Published on Jun 28th, 2023 |

IAA Argues Against SEC Proposals


Brief Introduction

The Investment Adviser Association (“IAA”) has publicized their disagreement with four SEC proposals regarding investment advisers.

The proposals are related to protecting customer information, ongoing cybersecurity, proper vetting of third-party vendors, and increasing the requirements for advisers that handle and maintain their client’s assets.

IAA Argues Against SEC Proposals

IAA Concerns

  • Reg S-P
    • SEC will increase requirements for safeguarding of customer information, including the requirement to inform customers of data breaches as soon as practicable, and no longer than 30 days.
    • The IAA is concerned that small advisers may have difficulty maintaining compliance with limited resources and a majority of tasks outsourced.
  • Cybersecurity Rule
    • Advisers will be required to notify the SEC within 48 hours of a significant cyber security event, so that the SEC can quickly react if any market-threatening attacks are occurring.
    • The IAA argues that this is unnecessary for small advisers, because events that affect them are unlikely to be market-threatening; if they are, multiple Firms would be affected, and cybersecurity service providers would already be aware.
  • Safeguarding Rule
    • Advisers will need to secure contractual assurances their client’s assets are safeguarded separately from the assets of the custodian.
    • The IAA is concerned that this rule creates redundancies with other rules and adds additional burden to smaller advisers.
  • Vendor Monitoring
    • Advisers will be responsible for monitoring and ensuring that third-party vendors remain compliant with SEC regulations.
    • The IAA says this could cause confusion due to the redundancy with the other proposed rule regarding asset safeguarding. Additionally, it may take significant resources for small advisers to supervise and receive individual contractual assurances regarding the activity of all their vendors.

IAA Argues Against SEC Proposals

Vigilant’s Conclusion

The IAA ultimately suggests that the SEC reconsider some of the redundancies within their large number of proposed rules.

Additionally, they suggest that the SEC considers a tiered system that places lesser burdens on smaller Firms. In this aggressive regulatory environment, it would not be prudent to hope for the SEC to step back from rule proposals.

Nonetheless, Firms should be taking the necessary steps to ensure that their compliance departments have the support needed to maintain compliance.

With end-to-end compliance support that is tailored to your needs, Vigilant is prepared to help Firms navigate this current regulatory environment.

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