Will the Securities and Exchange Commission allow an extended comment period on its proposed rule changes impacting private advisers? The question is being whispered among private equity compliance teams nationwide as the prospect of heightened filing and disclosure requirements are expected to increase costs and hours devoted to compliance. Let’s turn to 21-year agency veteran and Kroll’s head of financial services compliance Ken Joseph to help parse the labyrinthine proposed restrictions, and to get color on whether the timeline is likely to stick. 

“There’s some merit to the industry’s argument that these rules reflect such a sea change, and could have unintended consequences, so that the SEC ought to allow more time,” Joseph argues. “I will tell you this, even if the rules are passed, I do expect litigation in federal court challenging the rules, the economic analysis in particular, and I expect litigation on the amount of time for comment.”

Many of the proposed changes are worthwhile topics for academic study to qualify potential impacts, global co-leader of Sidley Austin’s investment funds practice Elizabeth Fries told me last month. Even with a long comment period, fund advisers’ feedback on the proposed changes could be better informed if the agency gave researchers time to parse through likely effects. 

New potential filing requirements include a mandate to include information typically reported by money market funds, and to provide detailed reports on certain event triggers within one business day, up from the industry’s current annual reporting standard. Triggering events include a secondary transaction, fund termination or removal of a fund’s general manager and clawbacks. The impact on smaller firms could be outsized.

Despite the potential challenges on the timing for adopting new rules, Joseph says the agency’s mooted fall decision horizon is likely to stay. Political considerations could make it prudent for regulators to act before a potential electoral change in Congress changes the balance of power at the agency. Knowing this, SEC Chair Gary Gensler could see the window for action as brief. 

Expect litigation as the 60-day comment period lapses later this month, but also new rulemaking.

Brandon Zero