Rule. That was first proposed in the first quarter of 2022 with a Buffet of Private Fund Regulations piled into one proposed rule. I have heard little about what end up in the rule. It’s still on the agenda and has a proposed final action in October 2023.
Cybersecurity for investment advisers is also still on the agenda. This was another of the first quarter 2022 rulemaking. My biggest concern is that the rule would likely make a cyber breach a fraud violation. Seems like that’s a problem given that the US government is noting a widespread cyberattack today: US government agencies hit in global cyberattack. Nonetheless, the rule still on the agenda and has a proposed final action in October 2023.
Outsourcing by investment advisers remains on the agenda. Any final action is pushed off to April 2024. I think the SEC is struggling with how to scope the rule.
“A covered function is defined in the proposed rule as a function or service that is necessary for the adviser to provide its investment advisory services in compliance with the Federal securities laws, and that, if not performed or performed negligently, would be reasonably likely to cause a material negative impact on the adviser’s clients or on the adviser’s ability to provide investment advisory services.”
If I hire a bad elevator contractor for my private real estate fund’s assets and all the elevators stop working, I think that makes it a “covered function” that would be subject to the proposed rule.
The new Safeguarding Advisory Client Assets rule looks like it its on the fast track. It was just published in the first quarter of 2023 and is scheduled for final action in October 2023. That rule is targeting at killing crypto. In the process, it’s taking a sledgehammer to all alternative investments.
It looks like we’ve got three big regulatory changes coming out this fall. Sounds like we should rest up this summer to get ready.
Sources:
- Agency Rule List – Spring 2023 Securities and Exchange Commission
- Ropes & Gray’s Investment Management Update April – May 2023
- Private Fund Rule proposed text
- SEC Offers Up a Buffet of Private Fund Regulations
- Private Fund Rule on the Agenda
- Cybersecurity Risk Management for Investment Advisers proposed text