The SEC has displayed signs of intention for increasing their scrutiny over Private Equity Firms in 2023. The SEC has added more proposals and rules that could likely increase the regulatory burden for Private Equity Firms and other Private Fund Managers, alike. There are three potential compliance areas that firms should focus on in order to be proactive in this environment.
What Could The SEC Focus On?
- Electronic Communications
- Increased enforcement of record keeping for employees using texting and messaging apps to communicate with clients.
- Multiple firms such as Apollo Global Management, KKR, and Carlyle Group have already received letters of inquiry related to their digital record-keeping.
- Due to the difficulty in maintaining electronic records, firms should be proactively evaluating their compliance policies based off previous SEC charges in 2022.
- Outsourcing Requirements
- Firms could have elevated requirements of due diligence when outsourcing certain functions to third parties.
- As outsourcing increases within the industry, this will place larger regulatory burden on firms to ensure that the third parties are compliant with the firm’s policies.
- The New Advertising Rules
- Advertisements of Private Equity performance will require disclosures of fees and expenses.
- Gross performance can only be advertised if net performance is also shown.
- There may be major impacts on the ability to use digital marketing.
Vigilant’s Final Conclusion
As the SEC pushes for a heavier regulatory environment, it is vital for Private Equity Firms to proactively assess their compliance policies and procedures to reduce the risk of regulatory headache that comes with examinations and investigations.
Firms would be wise to make their policies, procedures, and culture dynamic enough to handle any additional rules that may be announced for 2023.
Vigilant brings years of experience for firms, leveraging our Team’s knowledge and expertise to help identify your compliance needs to customize a compliance approach that helps your Firm achieve their business goals.