On June 12, 2025, the U.S. Securities and Exchange Commission (SEC) issued a notice formally withdrawing 14 proposed rules issued between February 2022 and November 2023 on an array of regulatory subjects affecting a variety of market participants. Citing a lack of intent to issue final rules for any of the proposals in question, the withdrawal notice marks a continued shift in regulatory focus under the current Administration.
Several of the withdrawn rule proposals involve topics of direct interest to SEC-registered (and, in certain cases, exempt) investment advisers, including advisers’ conflicts of interest, their custody of client assets (including digital assets), environmental, social, and governance (ESG) disclosures to investors, and outsourcing by investment advisers. Although the SEC did not provide a specific reason for each individual withdrawal decision, the SEC’s withdrawal notice appears to reflect a reprioritization by the agency on deregulation and an increased focus on reducing costs and compliance burdens for market participants.
The proposals would have, in many cases, increased advisers’ risk exposure for rule violations, including on SEC exams, so the withdrawal notice is consistent with a broader philosophy indicated by the commission of moving away from advancing industry regulation through SEC enforcement actions. The SEC stated that if it intends to pursue future regulatory action in any of the areas covered by the withdrawn rules, it will issue new rule proposals.
Key Withdrawn Rules from an Investment Adviser Perspective
Conflicts of interest associated with the use of predictive data analytics by broker-dealers and investment advisers
The SEC’s August 9, 2023 rule proposal on the use of predictive data analytics would have required registered investment advisers to identify potential conflicts arising from their use of certain “covered technologies” such as AI, machine learning, deep learning algorithms, neural networks or large language models, as well as less novel technologies that make use of “historical or real-time data, lookup tables, or correlation matrices among others.” Crucially, investment advisers would also have been required to eliminate or neutralize the effects of certain conflicts of interest associated with these technologies, as well as implement written policies and procedures reasonably designed to achieve compliance with the proposed rule.
Safeguarding advisory client assets
The SEC’s March 9, 2023 rule proposal would have redesignated the current custody rule under the Investment Advisers Act of 1940 as the “safeguarding rule” under a new Advisers Act Rule 223-1, with various significant clarifications and modifications intended to enhance investor protections. For example, discretionary authority to trade would have been brought explicitly within the definition of “custody,” and the proposal would have broadened the scope of assets and activities that would trigger the restyled custody rule, essentially requiring the safeguards of a qualified custodian for almost all types of client assets held in an advisory account, including certain assets that would not have previously been considered funds or securities. A qualified custodian would not have been deemed to maintain a client asset under the revised rule without “possession or control” of the asset. The proposal would also have imposed enhanced audit requirements, requiring that each privately offered security or physical asset not maintained with a qualified custodian be verified. The SEC itself observed that its proposal could be a source of cost (and, potentially, risk) increases for managers offering exposure to digital assets in particular since the enhanced custodial requirements would effectively require managers to withdraw these digital assets from the care of specialized custodial services that do not currently count as qualified custodians.
Cybersecurity risk management for investment advisers, registered investment companies, and business development companies
The SEC’s March 9, 2022 cybersecurity rule proposal was a significant formalization and expansion of the cybersecurity compliance framework for investment advisers, explicitly requiring registered investment advisers (and investment funds registered under the Investment Company Act of 1940) to adopt and implement written policies and procedures that reasonably address cybersecurity risks. The proposal would also have introduced new reporting requirements (including via a new, proposed as confidential, Form ADV-C) for cybersecurity incidents affecting the adviser or its fund clients, along with associated recordkeeping requirements. Notably, changes included in the SEC’s rule proposal would have amended Form ADV Part 2A and various versions of Form N to explicitly require public disclosure of cybersecurity risks and incidents.
Enhanced disclosures by certain investment advisers and investment companies about ESG investment practices
On June 17, 2022, the SEC proposed amendments to both the Advisers Act and the Investment Company Act that would have required registered (and certain exempt) investment advisers, registered investment companies, and business development companies to provide expanded disclosures regarding ESG-related investment policies and practices. By mandating minimum investor disclosures, the proposal was intended to increase transparency and reduce “greenwashing” (i.e., marketing practices that exaggerate the extent to which an investment program is actually informed by ESG criteria). Subject firms would have been required to provide specific disclosures in fund registration statements, as well as the discussion of fund performance in annual reports and adviser brochures. Certain ESG-focused funds would have been required to both quantitatively and qualitatively summarize their progress on achieving ESG impact annually, and the SEC would have mandated two specific greenhouse gas emission metrics for funds that took environmental factors into account.
Outsourcing by investment advisers
The SEC’s November 16, 2022 outsourcing proposal would have prohibited registered investment advisers from outsourcing certain key functions unless those service providers met minimum specified criteria. The rule proposal covered functions and services required for the adviser to provide its own advisory services in compliance with federal securities laws, as well as those whose nonperformance or negligent performance could be reasonably likely to result in a material impact on the adviser’s clients or its ability to provide investment advisory services. Among other changes, the SEC’s proposal would have required advisers to perform suitability due diligence covering several specific elements prior to establishing a business relationship with a subject service provider; periodically monitor the performance of the service provider against the adviser’s diligence requirements; keep books and records related to the oversight framework; and impose diligence, monitoring, and written assurance requirements for advisers’ use of third-party recordkeepers. The SEC proposed to amend Form ADV to collect new census-like information on the use of outsourcing for key functions covered under the proposal. The withdrawal of this proposal is relatively less surprising since the SEC subsequently proposed and adopted amendments to Reg S-P, which included incident response and incident reporting requirements.
Position reporting of large security-based swap positions
On February 4, 2022, the SEC proposed new rules under the Exchange Act; of these, Rule 10B-1 remained open for comment before the SEC’s withdrawal notice. This rule would have required persons holding security-based swap positions above a specified threshold (depending on the type of contract) to promptly file a schedule with the commission that would disclose (1) the security-based swap position itself; (2) any positions in securities or loans that underlie the swap; and (3) other instruments related to the underlying security, loan, or any relevant group or index of securities or loans. These reports would have been made publicly available on the SEC’s EDGAR system upon filing.
Other Withdrawn Proposals
The SEC’s withdrawal notice covered several other proposals affecting market participants, including exchanges:
- Volume-Based Exchange Transaction Pricing for NMS Stocks. The SEC withdrew a November 6, 2023 proposal to prohibit national securities exchanges from offering volume-based transaction pricing for the execution of agency-related orders in national market system (NMS) stocks. The proposal would have also required exchanges to adopt anti-evasion rules and written policies and procedures if exchanges offered this pricing for members’ proprietary orders.
- Cybersecurity Risk Management Rule. On April 5, 2023, the SEC proposed a new rule, form, and amendments to existing rules that would have required a variety of platforms and financial intermediaries (such as broker-dealers, clearing agencies, national securities exchanges, and transfer agents) to adopt policies and procedures that address cybersecurity risks, and required immediate notification to the SEC of significant cybersecurity events along with detailed reporting and public disclosures.
- Regulation Systems Compliance and Integrity. An April 14, 2023 proposal would have amended Regulation SCI (which involves monitoring of securities markets’ IT infrastructure) to expand the definition of “SCI entity” to include an expanded range of “key” market participants (i.e., that cover crucial functions such as trading, clearing and settlement, order routing, etc.).
- Regulation Best Execution. The SEC’s January 27, 2023 proposal included new rules relating to a broker-dealer’s duty of best execution, requiring detailed policies and procedures for all broker-dealers and additional policies, procedures, review, and documentation requirements for broker-dealers engaging in certain retail customer transactions.
- Order Competition Rule. On January 3, 2023 the SEC proposed a rule that, subject to exceptions, would have changed the ability of certain exchanges (“restricted competition trading centers”) from executing certain orders of individual investors at a particular price unless those orders were first exposed to a type of competitive, qualified auction.
- Substantial Implementation, Duplication, and Resubmission of Shareholder Proposals Under Exchange Act Rule 14a-8. The SEC withdrew a July 27, 2022 proposal that would have amended the substantial-implementation exclusion, the duplication exclusion, and the resubmission exclusion as substantive bases for exclusion of shareholder proposals under Rule 14a-8.
- Changes to Certain Definitions of Exchanges and Trading Systems. The SEC’s March 18, 2022 proposal would have amended definitions in Exchange Act Rule 3b-16 to include as “exchanges” certain systems offering the use of nonfirm trading interests and communication protocols to bring together securities buyers and sellers. The proposal also included changes to SEC regulations on alternative trading systems.
Implications for Investment Advisers
The immediate effect of the SEC’s withdrawal notice is to reduce uncertainty about the potential advent of several new – and, in some cases, burdensome – compliance and disclosure obligations for investment advisers, particularly those active in the relatively new spaces of ESG investing and digital assets. By totally withdrawing the proposed rules covered by the withdrawal notice, the SEC has committed itself to only moving forward on regulation in these areas by way of new rulemakings, any of which are likely to be informed by lighter-touch regulatory priorities for the foreseeable future. Nevertheless:
- Managers who have already considered modifications to their disclosures, policies, or procedures responsive to one or more of the withdrawn proposals may wish to consult with counsel before abandoning such efforts entirely. For example, marketing practices that raise the specter of a charge of “greenwashing” are problematic under general SEC Marketing Rule principles, regardless of withdrawal of the SEC’s 2022 ESG proposal. Similarly, enhanced diligence of key outsourced functions may be advisable on general risk mitigation grounds, or in response to commitments that may apply under other regulators’ regimes. Registered commodity pool operators and commodity trading advisors must comply, for instance, with the third-party outsourcing rules of the National Futures Association, which involve various diligence obligations.
- By clearing the field of existing covered proposals, the withdrawal notice has also demonstrated the SEC’s attention to these areas, and managers would be well advised to keep abreast of developments. The withdrawal notice does not prevent the SEC from revisiting any of the covered areas in the future.
If you have any questions, or would like additional information, please contact one of the attorneys on our Investment Funds team.
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