Publications

(Article from Registered Funds Regulatory Update, July 2023)

For more information, please visit the Registered Funds Resource Center.

The Office of Information and Regulatory Affairs recently released the SEC’s Spring 2023 Unified Agenda of Regulatory and Deregulatory Actions, which identifies the most significant regulatory actions that the SEC reasonably expects to issue in proposed or final form and the broad targeted time frame to issue such rules. The Agenda indicates that the SEC expects to continue carrying out its expansive rulemaking agenda at a rapid pace with respect to investment advisers, private funds and registered funds, with several major rule proposals slated for adoption in the second half of 2023. Below is a breakdown of the target time frames for final action on previously proposed rules concerning investment advisers and funds, and descriptions of a few notable contemplated rule proposals concerning investment advisers and funds.

Previously Proposed Rules—Final Action Contemplated for October 2023

• Enhanced Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices and Investment Company Names: The proposal for enhanced disclosure would require investment companies and investment advisers to provide more specific disclosures in fund filings and investment adviser brochures regarding the ESG strategies that they pursue and the specific ESG impact(s) they seek to achieve, and require additional disclosures by funds that use proxy voting or other issuer engagements to implement their ESG strategy. The fund names rule proposal would, among other measures, expand the current requirement of the names rule for certain registered funds to adopt a policy related to the 80 percent investment requirement.
• Cybersecurity Risk Management for Investment Advisers, Investment Companies and BDCs: This proposed rule would require SEC-registered advisers and funds to adopt and implement written policies and procedures that are reasonably designed to address cybersecurity risks and to provide additional disclosures related to cybersecurity risks and incidents in investment adviser brochures and fund filings. It would also require SEC-registered investment advisers to report significant cybersecurity incidents to the SEC within 48 hours of the incident’s occurrence.
• Open-End Liquidity Risk Management Programs and Swing Pricing: These proposed amendments would require most open-end funds to use swing pricing to adjust their NAV per share, in order to pass on costs stemming from material shareholder purchase or redemption activity to the purchasing or redeeming shareholders. The proposed amendments would also require additional disclosures on Forms N-PORT, N-1A and N-CEN for certain registered investment companies, and require more frequent reporting of monthly portfolio holdings and information about liquidity risk management and swing pricing to the SEC and the public.
• Modernization of Beneficial Ownership Reporting: This proposal would accelerate the filing deadlines for Schedules 13D and 13G beneficial ownership reports, expand the application of Regulation 13D and 13G to certain derivative securities, expand the circumstances under which two or more persons will be deemed to have formed a “group” that would be subject to beneficial ownership reporting obligations, and require that Schedules 13D and 13G be filed using a structured, machine-readable data language.
• Safeguarding Rule: This dramatic set of amendments to the Advisers Act custody rule would require registered investment advisers to enter into written agreements with clients’ qualified custodians that contain certain assurances, and require that qualified custodians have possession or control of the client assets for which investment advisors have historically had custody. In addition, the proposal would require, for privately-offered securities not maintained at a qualified custodian, that the investment adviser document that such securities cannot be maintained at a qualified custodian and that an independent public accountant promptly verify any purchase, sale or transfer of such a security. The proposal would expand the custody rule to apply to all client assets, including non-security assets such as digital assets and real estate.

Previously Proposed Rules—Final Action Contemplated for April 2024

• Outsourcing by Investment Advisers: This proposal would, among other things, require registered investment advisers to conduct due diligence before outsourcing various functions, monitor and reassess service providers’ performance, and make and keep books and records related to such due diligence and monitoring.
• Regulation S-P: This proposal would amend regulation S-P to create a federal minimum standard for covered institutions (broker-dealers, registered investment companies including BDCs, registered investment advisers and transfer agents) for preventing and responding to data breaches, including providing notice to certain affected stakeholders, and require covered institutions’ contracts with service providers to include measures to protect against data breaches.

Contemplated Rule Proposals

• Prohibition of Conflicted Practices for Investment Advisers and Broker-Dealers That Use Certain Covered Technologies: The SEC is considering recommending separate proposed rules related to investment advisers’ and broker-dealers’ conflicts of interest in the use of predictive data analytics, artificial intelligence, machine learning and similar technologies in connection with certain investor interactions.
• Fund Fee Disclosure and Reform: The SEC is considering recommending changes to regulatory requirements relating to registered investment companies’ fees and fee disclosure.

Agency Rule List – Spring 2023 (June 13, 2023), available at: https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST&currentPub=true&agencyCode=&showStage=active&agencyCd=3235&csrf_token=ABBAA84824C29E01B566B0472A6E99E59C730916821A14613C79DE7F48AC8EAEF4CA3A7C929E9B10E667F119BAA4958D5293.