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Possible Regulatory Implications of 2024 Election on Investment Management
The upcoming change in administration will impact the regulatory landscape for investment managers, likely shifting focus areas and marking a new phase in the regulatory cycle, as we anticipated earlier this year. Here are some insights drawn from our experience with previous transitions.
Short Term Effects:
- Uncertainty: We won’t know the SEC’s priorities under the new administration until a new Chair is appointed and confirmed—a process that could take nine months or longer. This delay is partly due to the SEC’s lower priority among agencies and the historical disorganization of the Trump administration.
- Flurry of Rule Making: As the current administration works to secure its policy priorities before the January 20th transition, we may see a surge in rulemaking. The SEC’s marketing rule, for example, was adopted during a similar period of activity.
Enforcement:
- Enforcement cases in investment management could slow but will not stop. Some shifts in priorities could include:
| Reduction in Importance | Increase in Importance |
|---|---|
| Issues affecting primarily institutional investors especially technical rule violations with no investor harm. Off-channel communications cases. Very technical cases involving minor undisclosed conflicts or gray areas in limited partnership agreements. Crypto cases unless they involve clear fraud. | Issues affecting retail investors especially ones with clear investor harm. Registered Investment Companies. Marketing rule cases. Reg BI |
Examinations:
- Examinations are likely to continue apace but interest areas may shift together with Enforcement priorities.
| Reduction in Importance | Increase in Importance |
|---|---|
| Fiduciary issues concerning institutional investors, especially ones reliant upon gray areas in disclosure. Complex private equity fee issues including borderline management fee calculation issues. Managers solely to private funds | Fiduciary issues concerning retail investors. Compliance programs, policies and procedures. Managers to Registered Investment Companies and other retail products. Marketing Rule and general marketing practices Reg BI Emerging technologies / AI Cybersecurity |
Rulemaking:
- Rulemaking will likely focus on rule simplification and deregulation and could include:
- Additional, more practical guidance, around the Marketing Rule.
- Relaxation of Rule 17a-7 under the Investment Company Act.
- Possibly a more practical version of the Custody Rule.
- Rules easing access to cryptocurrencies.
- Rules easing retail investors’ access to private funds and other complex financial products.