The investment advisory industry is bracing for a hectic compliance year, as the Securities and Exchange Commission gears up for what looks to be another year of fast-paced rulemaking.
Last year, the agency adopted 24 rules and proposed 18 new rules or rule amendments, K&L Gates attorneys noted in a recent briefing, and the SEC appears poised to keep up the rapid pace of "implementing its unprecedented regulatory agenda."
The K&L Gates attorneys say to "expect more of the same in 2024, perhaps with even more urgency."
Asset managers "should expect several of the rules currently in the proposed stage to be finalized — although not necessarily without subsequent legal challenge from the industry," the attorneys state.
In particular, "the SEC is expected to issue final rules on topics including, among others, public company climate risk disclosure, fund and adviser ESG disclosure, cybersecurity risk management, investment adviser outsourcing, and potentially liquidity risk management," they add.
'Extremely Controversial Rules'
The Investment Adviser Association, according to Gail Bernstein, the group's general counsel, "continues to be concerned about the SEC's alarming rulemaking pace."
In just the past two weeks, Bernstein said, "the SEC has finalized two major rulemakings that affect investment advisers — expanding who has to register as a dealer and completely restructuring the complex form private funds have to file."
Both of these rulemakings "have an unrealistic compliance timeline, which is on top of the unreasonable timelines of other recent rules," Bernstein noted.
Amy Lynch, president and founder of FrontLine Compliance, told me that she expects the controversial outsourcing rule to be enacted this year. But first, the agency needs to revise the rule to clarify "which entities are 'covered entities'" under the rule, Lynch said.
Pace to Accelerate
IAA expects "the pace of major rule adoption to accelerate over the next month or two and we're likely to see finalization of some extremely controversial rules," Bernstein relayed. This may include final rules in coming months on "advisor outsourcing, swing pricing and liquidity, market structure, cybersecurity, data privacy, and ESG and climate disclosures."
Also in the queue: "the overreaching custody and data analytics/technology proposals," Bernstein said.
"While it will be disheartening, we won't be surprised if the compliance runway for all of these rules is just as unworkable," Bernstein added. "The cumulative weight of these new regulations will be overwhelming for all firms, and especially for smaller firms."
