5 Big Rules the SEC Plans to Finalize This Year

The Securities and Exchange Commission plans to finalize by year-end several controversial rules, according to the agency’s just-released Spring 2023 regulatory flexibility agenda.

“There has been quite a bit of industry push back on these rules and yet they are now on the ‘final list,’” Amy Lynch, founder and president of FrontLine Compliance, told ThinkAdvisor Wednesday in an email.

The SEC “is determined to push through several of the more controversial rules such as Safeguarding Advisory Client Assets (Custody Rule), Private Fund Advisers, Outsourcing by Investment Advisers, and Enhanced Disclosures by Certain Investment Advisers and Investment Companies about ESG,” Lynch said.

Gail Bernstein, general counsel for the Investment Adviser Association in Washington, agreed in another email that the SEC’s agenda “signals a shift from proposing rules in the Advisers Act space to adopting them. If they’re adopted anywhere close to how they’ve been proposed, they will be landscape changing and will have far-reaching effects on advisers, their clients, their service providers, and the markets.”

The final rules will “also require massive implementation efforts that we’re urging the SEC to think about more cohesively and offer a comprehensive implementation timeline to make compliance efforts manageable,” Bernstein said.

IAA’s Bernstein has said the changes proposed in the agency’s new custody rule, known as the Safeguarding Rule, are “absolutely mind boggling” … “not just as to scope but as to what is going to be required operationally.”

Two new proposed rules the SEC plans to tackle “touch upon the hot topic of [artificial intelligence] and machine learning,” Lynch said. The two rules, one for advisors and one for broker-dealers, “are meant to address potential conflicts of interest presented by these nascent technologies,” Lynch said. “There will be pressure on the SEC to move these proposals forward now.”

The American Securities Association said in a statement on Wednesday that the group is “shocked” that the SEC “has no plans to address the biggest threat facing American investors today: the sweeping collection of every American investor’s personal and financial information by an unsecure, Washington-based database, the so-called Consolidated Audit Trail, which will be an easy target for cybercriminals, hackers, and the CCP” — the Chinese Communist Party.

Added ASA: “It is inexcusable that this Commission refuses to finalize a rule to protect investors that was proposed in August 2020.”

While reg flex agendas are placeholders and may not reflect the agency’s actual timetable, the SEC said it plans to issue the following final rules in October.

Photo: Zach Gibson/Bloomberg