SEC plows ahead with ambitious rulemaking agenda

For those within the scope of the Securities & Exchange Commission, you’ve felt the impact of the ambitious rulemaking agenda put forth by Chairman Gary Gensler over the last year. 

The recently released Spring Rulemaking Agenda for 2022 shows he has no intention of pressing the brakes any time soon.  Recently, the Commission adopted rules to require investment advisers and institutional investment managers to complete Form 13F filings electronically.  The amendments also included steps to modernize the Form 13F and enhance the information provided.  These rules will become effective January 3, 2023.

On the docket are proposed rules related to the role of certain third-party service providers to asset managers, amendments to Form PF, amendments to the Custody Rule, and cybersecurity risk disclosures.  Finally, the Commission is considering recommending rules related to the use of predictive data analytics, differential marketing and behavioral prompts.

Following the confirmation of Commissioners Lizárraga and Uyeda earlier this month, Chair Gensler is now free to adopt more controversial rules, such as the sweeping Private Funds reform proposed earlier this year alongside additional money market reform and securities settlement cycles.

On the Enforcement side, the Commission announced settlements in multiple insider trading and Ponzi scheme cases.  Settlements in both fraud and manipulation cases were also announced, with two high profile cases released this month:

  • Charles Schwab and its investment adviser subsidiaries reached an agreement with the Commission for failing to disclose that they were allocating client funds in a manner that their own internal analyses showed would be less profitable for their clients under most market conditions. The subsidiaries agreed to pay $187 million to harmed clients to settle the charges.  Separately, Charles Schwab agreed to pay $52 million in disgorgement of profits and a $135 million civil penalty.
  • The Commission also filed against Rochester New York and the city’s former executives and municipal advisor for misleading investors with bond offering documents.  The SEC alleged that the bond offering documents included outdated financial statements for the Rochester City School District and did not indicate that the district was experiencing financial distress due to overspending on teacher salaries.  This case is currently pending in U.S. District Court.

The Commission’s message to investment advisers is clear:  Keep your eye on the rules or pay the price.  Chief Compliance Officers can expect more rulemaking to add up in their daily reviews with no end in sight.

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