The SEC's Fall 2022 "Reg Flex" agenda was recently published by the federal Office of Information and Regulatory Affairs (OIRA). Chair Gensler sets the agency's agenda, which provides a glimpse into how the agency will prioritize its resources over the coming six months from a policy and rulemaking standpoint (recognizing that three of those months have already elapsed since the agency submitted this to OIRA in October 2022). The SEC has been moving at breakneck speed over the past 18 months, earning criticism of the Chair (including a report from the SEC Office of the Inspector General). The agenda suggests the SEC has no intention to slow its rulemaking pace in the coming months.
Corporation Finance
As anticipated, the agenda includes several high profile rulemakings on which the Commission will vote for adoption. Expected rulemakings from the Division of Corporation Finance include climate change disclosure, share repurchase disclosure modernization, and beneficial ownership reporting. The agenda also includes a final rule on shareholder proposal exclusions and identifies several new proposals from the Division of Corporation Finance, including a proposal related to human capital disclosure and another covering board diversity disclosure.
Trading and Markets
The agenda also includes finalizing several significant rulemakings from the Division of Trading and Markets, including shortening the standard settlement cycle, expanding the definition of dealer, expanding the meaning of exchange (including to cover "communication protocol systems"), narrowing the prop trader exemption from FINRA membership, amending Regulation ATS and Regulation SCI for ATSs that trade US Government Securities, and updating the governance of clearing agencies. Proposed rules are also forthcoming related to the use of "digital engagement practices" (predictive data analytics and behavioral prompts). In late December 2022, the SEC proposed a massive package of market structure proposals, including new "Regulation Best Execution," a new "Order Competition Rule," amendments to Exchange Act Rule 605 enhancing broker order execution disclosures, amendments to minimum pricing increments and exchange access fee caps, and amendments to require enhanced disclosures related to insider trading plans.
Investment Management
The agenda also includes several important rulemakings from the Division of Investment Management that will affect investment advisers and registered investment companies. Related to advisers, this includes expected proposals on the Custody Rule (potentially related to digital assets) and digital engagement practices (as noted above) as well as the expected adoption of proposed rules covering private fund advisers (with respect to conflicted transactions, preferential treatment, quarterly statements on performance and fees and expenses, fund audits, and adviser-led secondary transactions), standards for advisers' ESG disclosures, and amendments to Form PF. The SEC has already proposed new requirements for investment adviser outsourcing diligence and monitoring. Of relevance to private fund sponsors, amendments to the definition of "accredited investor" and other Reg. D changes are also in the works.
Related to registered funds, the upcoming rulemakings include a fund fee disclosure reform proposal and final rules regarding amendments to the rule that prohibits misleading fund names, standards for ESG disclosures by funds, and money market fund reforms. The SEC has already approved rulemakings covering several of the agenda items, including a proposal for regulatory changes to open-end fund liquidity requirements and final rules that streamline and modernize fund shareholder reports and enhance fund proxy voting reports.
Consistent Themes
Chair Gensler stated that the agency's agenda "reflects the need to modernize our ruleset, moving deliberately to update our rules in light of ever-changing technologies and business models in the securities market." One example that highlights a consistent theme across pending rulemakings is new cybersecurity requirements for publicly-traded companies, investment advisers, and registered funds, including (depending on registrant category) cyber risk management, cyber incident reporting, and cyber risk disclosures. Chair Gensler has even asked the agency's staff to consider recommendations around how to address cybersecurity risk presented by unregulated service providers. We expect the SEC to adopt several related proposals from 2022 in this area.
The SEC seems poised to tackle most or all of the Reg. Flex items by the end of 2023 and we will continually monitor for updates and provide our insights on these developments.
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