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The IAA’s Regulatory Priorities for the New Administration
January 29, 2025
The Honorable Mark T. Uyeda
Acting Chairman
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
Re: Key Regulatory Priorities for Investment Advisers
Dear Acting Chairman Uyeda:
Congratulations on your appointment as Acting Chairman of the Securities and Exchange Commission (SEC). The Investment Adviser Association (IAA)[1] appreciates the opportunity to share our key regulatory priorities and highlight the concerns of our members as you evaluate the regulatory agenda of the SEC for investment advisers.[2] Below, we outline our top recommendations for your consideration for regulatory and policy actions that should be prioritized. Our recommendations are organized into four sections, arranged according to their urgency to our members:
- Pursuant to the recent Presidential action authorizing federal agencies to freeze rulemakings pending review,[3] work with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to reopen the comment periods for new regulations relating to anti-money laundering (AML)/counter-terrorism financing programs for advisers (AML Rule) and the related Customer Identification Program (CIP) proposal (CIP Proposal), which was issued jointly by the SEC and FinCEN.
- Extend the compliance periods for certain regulations adopted in the past two years (New Rules)[4] and work with the industry during this extended period to provide necessary guidance and, where appropriate, regulatory relief.
- Initiate a review of certain existing rules and related guidance, involving thorough industry input. Specifically, the SEC should: (A) immediately issue updated guidance under the Marketing Rule and conduct a review of the rule; (B) increase capital formation and access to investment opportunities; (C) facilitate the use of electronic delivery (E-delivery) for required disclosures; (D) amend the Pay to Play Rule governing political contributions; and (E) withdraw the pending Safeguarding Rule proposal and conduct a retrospective review of the Custody Rule.
- Adopt a principles-based and “rightsized” approach to regulating advisers, which includes: (A) approaching regulation in a manner that is strategy neutral and respects the business relationship between professional advisers and their clients; (B) considering the cumulative economic impact and compliance challenges of new and existing rules on advisers; (C) amending the agency’s definition of small adviser and considering the SEC’s Asset Management Advisory Committee’s (AMAC’s) recommendations for smaller advisers; and (D) adopting policy principles that foster partnership with compliance professionals, tailor exams to registrants, and prioritize the prevention of misconduct and investor harm in examinations and enforcement actions.
In addressing these and other regulatory issues, we urge policymakers to recognize that the investment adviser industry, a significant economic contributor, is predominantly composed of small businesses.[5] Given this context, we recommend that the SEC take into account reasonable regulatory alternatives and consistently strive to adapt its regulatory expectations, including examination and enforcement, to the unique needs of smaller advisers. Our specific recommendations are discussed below.
I. Reopen the comment periods for the AML Rule and the CIP Proposal.
As emphasized in our comment letters on the AML Rule and the related CIP Proposal, we firmly support the U.S. government’s efforts to combat money laundering and terrorist financing across all facets of the financial system. We have a number of concerns, however, with the final AML Rule and CIP Proposal both substantively and procedurally. From a procedural perspective, the comment period for the CIP Proposal ended before FinCEN finalized the AML Rule.[6] Consequently, our members did not have the opportunity to review the related CIP Proposal in the context of the final AML Rule.
The Regulatory Freeze Memorandum directs federal agencies to stop all rulemaking activity pending within the agency and to consider all rules already published but not yet effective as paused for 60 days. The AML Rule has been published in the Federal Register but has not taken effect.[7] In addition, the CIP Proposal has not been finalized. We thus recommend that FinCEN delay the effective date of the AML Rule and subject the rule to an additional comment period. We also recommend that the SEC and FinCEN reopen the CIP Proposal so that commenters can consider the CIP Proposal and the AML Rule together.
The AML Rule (as modified by changes made in response to comments during the re-opened comment period) should not go into effect until the CIP Proposal is finalized and the compliance dates of both rules should coincide so that advisers will not have to establish new AML programs only to have to modify them once any CIP rule is adopted. In fact, since critical component parts of an AML program will not be in place without a final CIP rule, requiring compliance with the AML Rule before a CIP rule is finalized defeats the AML Rule’s stated objective of having advisers reasonably design and implement risk-based AML programs, and imposes undue and unnecessarily costly burdens on advisers. FinCEN has publicly acknowledged these difficulties and committed to collaborate with the SEC to harmonize the related rules and align compliance timetables.[8]
From a substantive perspective, reopening the comment periods will allow us to address, among other concerns, the substantial interpretive and implementation challenges advisers are facing under the new AML Rule and anticipate under the CIP Proposal. These include, for example, that advisers: (i) will need to allocate significant time and resources to establishing an AML program even if their business and operations present little or no AML risk; (ii) do not have physical custody of client assets and do not transact in cash for clients thus unnecessarily duplicating the efforts of the qualified custodians that hold the advisory clients’ assets; (iii) that had previously voluntarily adopted AML policies and procedures will be required to set up new systems and/or processes to track the specific requirements of the new rule (e.g., to include transaction monitoring and the filing of SARs); (iv) will face significant expenses to hire personnel or retain consulting resources to comply with the new AML compliance officer and independent testing requirements; and (v) lack clarity on how to rely on or contractually delegate a required function to a third party, especially since most advisers lack the leverage to negotiate with service providers.
The IAA strongly recommends tailoring the scope of combined requirements to better achieve an appropriate balance between having an effective regulatory regime to combat illicit finance while minimizing duplication and unnecessary burdens on advisers, especially when these burdens arise without a corresponding benefit for the reduction in illicit finance. We look forward to working with the SEC and FinCEN
In sum, we request that FinCEN and the SEC work together to: (i) reopen the AML Rule and the CIP Proposal; (ii) postpone the AML Rule compliance date until after a CIP rule is finalized to align the compliance dates of both rules;[9] and (iii) provide a reasonable compliance period for both rules, better tailored to avoid unnecessary duplication and to the business models and resources of advisers, including their level of AML risk. Specifically, we suggest an extension of 18 months for larger advisers and 24 months for smaller advisers with 100 or fewer employees.[10] For the sake of clarity and to assist our members in their planning efforts, we also request that the agencies explicitly confirm that the compliance date for the AML Rule will no longer be January 1, 2026.[11]
II. Extend the compliance periods of the New Rules and issue necessary guidance or regulatory relief.
The IAA recommends that the SEC promptly extend the compliance periods for the following New Rules and in the interim work collaboratively with the industry to issue necessary guidance or regulatory relief, where appropriate.[12]
- Amendments to Regulation S-P (Regulation S-P)
- Amendments to Form PF (Form PF)
- Amendments to Investment Company Act Names Rule (Fund Names)
- Short Position and Short Activity Reporting (Form SHO)
- Treasury Clearing Mandate (Treasury Clearing)
Collectively, the New Rules present considerable compliance, operational, and technological challenges for advisers and risk significant unintended consequences. Advisers are allocating substantial and increased financial, personnel, and other resources within unreasonably short and overlapping compliance periods to implement the New Rules.[13] In some cases, advisers must attempt to negotiate and otherwise collaborate with third parties to meet new prescriptive requirements, adding further complexity, uncertainty, and delay. A lack of clarity or guidance from the SEC also hinders timely compliance efforts. We briefly outline the challenges presented by each of the New Rules below.
A. Regulation S-P
The Regulation S-P amendments and related disclosure and recordkeeping requirements are extremely broad and will demand significant implementation efforts from advisers. They are also likely to disrupt existing infrastructures and vendor relationships. For example, advisers will need to implement new – or adapt existing – processes to satisfy prescribed new requirements for detecting, responding to, and recovering from unauthorized access to client information.[14] Advisers will also need to negotiate with external vendors and service providers to implement certain elements of the new requirements, such as the requirement that service providers notify advisers of a breach within 72 hours, which we do not believe is realistic.[15]
We recommend that the SEC extend the Regulation S-P compliance period for one year to provide advisers with more time to work towards implementing accurate breach notification disclosures and procedures, including to attempt to work with service providers. We welcome the opportunity to work with the SEC in the interim on appropriate guidance or relief to address service-provider-related and other challenging aspects of the amendments.[16]
B. Form PF
Implementing the new Form PF amendments has presented a significant compliance challenge for private fund advisers.[17] For example, the SEC only recently clarified in staff FAQs that any Form PF filed after March 12, 2025, must be filed on the new Form. In addition to certain interpretive questions regarding the new data requests, significant technological challenges associated with filing the amended Form PF have been identified, but SEC staff FAQs were only very recently issued to address some of the questions.[18] We outline these and other implementation concerns in our recently submitted comment letter formally requesting a six-month extension of the compliance date to September 12, 2025, to allow advisers to address at least some of the serious challenges identified so far.[19] We reiterate that request here.[20]
C. Fund Names
The Fund Names Rule amendments significantly expanded the scope of the rule and added additional disclosure and new reporting, notice, and recordkeeping requirements. Many funds that are not currently subject to the rule will now be required to comply with the existing and new requirements for the first time. Funds have been devoting significant resources to implementing the rule amendments and have faced numerous interpretive questions and other implementation challenges.
A primary challenge has been ensuring that a fund’s name accurately reflects its investment strategy as contemplated by the amended rule, particularly when using terms related to specific asset classes, risk profiles, or other factors. The timeliness of these determinations is critical because the strict 80% investment policy in the amended rule potentially necessitates name changes or portfolio adjustments for many funds that might be considered non-compliant. However, we note that the SEC staff has only recently offered guidance on certain specific terms used in fund names.[21]
We recommend an 18-month extension of the compliance date for the amended rule, as set forth in Exhibit A. During the extended period, we recommend that the SEC work with the industry to address the major interpretive and operational issues under the amended rule that remain after the recent FAQs.
D. Form SHO
New Rule 13f-2 under the Exchange Act will require certain institutional investment managers, among other things, to file a new Form SHO with the SEC monthly. To implement the new rule, affected managers will be required, among other things, to substantially build out operational systems to identify the universe of covered equity securities and short sales and carefully draft Form SHO disclosures. These managers are facing significant challenges arising from deficient technical specifications and the lack of a scheduled testing environment, as well as an absence of reporting guidelines or formal guidance on certain critical questions.
The IAA recently joined a request for an 18-month extension of the January 2, 2025 compliance date for the new rule and associated Form SHO and we reiterate that request.[22] An extension will provide additional time to work through these and potentially other questions with the goal of providing uniform data to the SEC. Absent an extension, we are concerned that managers will report inconsistent – and potentially misleading – data sets.
E. Treasury Clearing
In 2023, the SEC mandated the clearing of certain eligible secondary market transactions in U.S. Treasury securities, including cash purchase and sales and repo transactions,[23] triggering a significant structural change to the U.S. Treasury market and raising numerous challenges for market participants broadly. The mandate will significantly impact advisers by requiring them to adjust to an entirely new trading and settlement system for Treasury securities. These changes will lead to increased operational costs and margin requirements and potential changes in advisers’ access to liquidity and overall risk management practices within their portfolios and will require additional time for implementation. We recommend an extension of the compliance dates as set forth in Exhibit A.
III. Initiate a review of certain existing regulations and related guidance and provide immediate guidance or relief in certain areas.
A. Marketing Rule
The Marketing Rule continues to present significant compliance challenges, particularly concerning the provisions related to the presentation of performance. The most significant challenges arise from SEC staff guidance regarding the explicit requirement under the rule to include net performance any time gross performance is presented in advertisements. Specifically, the FAQs issued by the staff on January 11, 2023, and February 6, 2024 remain among the largest challenges under the Marketing Rule for our members.[24] These FAQs have led to a proliferation of different approaches to calculating “net performance” of individual positions (or a group of investments from a portfolio) when fees are charged at the portfolio level in most cases. This approach impairs comparability among investment managers, confuses rather than protects investors, is not as protective as reasonable alternatives, and diminishes trust in the guidance process.
We recommend that the SEC immediately withdraw these staff FAQs and provide alternative guidance consistent with an approach we have been discussing with the staff. We also recommend issuing additional guidance in other specific areas we’ve discussed with the staff. In addition, we believe that, after three years of experience with the Marketing Rule, a retrospective review that engages with the industry to identify potential areas for regulatory relief, including possible amendments to the rule, is warranted.
B. Capital Formation and Investment Access
Access to capital markets, including to private offerings, is critically important to our members as they help their clients meet their financial goals. In 2019, the SEC proposed to amend the definitions of “accredited investor” and “qualified institutional buyer” to increase capital formation and access to investment opportunities for a variety of investors. As discussed in our comment letter in response to that proposal,[25] the IAA generally supports the expansion of these definitions, and our letter offered specific recommendations to expand the characteristics of investors that are eligible to invest in these important private markets. For example, we believe that SEC-registered investment advisers acting as fiduciaries to their clients provide precisely the type of protection intended by these definitions.[26] These clients should be considered sophisticated within the context of that relationship because the investment adviser must have the requisite sophistication to make ongoing investment decisions as a financial professional and must make those recommendations in the clients’ best interest. We would also welcome the opportunity to work with the SEC to consider other ways that retail investors can participate in the private markets with appropriate investor protections.
C. Electronic Delivery
The pandemic further underscored the urgency of addressing an issue that the industry and the SEC have been grappling with for some time now—how to modernize delivery to clients of regulatory disclosures while ensuring reliable delivery that continues to respect investor preferences. E-delivery is easier, more efficient, and more cost-effective for firms, and its greater flexibility allows for enhanced communications with investors. In practice, however, many advisers have been unable to use E-delivery for required disclosures due to the lack of clarity associated with consent requirements under applicable SEC guidance.[27] We urge the SEC to make E-delivery the default option while permitting an opt-out.[28]
D. Pay to Play Rule
We recommend that the SEC review the efficiency and effectiveness of the Pay to Play Rule governing political contributions by advisers. The IAA strongly agrees with the SEC’s goal of preventing investment professionals from “buying business” through campaign contributions. However, this rule is unnecessarily complex, draconian, costly, and burdensome, requiring extensive policies and procedures and significant efforts by compliance officers.[29] It should be more narrowly tailored to its intended purpose.
One of the most problematic aspects of the rule is its imposition of a two-year compensation ban (with a required “look back”) if an adviser or its “covered associate” makes certain contributions to an “official” of a government entity client, even if the individual making the contribution was not employed by the adviser at the time. The rule’s draconian penalties strictly apply without regard to intent or severity of the violation, and on a presumption that even a relatively modest campaign contribution is per se problematic.
This strict liability approach that punishes minor foot faults has unfortunately been evident in several recent SEC enforcement cases where contributions have generally been small and there has been no suggestion of intent.[30] Indeed, the Pay to Play Rule may negatively affect participation in the political process while at the same time imposing unnecessary and costly burdens on advisers. We urge the SEC to move away from a strict liability approach in examinations and enforcement and consider alternative approaches, including through amending the rule, that are more tailored to its underlying objectives.
E. Custody Rule
Safeguarding client funds and securities is of paramount importance to investors, and we strongly support the important investor protection goals of the Custody Rule. However, we believe that the regulatory framework under the current Custody Rule is ill-fitting, overly complex, and unduly burdensome and has caused unnecessary confusion for advisers. We believe a review of the Custody Rule and related guidance that involves all stakeholders is necessary to make it workable and to better tailor safeguards to risks and avoid using the rule to address policy concerns that are not truly related to safeguarding of client funds and securities. The SEC’s recent controversial and flawed attempt at a new Safeguarding Rule – which should be withdrawn in its entirety – underscores the importance of seeking broader input from market participants before proposing any rule changes.[31]
IV. Prioritize a principles-based and “rightsized” approach to regulating advisers.
A. Strategy Neutral Regulation
Advisers serve a diverse range of clients with unique financial situations and goals, requiring the flexibility to make decisions and consider factors that, in their expert professional judgment, they reasonably believe advance the best interests of their clients. Accordingly, it is crucial that regulation be strategy neutral. For example, regulatory policies should not explicitly or implicitly favor or disfavor passive or active management or particular investment factors, considerations, strategies, or products (e.g., traditional over alternative investments). Such actions create a high risk of unintended and adverse consequences for investors, including making it more difficult for an adviser to invest prudently in investment options for a particular client or type of client or under particular market conditions, based on the adviser’s expert assessment and the client’s specific goals. Moreover, policymakers should recognize that value cannot be measured solely by cost. Other factors, such as risk management, investor objectives, and the preference for investments that reflect individual values, among other things, also contribute to value for clients. Therefore, investment advisers should be able to consider – and investors should have access to – a full spectrum of investment strategies and products to meet their clients’ goals.
B. Cumulative Impact Analysis and Principles-Based Regulation
We recommend that the SEC formally integrate a more comprehensive impact analysis into its rulemaking process that considers both the economic costs and the compliance challenges for advisers, both in isolation and on a cumulative basis. This includes assessing how each rule proposal interrelates with existing rules and other open proposals to ensure consistency and limit regulatory duplication. We also urge returning to a principles-based approach to adviser regulation, which would allow advisers to leverage existing compliance processes, staggering compliance dates to provide more reasonable implementation periods, and considering other less burdensome ways to achieve the SEC’s policy goals. A return to a principles-based framework would also allow regulations to be more sustainable through administration changes, alleviating burdens, uncertainty, and disruption.
C. Smaller Advisers
In line with the overarching principle of tailoring regulatory expectations for smaller advisers, as discussed earlier in this letter, we offer two specific recommendations below.
Amend the SEC definition of small adviser. The SEC’s current definition used for analyzing the economic impact of proposed regulations on small entities only includes advisers with less than $25 million in assets under management (AUM). Given that the basic threshold for SEC registration is $100 million in AUM, virtually no SEC-registered advisers are considered “small” for cost-benefit purposes. We formally submitted a petition asking the SEC to initiate a rulemaking to amend the definition of “small business” to use a more meaningful metric beyond merely AUM and reiterate our request here.[32]
Consider AMAC recommendations. The IAA also supports and recommends that the SEC consider the findings and recommendations for regulation of smaller advisers made by the AMAC, which include among other things, that the SEC periodically review and publicly report on the cumulative impact of regulation on smaller advisers, study challenges of access to the bond markets for smaller advisers, and develop a unified federal regulatory approach to cybersecurity and data privacy.[33] We also encourage the SEC to reconvene the AMAC to provide the agency with a more diverse perspective on recent trends in the asset management industry.
D. Examinations and Enforcement
The IAA recommends that the following key principles be formally incorporated into internal agency policies[34] regarding examinations and enforcement:
- The SEC should focus on partnering with compliance officers to achieve the shared goal of robust compliance which includes not second-guessing good-faith determinations of materiality or reasonableness made at the time or penalizing the victim (g., cyber attacks) absent a finding of misconduct.
- Examinations should be tailored to the size, business model, clients, and other characteristics of each firm, rather than, for example, imposing large firm standards and expectations on all firms.
- Reasonableness is an inherent aspect of the Compliance Program Rule[35] and the SEC should not equate it to strict liability or expectations of perfection.
- The SEC should shift its focus away from penalizing minor, technical infractions and instead prioritize addressing misconduct and investor harm.
- Enforcement actions should not be used to establish new regulatory requirements, interpretations, or expectations (g., through negotiated undertakings) in place of the notice and comment rulemaking process or formal interpretive procedures.
* * *
We appreciate the continued willingness of the Commission and its staff to engage in a dialogue with the investment adviser community and look forward to continuing that long history of constructive engagement. Please do not hesitate to contact us at (202) 293-4222 if we may provide any additional information.
Respectfully,
Karen L. Barr
President & CEO
Gail C. Bernstein
General Counsel and Head of Public Policy
cc:
The Honorable Hester M. Peirce, Commissioner
The Honorable Caroline A. Crenshaw, Commissioner
Natasha Vij Greiner, Director, Division of Investment Management
Andrea Gacki, Director, FinCEN
[1] The IAA is the leading organization dedicated to advancing the interests of fiduciary investment advisers. For more than 85 years, the IAA has been advocating for advisers before Congress and U.S. and global regulators, promoting best practices and providing education and resources to empower advisers to effectively serve their clients, the capital markets, and the U.S. economy. Our members range from global asset managers to the medium- and small-sized firms that make up the majority of our industry. Together, the IAA’s member firms manage more than $35 trillion in assets for a wide variety of individual and institutional clients, including pension plans, trusts, mutual funds, private funds, endowments, foundations, and corporations. For more information, please visit www.investmentadviser.org.
[2] There are approximately 15,300 registered advisers serving more than 64 million clients under the SEC’s primary jurisdiction. See Investment Adviser Industry Snapshot 2024, available at https://www.investmentadviser.org/wp-content/uploads/2024/06/Snapshot2024_FINAL.pdf (IAA Adviser Industry Snapshot).
[3] See Presidential Memorandum, Regulatory Freeze Pending Review (Jan. 20, 2025), available at https://www.whitehouse.gov/presidential-actions/2025/01/regulatory-freeze-pending-review/ (Regulatory Freeze Memorandum).
[4] Exhibit A to this letter sets forth the current compliance periods for the New Rules along with our recommendations.
[5] More than 6,000 SEC-registered advisers employ 10 or fewer non-clerical employees and over 92% employ 100 or fewer. See the IAA Adviser Industry Snapshot for more details on the makeup of the investment adviser population.
The IAA has long advocated for the SEC to consider less burdensome regulatory alternatives for smaller advisers. Specifically, we recommend that the SEC consider: (i) keeping rules principles-based to allow for tailoring; (ii) providing exclusions or exemptions when a requirement’s burdens are greater than its benefits to keep regulations practical and effective while still protecting investors; (iii) tiering requirements so that smaller advisers do not necessarily need to meet all or the identical requirements that large firms need to meet; and (iv) staggering compliance and implementation dates to give smaller advisers more time.
[6] The comment period for the CIP Proposal closed on July 22, 2024, before the AML Rule was finalized on August 28, 2024.
[7] The effective date of the AML Rule and the compliance date are both January 1, 2026.
[8] FinCEN delegated examination authority under the rule to the SEC and explicitly recognized that the SEC may need “to provide regulatory guidance or analysis related to the final rule.” See AML Final Rule Release at 72238-9. “FinCEN recognizes and has considered the potential challenges that may arise with multiple rulemaking processes that could affect investment advisers’ AML/CFT requirements. As such, FinCEN intends to carefully coordinate on these rulemakings to ensure consistency in how investment advisers, as well as other financial institutions, are treated under these rules. Regarding CIP, as noted above, FinCEN and the SEC intend to align the compliance dates for both AML/CFT Program and SAR Rule as well as a potential final CIP rule.” AML Final Rule Release at 72208.
The challenges are exacerbated by potential amendments to the related customer due diligence (CDD) rule. Under the 2022 Corporate Transparency Act (CTA), FinCEN must revise its CDD rule to conform with the CTA, and FinCEN has included CDD amendments on its most recent regulatory agenda. The CTA is currently being challenged in court, however, creating substantial uncertainty as to the status of any CDD amendments. FinCEN has also publicly committed to “considering how any such revisions may impact investment advisers and, as required by the Corporate Transparency Act, intends to issue a notice of proposed rulemaking, which would be subject to public comment. FinCEN will continue to coordinate with the SEC on these and other rulemakings.” Id.
[9] We also recommend delaying implementation of the AML Rule (and any final CIP rule) until the courts have provided greater clarity on the CTA. Separately, we appreciate that investment advisers will need to be defined as “financial institutions” under the Bank Secrecy Act before CIP and CDD requirements can be applied. However, we do not view this as restricting the ability of these interrelated requirements to be considered together.
[10] FinCEN has explicitly acknowledged that these new requirements will impose a disproportionately greater operational and compliance burden on smaller advisers. We continue to believe that the agencies should – and we hope to work with them to – grant relief for all or certain aspects of the rules for smaller advisers. Even with exclusions, FinCEN will be able to monitor activity involving these entities “for indicia of the risks of” money laundering, terrorist financing, or other illicit finance activities and “consider regulatory measures if appropriate.” See AML Final Rule Release, 89 Fed. Reg. 72156, at 72178.
[11] Alternatively, we ask for confirmation that enforcement of the AML Rule will not begin on that date.
[12] Several rulemakings are currently being challenged in the courts (see Exhibit B, Section I). Given the resulting uncertainty, we also request that the SEC stay the effectiveness of or, at a minimum, issue a statement that it will not enforce the requirements of these rules until the courts have issued their final decisions. We note that the SEC stayed its climate disclosure rule pending litigation. See SEC Release No. 33-11280 (Apr. 4, 2024).
Moreover, there are several outstanding rule proposals affecting advisers that the SEC has not finalized and yet remain on the agency’s recently published regulatory agenda (see Exhibit B, Sections III.A and III.B). We understand that the SEC, under its new leadership, is unlikely to move forward with these rule proposals due to the numerous issues raised by commenters. It would be helpful to our members for planning and budgeting purposes for the SEC to confirm this understanding, especially with respect to the proposals listed in Exhibit B, Section III.A.
[13] Exhibit B, Section II lists additional recent rules that require or will require implementation and compliance efforts that overlap with the New Rules and with one another.
[14] While advisers are currently subject to state data breach notification requirements and generally have policies and procedures to address unauthorized access to sensitive client information, the breadth of the new Regulation S-P notification triggers and requirements adds a significant layer of complexity.
[15] We appreciate that the proposed formal contract requirement was dropped. However, the final rule still assumes advisers have the requisite leverage over their service providers to get them to agree to these types of terms.
[16] For example, it would be helpful to address the overbreadth of the requirement that advisers determine that sensitive customer information “has not been, and is not reasonably likely to be, used in a manner that would result in substantial harm or inconvenience.”
[17] In 2024, the SEC and CFTC jointly adopted significant amendments to Form PF, imposing additional disclosure requirements. The effective date for these amendments is March 12, 2025. The SEC separately amended Form PF, including amendments to Section 4 of the form, in May 2023. Together, the amendments will affect how all private fund advisers report data on their private funds and how large hedge fund advisers report several new categories of data that they were not required to collect before.
[18] See Amended Form PF Frequently Asked Questions, SEC Staff of the Division of Investment Management, available at https://www.sec.gov/about/divisions-offices/division-investment-management/amended-form-pf-frequently-asked-questions (posted Oct. 4, 2024 and updated Dec. 20, 2024).
[19] See IAA and Trades Request Extension of Compliance Date for Form PF Amendments (Dec. 13, 2024), available at https://www.investmentadviser.org/resources/iaa-and-trades-request-extension-of-compliance-date-for-form-pf-amendments/. As set forth in Exhibit A, at a minimum, we request an extension until June 12, 2025.
[20] We also note that the 2024 Form PF amendments are subject to the Regulatory Freeze Memorandum, further supporting our request for an extension of the compliance date.
[21] See 2025 Names Rule FAQs (Jan. 8, 2025), available at https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/2025-names-rule-faqs#:~:text=The%202023%20names%20rule%20as,type%20of%20investment%2C%20or%20in.
[22] See IAA and Trades Request Extension of Compliance Date for Reporting Short Positions (Nov. 26, 2024), available at https://www.investmentadviser.org/resources/iaa-and-trades-request-extension-of-compliance-date-for-reporting-short-positions/.
[23] See U.S. Treasury Central Clearing Industry Considerations Report by the Securities Industry and Financial Markets Association and Ernst & Young LLP (Nov. 2024), available at https://www.sifma.org/wp-content/uploads/2024/11/USTC-ConsiderationsReport_SIFMA-EY.pdf.
[24] See Marketing Compliance Frequently Asked Questions, SEC Staff of the SEC Division of Investment Management, available at https://www.sec.gov/investment/marketing-faq.
[25] See IAA Comments on SEC Amendments to the Definitions of “Accredited Investor” and “QIB” (Mar. 18, 2020), available at https://www.investmentadviser.org/resources/comments-on-sec-amendments-to-the-definitions-of-accredited-investor-and-qib/.
[26] The IAA supports Section 3401 in H.R. 2799 approved by the House in the 118th Congress that would deem an individual receiving investment advice from an SEC-registered investment adviser to be an accredited investor. See H.R. 2799, available at https://www.govinfo.gov/content/pkg/BILLS-118hr2799rh/pdf/BILLS-118hr2799rh.pdf.
[27] Under SEC guidance dating back to 1995, 1996, and 2000, an adviser may satisfy its ongoing disclosure delivery obligations by providing notice that the information is available electronically, ensuring effective access to such information, and either evidencing actual delivery or obtaining informed consent from clients. See Release No. 33-7233, 60 Fed. Reg. 53458 (Oct. 13, 1995); Release No. 33-7288, 61 Fed. Reg. 24644 (May 15, 1996); and Release No. 33-7856, 65 Fed. Reg. 25843 (May 4, 2000).
[28] The IAA supported H.R. 1807, the House-passed “Improving Disclosure for Investors Act,” and S.3815, the Senate-introduced “Improving Disclosure for Investors Act,” bipartisan bills that would direct the SEC to permit financial firms to deliver regulatory documents to investors through electronic means as the default method.
[29] An example of the unnecessarily burdensome nature of the rule is that advisers that are in noncompliance, even if inadvertently, can only self-correct in limited circumstances, by returning the contribution and going through a cumbersome exemptive process.
[30] See, e.g., SEC Administrative Proceeding Summaries, available at https://www.sec.gov/enforcement-litigation/administrative-proceedings/ia-6662-s; and https://www.sec.gov/enforce/ia-6126-s.
[31] See IAA Letter to SEC on Safeguarding Advisory Client Assets Proposal (May 8, 2023), available at https://investmentadviser.org/resources/iaa-letter-to-sec-on-safeguarding-advisory-client-assets-proposal/ and IAA Submits Additional Comments on SEC’s Safeguarding Proposal (Oct. 30, 2023), available at https://www.investmentadviser.org/resources/iaa-submits-additional-comments-on-secs-safeguarding-proposal/.
[32] Federal agencies are required by the Regulatory Flexibility Act of 1980 (RFA) to analyze the economic impact of proposed regulations when there is likely to be a significant impact on a substantial number of small entities, and to consider less onerous regulatory alternatives. See IAA Rulemaking petition to amend Rule 0-7 under the Investment Advisers Act of 1940, which defines a small entity for purposes of the RFA (Sept. 14, 2023), available at https://www.sec.gov/files/rules/petitions/2023/petn4-811.pdf. We note that increasing the AUM threshold to the $100 million registration threshold also would not accurately capture the large number of advisers that are small businesses.
The IAA strongly supported H.R. 2792/S.4400, the “Small Entity Update Act,” which would have required the SEC to expand its definition of “small entity” for purposes of the RFA. The bill passed the House with strong bipartisan support and a Senate companion bill was introduced on May 23, 2024, sponsored by Senator Katie Britt (R-Ala.) and co-sponsored by Senator Jeanne Shaheen (D-N.H.), both members of the Senate Banking Committee. The IAA strongly supports reintroduction of this legislation in the new Congress.
[33] The IAA participated in the AMAC’s open meeting at which these issues were considered and shared our views on the key issues affecting smaller advisers and ways they could be addressed. See AMAC Final Report and Recommendations for Small Advisers and Funds (Nov. 3, 2021), available at https://www.sec.gov/files/final-recommendations-amac-sec-small-advisers-and-funds-110321.pdf. See also agenda for Sept. 27, 2021 AMAC meeting at https://www.sec.gov/newsroom/press-releases/2021-190#agenda) and IAA presentation at https://www.sec.gov/files/iaa-presentation-karen-barr-gail-bernstein-092721.pdf.
[34] See, e.g., SEC Division of Enforcement, Enforcement Manual (Nov. 28, 2017), available at https://www.sec.gov/divisions/enforce/enforcementmanual.pdf; see also 17 CFR 202.9 (Small entity enforcement penalty reduction policy), available at https://www.ecfr.gov/current/title-17/chapter-II/part-202/section-202.9.
[35] Advisers Act Rule 206(4)-7.
Exhibit A
New Rules
IAA Recommendation: The SEC should extend the compliance periods for the following New Rules and work collaboratively with the industry to issue necessary guidance or regulatory relief.
Exhibit B
I. SEC Rules Pending in Court Proceedings[1] |
Reporting of Securities Loans [FINAL RULE] |
Short Position and Short Activity Reporting by Institutional Investment Managers (Form SHO Rule)[2] [FINAL RULE] |
Form N-PORT and Form N-CEN Reporting; Guidance on Open-End Fund Liquidity Risk Management Programs [FINAL RULE; GUIDANCE] |
Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders [FINAL RULE] |
II. Other SEC Final Rules Affecting Advisers[3] |
Shortening the Securities Transaction Settlement Cycle |
Modernization of Beneficial Ownership Reporting |
Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers [Release Nos. 33-11131; 34-96206; IC-34745; File No. S7-11-21] |
III.A. Outstanding Proposed Rules Under the Advisers Act[4] |
Cybersecurity Risk Management for Investment Advisers, Registered Investment Companies, and Business Development Companies SEC Release No. 33-11028 (Feb. 9, 2022) |
Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices SEC Release No. IA-6034 (May 25, 2022) |
Outsourcing by Investment Advisers SEC Release No. IA-6176 (Oct. 26, 2022) |
Safeguarding Advisory Client Assets SEC Release No. IA-6240 (Feb. 15, 2023) |
Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers SEC Release No. 34-97990 (July 26, 2023) |
III.B. Other Outstanding Proposed Rules |
Regulation Best Execution SEC Release No. 34-96496 (Dec. 14, 2022) |
Order Competition Rule SEC Release No. 34-96495 (Dec. 14, 2022) |
Amendments Regarding the Definition of “Exchange” and Alternative Trading Systems (ATSs) That Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities SEC Release No. 34-94062 (Jan. 26, 2022) |
Financial Data Transparency Act Joint Data Standards [joint agency proposal] Release No. 33-11295 (Aug. 2, 2024) |
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Amending Section 302.00 of the NYSE Listed Company Manual to Exempt Closed-End Funds Registered Under the Investment Company Act of 1940 From the Requirement to Hold Annual Shareholder Meetings SEC Release No. 34-100460 (July 3, 2024) |
[B1] The IAA recommends that the SEC formally stay the effectiveness of or, at a minimum, not enforce the requirements of the rules currently being challenged until the courts have issued their final decisions.
[B2] We make more specific recommendations relating to the Form SHO Rule in the IAA Letter.
[B3] These rules require or will require implementation and compliance efforts that overlap with the New Rules discussed in the accompanying letter (listed in Exhibit A) and with one another. They are not specifically discussed in the IAA Letter.
[B4] We understand that the SEC is unlikely to move forward with these rule proposals due to the numerous issues raised by commenters. It would be helpful for the SEC to confirm this understanding, especially with respect to the open proposals listed in this section, but also with respect to the proposals listed in Section III.B, below.