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| 3 minutes read

SEC’s Spring 2023 Rulemaking Agenda: Spotlight on Investment Advisers, Broker-Dealers and Certain Funds

The Office of Information and Regulatory Affairs recently released the semi-annual, Spring 2023 regulatory agenda (“Agenda”). The Agenda outlines the SEC Chairman’s rulemaking priorities over the next 12 months. The Spring 2023 Agenda, as compared with the Fall 2022 Agenda, demonstrates a shift from proposing large numbers of rules to now adopting many of those proposals. The Agenda includes 18 rule proposals and 37 rules identified as in the final rulemaking stage.  Many of these rules impact investment advisers, broker-dealers, and funds, as further detailed below.

New or amended rule proposals include, but are not limited to, matters regarding:

  • Digital engagement practices for investment advisers and broker-dealers. The SEC is considering proposing two different rules, one for investment advisers and one for broker-dealers – both of which address conflicts of interest related to the use of predictive data analytics, artificial intelligence, machine learning and similar technologies (often referred to as the “gamification of investing”).
  • Registration requirements for internet advisers. Its first appearance in the Agenda, the SEC is considering amendments to the exemption for internet advisers (i.e., robo-advisers) from the prohibition against registration under the Investment Advisers Act of 1940.
  • Securities Exchange Act rule 15c3-3 for broker-dealers (“Net Capital Rule”). Also for the first time, the SEC is considering proposing amendments to the Net Capital Rule to require that certain large broker-dealers compute their customer and “PAB” reserve deposit requirements daily rather than weekly.

Areas in which the SEC staff is likely to consider adopting final rules include, but are not limited to:

  • Private fund advisers. The SEC continues to consider recommending final rule amendments governing the manner in which certain advisers to private funds operate (e.g., quarterly reporting to investors; private fund audits; fairness opinions for adviser-led secondaries; and a number of prohibited activities focused on conflicts of interest such as preferential treatment).
  • Form PF. The SEC and CFTC continue to consider adopting joint final amendments to portions of Form PF applicable to certain SEC-registered investment advisers to private funds, as well as persons registered with the CFTC as a commodity pool operator or commodity trading adviser.
  • Safeguarding advisory client assets. The final rule, if adopted, is intended to improve and modernize the regulations around the custody of funds or investments of clients by investment advisers.  If adopted substantially as proposed, the new safeguarding rule would, among other things, significantly expand the scope of the current “custody” rule to include all client assets (including non-securities) and impose new requirements governing the relationship between advisers and qualified custodians.
  • Outsourcing by investment advisers. The SEC is considering adopting rules that address an investment adviser’s obligations with regard to oversight of third-party service providers.
  • Cybersecurity risk management. The SEC continues to consider adopting two different rules, one for investment advisers and investment companies, and one for other market participants including, for example, broker-dealers, clearing agencies, major security-based-swap participants, and security-based-swap dealers – both of which would generally require that such entities adopt written policies and procedures reasonably designed to address cybersecurity risks and report significant cybersecurity incidents to the SEC.
  • Regulation S-P. The SEC’s final rule would, among other things, require that investment advisers and broker-dealers adopt written policies and procedures to respond to incidents of unauthorized access to or use of customer information and to provide affected customers with notification of any such breach.
  • Beneficial ownership reporting. The final rule would, if adopted, modernize beneficial ownership reporting obligations for “reporting companies” (with some exemptions) and is intended, in part, to address anti-money laundering concerns.
  • ESG disclosures. The SEC’s final rule would require, for example, investment advisers and investment companies to enhance their disclosures regarding ESG investment practices.
  • Definition of “dealer.” The SEC is considering adopting final rules to address the definition of “dealer” under the Securities Exchange Act of 1934.  The final rules, if adopted substantially as proposed, would likely cause certain investment advisers and private funds to register as dealers.
  • Security-based-swap execution facilities (“SBSEFs”). The final rules would establish a new regulatory framework for the registration and regulation of SBSEFs and would largely align with existing CFTC rules that govern swap execution facilities and swap execution generally.

The SEC continues to push forward with its regulatory agenda, eyeing in particular, activities of investment advisers, matters related to private funds, and cybersecurity. Please reach out to your Katten contacts for more details regarding any of these regulatory initiatives.