From the SEC

Strategic Plan

The SEC published on Nov. 23, 2022, its strategic plan for fiscal years 2022 to 2026. The plan details the SEC’s objectives to “fight against fraud, maintain a robust and relevant regulatory framework, and sustain a skilled and diverse workforce to serve America’s investors and capital-raising entrepreneurs alike.” 

The SEC’s new strategic plan establishes three primary goals: 

• “Protect the investing public against fraud, manipulation, and misconduct 
• “Develop and implement a robust regulatory framework that keeps pace with evolving markets, business models, and technologies  
• “Support a skilled workforce that is diverse, equitable, and inclusive and is fully equipped to advance agency objectives” 

Among the initiatives to meet these goals, the SEC intends to do the following: 

• “Pursue enforcement and examination initiatives focused on identifying and addressing risks and misconduct that affects individual investors.” 
• “Enhance the use of market and industry data, particularly to prevent, detect, and enforce against improper behavior.” 
• “Modernize design, delivery, and content of disclosures.” 
• “Update existing SEC rules and approaches to reflect evolving technologies, business models, and capital markets.” 
• “Focus on the workforce to increase capabilities, leverage shared commitment to investors, and promote diversity, equity, inclusion, accessibility, and equality of opportunity.” 
• “Modernize the SEC’s technology to enable the mission in a cost-effective, secure, and resilient manner.”

Annual Conference on Current SEC and PCAOB Developments

AICPA and CIMA annual conference 

The AICPA and CIMA held the annual Conference on Current SEC and PCAOB Developments in Washington, D.C., Dec. 12-14, 2022. Topics included: 

• Investor information should be a key focus of all stakeholders. 
• High-quality financial reporting requires the cooperation and engagement of all stakeholders. 
• Trust is foundational to high-quality financial reporting and is fostered through high-quality audits. 

Various stakeholders – preparers, regulators, standard-setters, auditors, users, and others – presented the audience with wide-ranging perspectives and insights. 

Key capital formation and financial reporting issues 

SEC Commissioner Hester Peirce addressed a number of issues. During her talk, Peirce: 

• Remarked on the importance of the SEC’s role in supporting capital formation and wondered whether the SEC’s recent rulemaking activities were creating an inhospitable landscape for public companies  
• Questioned whether the SEC’s climate-related disclosure rule proposal is sufficiently flexible to meet investor needs 
• Cautioned preparers and auditors not to let any estimation uncertainty inherent in certain climate information leak into financial statement estimates 
• Suggested stakeholders consider applying traditional financial reporting and auditing lessons to crypto assets even if no specific regulations apply, though she also remarked that any coming crypto asset regulations should not be so stringent that only large entities could comply 
• Reminded participants to remain vigilant to fraud considering the current economic environment 

Peirce also addressed the future of the accounting profession and encouraged all stakeholders to foster the talent pipeline, including telling more young people about the profession. 

Priorities of the chief accountant 

Setting the tone for his remarks with an observation that while compliance is an important part of financial reporting, accounting is at its core a communication activity, SEC acting Chief Accountant Paul Munter remarked on information investors and other stakeholders have requested or questioned, including: 

• Disaggregation of financial information (for example, income statement, tax disclosures) 
• Segments, including whether segments are appropriately aggregated 
• Improved cash flow information (for example, direct method) 

Munter observed that while the FASB is considering many of these requests in its current standard-setting agenda, nothing prevents SEC registrants from providing additional disaggregated disclosures or a direct method cash flow statement in their current filings if registrants believe such information is more useful to investors. 

Munter also remarked on the staff’s work on digital assets, including Staff Accounting Bulletin 121 on the accounting for obligations to safeguard crypto assets and recent digital asset consultations. Munter concluded with observations on the potential for fraud. Despite the current environment, preparers should carefully prepare well-thought-out judgments and estimates. Trust in the financial reporting environment requires the involvement of all stakeholders, and Munter pointed out that the International Organization of Securities Commissions’ recent release “IOSCO Statement on Financial Reporting and Disclosure During Economic Uncertainty” includes useful perspectives as it “reminds issuers, external auditors[,] and audit committees [or those charged with governance] of the important role each plays in providing investors with high-quality, reliable, timely, and transparent financial information, especially in times of heightened uncertainty.” 

OCA staff remarks 

Office of the Chief Accountant (OCA) staff members Anita Doutt, senior associate chief accountant; Nigel James, senior associate chief accountant; Shehzad (“Shaz”) Niazi, deputy chief counsel; Diana Stoltzfus, deputy chief accountant; and Jonathan Wiggins, senior associate chief accountant, covered various topics the staff has addressed in the past year, including: 

• Consultation themes such as business combinations, consolidation, digital assets, segment reporting, and revenue recognition 
• Crypto asset accounting and auditing complexities  
• Global climate proposals and related interaction with SEC rulemaking efforts 
• Independence matters 
• International activities, including monitoring of international standard-setting bodies 
• Stakeholder engagement 

As a reminder of the emerging significance of global climate proposals, the OCA staff panel discussion closed with that topic, highlighting the possibility of a company having to comply with both SEC and international standards for entities operating in foreign jurisdictions.  

Focus of Corp Fin 

SEC Division of Corporation Finance (Corp Fin) staff members Cicely Lamothe, acting deputy director of disclosure operations; Lindsay McCord, chief accountant; Craig Olinger, senior adviser to the chief accountant; and Melissa Rocha, deputy chief accountant, provided an overview of Corp Fin’s recent activities that affect 2022 year-end accounting and financial reporting. Topics included:  

• Consideration of the disclosure impact of current events (for example, inflation, interest rates, supply chain issues, geopolitical events), including whether:
  • The registrant should provide the schedule of valuation and qualifying accounts under Rule 12-09 of Regulation S-X in its Form 10-K  
  • Current events are characterized as having a current impact versus being described as a hypothetical future event 
• Segment reporting and interaction with information presented to the CODM 
• Crypto asset accounting and disclosure considerations, including reminders to understand the rights and obligations of both the issuer and the holder of the crypto asset and to evaluate the disclosure impact of recent crypto market events 
• Views on non-GAAP measures 
• Climate change disclosures under current interpretive guidance 
• Critical accounting estimates and the need for quantitative and qualitative analyses 
• Implementation questions related to significance tests for acquired businesses 

McCord noted that the staff issued revised non-GAAP Compliance & Disclosure Interpretations (C&DIs) on Dec. 13, 2022, concurrent with her remarks. The revised C&DIs address the staff’s most recent thoughts on misleading non-GAAP presentations, prominence issues, and tailored accounting principles. 

McCord also provided perspectives during the end-of-day Q&A session with implementation question observations on recent final rules including “Pay Versus Performance” and “Listing Standards for Recovery of Erroneously Awarded Compensation.” 

Crowe conference recap 

For a deeper dive into the conference, read the Crowe report “Highlights From the 2022 AICPA & CIMA Conference on Current SEC and PCAOB Developments,” issued on Jan. 4, 2023.

Public statements and announcements

Commissioner remarks on ESG 

On Dec. 7, 2022, before the American Enterprise Institute, Commissioner Peirce presented a speech addressing the SEC’s proposed climate change disclosure rule for public companies. She noted that the proposed rule has received thousands of comment letters with a wide variety of perspectives; however, the commenters seem to agree that if the rule is adopted it will greatly expand public company disclosure. She also noted that the recently updated cost assumptions indicate that the proposal would almost quadruple the external costs of preparing the Form S-1 and the Form 10-K. Peirce pointed out that the rule proposes many requirements, which could be extremely challenging from a compliance perspective and of limited or negative value to investors. Throughout her speech she highlighted concerns and potential pitfalls of the proposal. 

She said that some aspects of the climate proposal, rather than simply discovering information about what companies are doing with regard to climate, might end up interfering with corporate decision-making and might do so in an inflexible way that does not take into consideration differences across companies. Specific to this, she touched on the mandated disclosure about board oversight of climate-related risks and the corresponding set of disclosures related to management. She said these requirements will affect the substance of what companies do and might lead to undesirable effects on boards. 

She said that in contrast to principles-based mandates, which enable companies to present information about risks and opportunities that are material to them and omit information that is not financially material, the climate proposal encompasses numerous specific disclosure mandates and could produce granular, immaterial information. Peirce added that the required disclosures would be significant in every company’s filings and might overemphasize climate issues and obscure differences across companies. Additionally, she said designing the systems to collect and categorize the voluminous information likely will be difficult for most entities. Lastly, she stated, “the proposal, much of which is rooted in conjecture,” might produce investor confusion and the requirements could create unreliable, speculative disclosures. 

Demand for quality ESG and climate-related data 

SEC Commissioner Jaime Lizárraga spoke on Oct. 17, 2022, at the Future of ESG Data conference in London, on the demand for high-quality ESG data and actions of the SEC. Lizárraga highlighted the following three SEC rule proposals designed to facilitate comparable ESG disclosures and focus on ensuring statements made to investors are not false or misleading: 

• Enhanced climate risk disclosures by issuers 
• Enhanced ESG disclosures by registered funds and investment advisers 
• Modernized rules governing ESG-related fund names 

Noting that the underlying principle to these proposals is ensuring investors receive the information they need to make the most informed investment decisions, Lizárraga said, “the SEC’s disclosure framework is most effective when investors benefit from objective, quantitative metrics that provide the highest degree of comparability. I believe the proposed rules are a significant step forward in getting investors this information. I look forward to working to ensure that the final rules are as robust as possible.” 

He said that the data that investors want, and that is available, is always evolving and as a result of advances in technology such as emissions modeling, artificial intelligence, and big data analytics, this information is now both in demand and available. Therefore, the timing is right for the SEC to step in to ensure that investors have the most relevant information for their investment decisions. 

He added that markets change, driven by technology or other factors, and investor needs and practices evolve. Challenges exist in keeping up with rapid change and updating the SEC regulatory framework so that it continues to meet investor needs without compromising protections and in ensuring that claims made to investors are supported by verifiable information and disclosures are not misleading. He concluded by noting, “The best way to get there is with meaningful disclosures that incorporate the highest quality, reliable, and verifiable data in a standardized and investor-useful format.” 

On Oct. 21, 2022, at the inaugural European Corporate Governance Institute (ECGI) Responsible Capitalism Summit in Brussels, SEC Commissioner Caroline Crenshaw gave a speech discussing the SEC’s proposed climate-related disclosure rule. She highlighted that the proposal includes both qualitative and quantitative disclosure about climate-related risks and disaggregated climate-related risk impacts to existing line items in audited financial statements. She noted that investors are demanding and using climate-related information, which emphasizes the importance of reliable and comparable data. She said that markets already have evolved and are disclosing this climate-related information; however, the disclosures are made with varying degrees of specificity, standardization, and, sometimes, unreliability, which must be addressed to protect investors and help provide decision-useful information. 

Statement on enforcement 

SEC Chair Gary Gensler on Nov. 2, 2022, spoke before the Practising Law Institute’s 54th Annual Institute on Securities Regulation. His speech focused on enforcement as part of effective administration. For the fiscal year ended Sept. 30, 2022, the SEC filed more than 700 actions and obtained judgments and orders totaling $6.4 billion, including $4 billion in civil penalties. He identified and explored five themes of effective administration of enforcement: economic realities, accountability, high-impact cases, process, and positions of trust. 

Chair remarks on competition 

Chair Gensler on Oct. 24, 2022, presented remarks on competition to the annual meeting of the Securities Industry and Financial Markets Association. He noted how competition runs through each part of the SEC’s mission to protect investors, facilitate capital formation, and maintain fair, orderly, and efficient markets. Gensler said that the whole economy benefits when competition is greater among investors, issuers, and intermediaries. He explained that competition increases returns for investors, lowers the cost of capital for issuers, promotes innovation and efficiency in the middle of the markets, and helps capital markets more effectively price and allocate money and risk. His remarks focused on how to promote greater competition among the intermediaries in the middle of the U.S. markets while concentrating on the themes of centralization and concentration. To address competition, Gensler identified three tools – transparency, access, and fair dealing – and how to apply these tools across the fixed income, equity, and private markets. Further, he identified several SEC projects that are designed to lower the cost to issuers and raise the returns for investors, using transparency, access, and fair dealing to promote greater competition. He concluded, “I hope that competition is something we all can stand behind.” 

Commissioner remarks on DE&I 

In response to the 2021 Asset Management Advisory Committee’s (AMAC) report and recommendations to the SEC on DE&I and the lack of gender and racial diversity in the asset management industry, on Oct. 13, 2022, the SEC issued a staff FAQ addressing an adviser’s fiduciary duty when considering factors relating to DE&I in the selection or recommendation of other investment advisers. Commissioners Crenshaw and Lizárraga issued a statement supporting the FAQ, saying they believe all of the recommendations in the AMAC report warrant timely consideration. Both commissioners noted that they are committed to working with the chair and other commissioners in considering ideas or actions that would help provide transparency on diversity practices, potential biases, and other DE&I matters that are important to investors. 

Related to DE&I, on Oct. 13, 2022, Lizárraga gave a speech at the Investment Company Institute Securities Development Conference on raising the bar on DE&I. He highlighted some startling statistics from the AMAC report on the lack of diversity in the asset management industry and said that DE&I can be challenging and controversial. He noted that progress can take time and that meaningful advances in DE&I require a combination of commitment, leadership, and constructive engagement. Lizárraga described the recommendations to the SEC from the AMAC and noted that the SEC’s spring rulemaking agenda includes planned rules relating to enhanced board diversity and human capital management disclosures. In closing, he stated, “There are many benefits that result from a long-term commitment to advancing diversity, equity, and inclusion.” 

Statement on auditor’s responsibility for fraud detection 

On Oct. 11, 2022, acting Chief Accountant Munter issued a statement addressing the auditor’s responsibilities with respect to fraud detection. He included observations of shortcomings in detecting fraud; described how the auditor’s responsibilities are addressed in the Public Company Accounting Oversight Board (PCAOB) standards, including the quality control standards; and provided examples of good practices. Under PCAOB auditing standards, auditors have a responsibility to consider fraud and to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by fraud or error. Munter noted that the importance of the auditors’ responsibilities should not be underestimated and warned that changes to the macroeconomic and geopolitical environment in which companies operate might result in new pressures, opportunities, or rationalizations for fraud. 

He said fraud risks should be continually reassessed throughout the audit and noted auditors should avoid using the examples of fraud risk considerations and related responses included within the auditing standards as a comprehensive checklist. Munter emphasized that audit responses should be tailored to the identified fraud risk and responsive to changing business environments if auditors are to fulfill their professional responsibilities. 

Munter concluded by reiterating that auditors serve an important gatekeeping and investor protection function by helping to verify that issues are promptly identified and addressed so that the auditor has obtained reasonable assurance about whether financial statements are free of material misstatement, whether due to error or fraud. 

Statement on digital asset financial stability risks and regulation 

On Oct. 3, 2022, before the Financial Stability Oversight Council (FSOC), Chair Gensler delivered a statement on the FSOC’s report on digital asset financial stability risks and regulation. Starting with a clear statement that he supports the report, he described the current crypto market as highly volatile, speculative, and decentralized and noted that crypto markets cannot exist outside of public policy frameworks, regardless of what the crypto industry initially expected or what certain market participants might say. Gensler believes that the majority of tokens in the crypto market are securities and therefore are covered by the securities laws; as such, the many crypto intermediaries are transacting in securities and have to register with the SEC in some capacity. 

He noted that all market participants benefit from widespread compliance with the rules, which increases investor confidence in the U.S. markets. However, a lot of noncompliance exists with the securities laws in the crypto market. He shared that the SEC staff is working to help ensure that investors in the crypto market get time-tested protections and a fair playing field. Additionally, Gensler said he looks forward to working with Congress to achieve the public policy goals, consistent with maintaining the regulation of crypto security tokens and related intermediaries at the SEC. 

Investor Advisory Committee meeting 

On Sept. 21, 2022, the SEC held a meeting of the Investor Advisory Committee. At the meeting, panel discussions addressed human capital management and labor, proposed Rule 10B-1 position reporting of large security-based swap positions/asset-based swap positions, Schedules 13D and 13G beneficial ownership reports, and ESG fund disclosure. The panel on human capital management and labor considered the demand for labor-related performance data from the investor perspective, including investors’ views on the quality and decision-usefulness of currently available data, and which information investors would use should it become available and why. Additionally, the committee discussed recommendations it has issued on the cybersecurity disclosure proposal, climate-related disclosure proposal, and accounting modernization project. 

Rules and guidance

Insider trading rules 

On Dec. 14, 2022, the SEC held an open meeting where it discussed insider trading arrangements and related disclosures. As a result of the meeting, the SEC adopted amendments to Rule 10b5-1 under the Securities Exchange Act, new disclosures regarding Rule 10b5-1 trading arrangements and insider trading policies and procedures, and amendments regarding the disclosure of the timing of certain equity compensation awards and reporting of gifts on Form 4. 

The final rules will be effective Feb. 27, 2023. 

Sample letter on crypto assets 

On Dec. 8, 2022, Corp Fin released a sample comment letter to companies reminding them of their disclosure obligations under federal securities laws. The focus of the sample comment letter is on how recent crypto asset market events might have affected – either directly or indirectly – a company’s business. Corp Fin encourages companies to evaluate their existing disclosures to determine if updates are warranted. Companies should consider the sample letter comments and determine what, if any, changes are needed to disclosures to adequately address the impact of recent crypto asset market developments in their filings. 

New C&DIs on proxy rules and Schedules 14A/14C 

On Dec. 6, 2022, the SEC issued three new C&DIs. The matters addressed in the new guidance include: 

• A registrant does not need to include the names of a dissident shareholder’s nominees on its proxy card pursuant to Rule 14a-19(e)(1) when the registrant receives director nominations from a dissident shareholder purporting to nominate candidates for election to the registrant’s board of directors at an upcoming annual meeting and the registrant determines that the nominations are invalid due to the dissident shareholder’s failure to comply with its advance notice bylaw requirements. (Question 139.04) 
• A registrant has certain disclosure obligations with respect to its proxy statement disclosures and solicitation efforts when the registrant determines that a dissident shareholder’s director nominations do not comply with its advance notice bylaw requirements and excludes the dissident shareholder’s nominees from its proxy card and the dissident shareholder then initiates litigation challenging the registrant’s determination regarding the validity of the director nominations. (Question 139.05) 
• A dissident shareholder conducting a nonexempt solicitation in support of its own director nominees cannot simply file a proxy statement on the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system; avoid providing its own proxy card; and instead rely exclusively on the registrant’s proxy card to seek to have its director nominees elected. (Question 139.06) 

Proxy voting records transparency 

On Nov. 2, 2022, the SEC adopted amendments to Form N-PX to enhance the information that mutual funds, exchange-traded funds, and certain other registered funds report about their proxy votes. The amendments will make these funds’ proxy voting records easier to analyze, improving investors’ ability to monitor and compare different funds’ voting records. Additionally, the adopted rule will require institutional investment managers to disclose how they voted on executive compensation, or “say-on-pay” matters, meeting one of the rulemaking mandates of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). 

Chair Gensler said, “I am pleased to support these amendments because they will allow investors to better understand and analyze how their funds and managers are voting on shares held on their behalf.” 

The new rules and form amendments will be effective for votes occurring on or after July 1, 2023, with the first filings subject to the amendments due in 2024. 

Compensation recovery listing standards and disclosure rules 

The SEC on Oct. 26, 2022, adopted rules requiring securities exchanges to adopt listing standards that make issuers develop and implement a policy providing for the recovery of incentive-based compensation that was erroneously awarded to current or former executive officers. In accordance with the final rules, a listed issuer must file the policy as an exhibit to its annual report and include disclosures related to its recovery policy and recovery analysis where a recovery is triggered. 

Implementing Section 10D of the Securities Exchange Act of 1934, a provision added by Dodd-Frank, new Exchange Act Rule 10D-1 also requires national securities exchanges and associations to establish listing standards that require disclosure of those compensation recovery policies in accordance with SEC rules, including providing the information in tagged data format. 

Additionally, the new rules require specific disclosure of information about actions taken pursuant to the issuer’s recovery policy. 

The final rules were effective Jan. 27, 2023. Securities exchanges will be required to file proposed listing standards no later than 90 days following publication in the Federal Register, and the listing standards must be effective no later than one year following such publication. Issuers subject to such listing standards will be required to adopt a recovery policy no later than 60 days following the effective date. 

Fund shareholder report and advertising rules 

On Oct. 26, 2022, the SEC adopted rule and form amendments requiring mutual funds and exchange-traded funds to transmit concise and visually engaging shareholder reports. In addition, the amendments promote transparent and balanced presentations of fees and expenses in investment company advertisements. 

Regarding fund shareholder reports, the amendments require funds to highlight key information, such as fund expenses, performance, and portfolio holdings. The use of graphic and text features is encouraged to make reports more effective. Also, funds will be required to tag the information in their reports in a structured data format and to make certain more in-depth information available online and available for delivery free of charge to investors on request. 

The advertising rules require fee and expense presentations in registered investment company and business development company advertisements and sales literature to be consistent with relevant prospectus fee table presentations and to be reasonably current. 

The amendments will be effective Jan. 24, 2023. The SEC is providing an 18-month transition period to adjust shareholder reports and transmission practices and to comply with the advertising amendments. The amendments addressing representations of fees and expenses that could be materially misleading apply on the effective date. 

Broker-dealer rule on securities-based swaps 

On Oct. 12, 2022, the SEC adopted amendments to the requirements for electronic recordkeeping, prompt production of records, and third-party recordkeeping service applicable to broker-dealers, security-based swap dealers (SBSDs), and major security-based swap participants (MSBSPs). These amendments are intended to modernize recordkeeping requirements in light of new technologies in electronic recordkeeping. 

The current broker-dealer electronic recordkeeping rule requires firms to preserve electronic records solely in a nonrewritable, nonerasable format. Among other requirements, the amendments add an audit trail alternative under which electronic records can be preserved in a manner that permits the re-creation of an original record if it is altered, overwritten, or erased; requires broker-dealers and all types of SBSDs and MSBSPs to produce electronic records to securities regulators in a reasonably usable electronic format; and eliminates the requirement that a broker-dealer notify its designated examining authority before employing an electronic recordkeeping system. 

The amendments were effective Jan. 3, 2023. Broker-dealers must comply with the new requirements six months after the effective date. SBSDs and MSBSPs must comply 12 months after the effective date. 

Pay-versus-performance disclosure rules 

On Aug. 25, 2022, the SEC voted to finalize pay-versus-performance disclosure rules mandated by Dodd-Frank. The rules require more transparency about how executive compensation relates to company performance. While the final rules were effective Oct. 11, 2022, registrants must comply with the new requirements in proxy and information statements that include Regulation S-K Item 402 executive compensation disclosure for fiscal years ending on or after Dec. 16, 2022. 

To learn more about the SEC pay-versus-performance disclosure rules for executive compensation and what board directors and company management should consider, see the Sept. 22, 2022, Crowe article “SEC Finalizes Pay-Versus-Performance Disclosure.” 

Proposals

Proposed regulation from Division of Trading and Markets 

The SEC on Dec. 14, 2022, issued four proposed rules related to trading and markets, as follows:  

• Proposed rule “Disclosure of Order Execution Information” expands the scope of entities subject to Rule 605 of Regulation National Market System (NMS), modifies the information required to be reported under the rule, and changes how orders are categorized for purposes of the rule. 
• Proposed rule “Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders” adopts variable minimum pricing increments for the quoting and trading of NMS stocks, reduces access fee caps, and enhances the transparency of better priced orders. 
• Proposed rule “Order Competition Rule” requires certain equity orders of retail investors to be exposed to competition in fair and open auctions before such orders are executed internally by any trading center that restricts order-by-order competition. 
• Proposed rule “Regulation Best Execution” establishes a best execution standard and requires detailed policies and procedures for brokers, dealers, government securities brokers, government securities dealers, and municipal securities dealers and more robust policies and procedures for entities engaging in certain conflicted transactions with retail customers, as well as related review and documentation requirements. 

Comments are due March 31, 2023, or 60 days after the date of publication of each proposed rule in the Federal Register, whichever is later. 

Reopened comment period for share repurchase disclosure 

To allow for the consideration of a newly enacted law, the SEC on Dec. 7, 2022, reopened the comment period on proposed amendments to modernize the required disclosure about an issuer’s repurchases of its equity securities, commonly referred to as buybacks. 

After the proposed amendments originally were published for public comment, the Inflation Reduction Act of 2022 was enacted, which imposes on certain corporations a nondeductible excise tax equal to 1% of the fair market value of any stock of the corporation repurchased by such corporation during the taxable year. To consider this new law, the SEC staff prepared a memorandum on potential economic effects of the new excise tax that might be helpful in evaluating the proposed amendments. 

Comments were due on Jan. 11, 2023. 

Proposed changes to open-end fund liquidity framework 

On Nov. 2, 2022, the SEC proposed rule and form amendments to better prepare open-end funds for stressed conditions and to mitigate dilution of shareholders’ interests. The amendments would change the existing framework by: 

• Enhancing how open-end funds other than money market funds (MMFs) and certain exchange-traded funds (ETFs) classify the liquidity of their investments and requiring a minimum of at least 10% of net assets be highly liquid assets 
• Requiring any open-end fund, other than a MMF or ETF, to use swing pricing and implementing a “hard close” to operationalize this pricing and to improve order processing 
• Providing for more frequent, timelier, and more detailed public reporting of fund information, including information about funds’ liquidity and use of swing pricing 

Comments are due Feb. 14, 2023. 

Proposed new oversight requirements for outsourced services by investment advisors 

The SEC on Oct. 26, 2022, proposed a new rule and rule amendments under the Investment Advisers Act of 1940 to prohibit registered investment advisers from outsourcing certain services and functions without meeting certain minimum requirements such as conducting due diligence and monitoring the service providers. 

The proposal includes requirements for advisers: 

• To conduct due diligence before outsourcing and to periodically monitor service providers’ performance and reassess whether to retain them 
• To make and/or keep books and records related to the due diligence and monitoring requirements 
• To conduct due diligence and monitoring for third-party recordkeepers and to obtain reasonable assurances that the third party will meet certain standards 

Comments were due Dec. 27, 2022. 

Rulemaking comment periods reopened 

On Oct. 7, 2022, the SEC announced that, due to a technological glitch known to have occurred as early as June 2021, the comment period for certain proposed rulemakings and a request for comment would be reopened. The SEC indicates it did not receive certain comments previously submitted and suggests interested stakeholders should confirm that their original comment submission appears on the SEC’s website. The 12 affected releases include, among others, proposals on climate-related disclosures, cybersecurity risk governance disclosures, and special purpose acquisition companies. 

The comment period for each affected release was reopened until Nov. 1, 2022.