The Securities and Exchange Commission last Thursday formally withdrew a series of proposed rules created during the previous SEC Chairman’s administration, reflecting the different priorities of the regulator under the Trump administration as compared to the Biden administration.
“If the commission decides to pursue future regulatory action in any of these areas, it will issue a new proposed rule.”
June 12 SEC notice
The move follows a January executive order from President Donald Trump that paused all pending federal rules for review. Current SEC Chairman Paul Atkins has signaled a focus on streamlining and re-evaluating regulations that could impose unnecessary burdens on market participants, sparking the dramatic rollback of the prior administration’s regulatory agenda—issued between March 2022 and November 2023 under former Chair Gary Gensler. On May 19, Atkins said he will be directing staff to examine expanding private markets access for retail investors.
Thursday’s pullback of 14 rules includes those related to ESG disclosures, predictive data analytics and cybersecurity, among others. The agency is also withdrawing its defense of the climate disclosure rules, which would have required public companies to disclose climate-related risks and greenhouse gas emissions.
“The Commission does not intend to issue final rules with respect to these proposals. If the commission decides to pursue future regulatory action in any of these areas, it will issue a new proposed rule,” the SEC’s notice states.
“These withdrawals reflect a strategic shift under new SEC leadership to revisit and recalibrate the agency’s regulatory agenda, focusing on initiatives that preserve investor protection while avoiding unnecessary complexity or unintended consequences,” said Emily Micale, Director, Federal Regulatory Affairs, Insured Retirement Institute. “IRI strongly advocated for the withdrawal or significant revision of these proposals and welcomes the Commission’s decision to step back from these measures. We will continue to engage with the SEC to support effective, modernized regulation that upholds investor interests without stifling access, innovation, or product choice.”
IRI noted in a Friday media update that it had specific concerns about three of the rules:
• Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers: a proposal that would have imposed broad and prescriptive compliance burdens around the use of technology and data tools, potentially chilling innovation and impairing firms’ ability to serve clients effectively. IRI’s written comments strongly urged the SEC to withdraw this proposed rule.
IRI said the proposed rule’s broad definition of covered technology serves not to effectively establish guardrails for the future as intended but to paralyze and cast a shadow on the present. It would have significantly expanded financial services firms’ obligations far beyond the effective standards of conduct that already apply to recommendations. The proposed rules would have applied to the use of nearly all types of technology that could be used in connection with a wide range of activities that are already appropriately regulated, including marketing, research, and even investment education.
• Safeguarding Advisory Client Assets: a sweeping custody rule rewrite that risked overlapping and conflicting requirements, particularly for insurance products already subject to robust state regulation. In its written comments, IRI advocated for the SEC to add an explicit exception to the proposed rule that would allow insurance companies to act in lieu of a qualified custodian in connection with annuity contracts.
According to IRI, the proposed rule would have impaired access to products providing protected lifetime income, thereby frustrating the ability of many investment advisors to provide advice in their clients’ best interests.
• Enhanced Disclosures About ESG Investment Practices: a proposed rule that would have mandated detailed and prescriptive disclosures for certain investment advisors and funds, raising concerns about regulatory overreach and lack of clarity in defining ESG criteria.
The Investment Company Institute and IRI each argued in 2022 comments to the SEC that the Proposed Rule was overly complex and prescriptive, thereby creating potential for more versus less investor confusion concerning ESG investments, related services, and products.
Additional rescinded proposed rules
“The sheer number of Proposed Rules along with their implementation costs and burdens would have greatly impacted Investment Advisers and done so in rapid fire succession,” said a Friday statement from the Law Offices of Patrick J. Burns, adding the that news is a “welcome development in preventing the SEC from vastly expanding the regulatory burden and costs associated with starting and operating an investment advisory firm.”
Here are the other 11 proposed rules and amendments that were withdrawn:
• Cybersecurity Risk Management for Investment Advisers, Registered Investment Companies, and Business Development Companies
• Outsourcing by Investment Advisers
• Substantial Implementation, Duplication, and Resubmission of Shareholder Proposals Under Exchange Act Rule 14a-8
• Regulation Best Execution
• Order Competition Rule
• Cybersecurity Risk Management Rule for Broker-Dealers and Other Market Entities
• Volume-Based Exchange Transaction Pricing for NMS Stocks
• Amendments to the National Market System Plan Governing the Consolidated Audit Trail to Enhance Data Security
• Prohibition Against Fraud, Manipulation, and Undue Influence in Security-Based Swaps
• Regulation Systems Compliance and Integrity
• Amendments to Exchange Act Rule 3b-16 Regarding the Definition of “Exchange”
SEC names new Investment Management director
Last Friday, the SEC also announced the appointment of Brian Daly as director of its Division of Investment Management, effective July 8.
“Brian has deep familiarity with all levels of the investment management industry, and I look forward to working with him as we address smart, effective oversight of the industry and its relationships with investors,” said SEC Chairman Paul S. Atkins. “I am looking forward to working with Brian on common-sense regulation that does not impose unnecessary burdens and genuinely embraces the public comment process.”
SEE ALSO:
• SEC Names IM Director
• SEC Embracing Wider Investor Access to Private Markets
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.