IAA Calls for Holistic Review of Rule Proposals

June 20, 2023

---

The IAA has submitted a letter to the SEC requesting that the agency take a step back and holistically consider the practical ramifications of the more than a dozen consequential new rules and proposals impacting advisers that the agency has issued since SEC Chair Gary Gensler took office (listed in the graph below). In our letter, we note that, taken together, these regulations will significantly overhaul the current regulatory regime for advisers. If adopted, they also will disrupt existing infrastructures and relationships, with substantial implications for advisers, investors, service providers, and the markets. We further note that the SEC does not appear to fully appreciate the costs and efforts that will be required for advisers to implement these new regulations. Specifically, the IAA letter urges the SEC to:

• Explicitly and cohesively address, prior to any adoption, the potential implications of the Outsourcing, Cybersecurity, Safeguarding and Regulation S-P Our letter explains how these four proposals are especially interconnected and include duplicative and potentially inconsistent requirements.
• Undertake a more expansive, accurate, and quantifiable assessment of the cumulative costs, burdens, and other effects that all of these proposed regulations, if adopted, would impose on advisers, their clients, and other market participants.
• Directly and accurately address how these regulations would affect smaller advisers and thoroughly consider and explicitly address alternatives.
• Before taking final action on these regulations, seek public feedback on a comprehensive implementation timeline for tiered and staggered compliance requirements and dates for all these proposals.

To demonstrate the daunting task advisers would face to implement these regulations, the IAA letter includes the following graph based on our reasonable assumptions regarding the effective and compliance dates being proposed by the SEC for each proposal.

The graph is intended to clearly illustrate to the SEC that under the proposed compliance dates in these proposals, advisers would be required to implement these proposed rules during compressed and overlapping compliance periods while attempting to comply with existing ongoing regulatory obligations (e.g., implementation and annual reviews of compliance programs and annual updates to Form ADV). We also impress upon the SEC that advisers are already subject to an extensive array of other ongoing regulatory obligations intended to protect investors (e.g., compliance with the expansive requirements of the new Marketing Rule, recordkeeping, and other reporting and disclosure obligations, to name just a few).

Based on the SEC’s recently released regulatory agenda for the upcoming fiscal year, the agency appears determined to start adopting final rules in the months to come. We are hopeful that the SEC will pause and carefully reflect on the concerns we outline in our letter and take us up on our offer to work constructively toward investor protective regulations that make sense, are cost-efficient, and are workable in practice for advisers and related market participants.