Regulatory Roundup

Kirkland’s Regulatory Roundup covers regulatory developments of the SEC during this pivotal moment in history. Bookmark this page and check back often for updates and accessible digests on the ever-evolving rules, important dates and our attorneys’ perspectives on this dynamic sector. Inquiries may be directed to regulatoryroundup@kirkland.com.

Kirkland’s Investment Funds Regulatory Solutions group, which includes several former senior SEC and government officials and some of the world’s most experienced practitioners in the United States and the EU, underlies every fund formation matter that Kirkland advises on, providing not only relevant insight on active regulatory issues, but proactively thinking ahead and “seeing around corners” for clients and helping them plan strategically for the future. The group leverages cross-practice knowledge from groups including Government, Regulatory & Internal Investigations, Government Enforcement Defense and Internal Investigations, Capital Markets, and Litigation.

The SEC Proposes New Rules Regarding SPACs 

On March 30, 2022, noting that over the past two years there has been an unprecedented surge in the number of initial public offerings by SPACs, the U.S. Securities and Exchange Commission (SEC) proposed a sweeping new set of rules regarding SPAC IPOs and mergers in a 3-to-1 vote of the SEC Commissioners.

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SEC Proposes Significant New Cybersecurity Rules for Investment Advisers

On February 9, 2022, the U.S. Securities and Exchange Commission (“SEC”) voted (3-1) to propose new cybersecurity requirements for SEC-registered investment advisers under the Investment Advisers Act of 1940 (the “Advisers Act”) and SEC-registered investment companies under the Investment Company Act of 1940 (the "Investment Company Act"). The proposed rules follow several cybersecurity alerts, reports and enforcement actions from the SEC over the last several years. While most SEC-registered investment advisers already have adopted and implemented cybersecurity policies and procedures, the proposed rules contain more prescriptive requirements compared to existing SEC cybersecurity guidance and rules related to safeguarding information such as Regulation S-P, and would require most registered advisers to implement enhancements to their cybersecurity programs. The proposed rules would also impose reporting and disclosure obligations relating to cybersecurity incidents and risks. Therefore, advisers will likely need to commit additional resources to cybersecurity and be prepared for greater scrutiny of their cybersecurity practices by the SEC and investors.

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SEC Proposes Sweeping Rule Changes for Private Fund Advisers (Part 2 of 2) 

As summarized in a previous Kirkland AIM, on February 9, 2022, the SEC voted 3-1 to propose significant new rules under the Investment Advisers Act of 1940 (the “Advisers Act”) to increase the regulation of investment advisers, including private fund advisers (the “Proposed Rules”).

The Proposed Rules represent the most extensive rulemaking applicable to private fund advisers by the SEC under Chairman Gensler, as well as the SEC’s most emboldened use to date of authorizing provisions under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the original rulemaking requiring most large private fund advisers to register under the Advisers Act during the 2011-2012 period. If adopted in their current form, the Proposed Rules would represent a departure from statements in recent years by the SEC and its Staff emphasizing disclosure of adviser practices, and result in a rare imposition of substantive requirements and prohibitions on private fund advisory contracts (e.g., limited partnership agreements and investment management agreements), particularly without express statutory authority regarding those requirements or prohibitions.

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SEC Proposes Sweeping Rule Changes for Private Fund Advisers (Part 1 of 2) 

On February 9, 2022, the SEC voted (3-1) to propose significant new rules under the Investment Advisers Act of 1940 (the “Advisers Act”) to increase the regulation of investment advisers, including private fund advisers (the “Proposed Rules”). The Proposed Rules, which were issued in two separate releases, address:

• SEC-registered and unregistered private fund advisers (the “Private Fund Adviser Proposal”); and
• Cybersecurity risk management for SEC-registered advisers (the “Cybersecurity Proposal”).

The Proposed Rules represent the most significant proposed rulemaking applicable to private fund advisers by the SEC under Chairman Gensler, and follow on the heels of a risk alert regarding private fund adviser deficiencies and proposed amendments to Form PF.

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SEC Risk Alert Details Additional Private Fund Adviser Examination Deficiencies 

On January 27, 2022, the U.S. Securities and Exchange Commission’s (the “SEC”) Division of Examinations (“Exams”) issued a risk alert (the “2022 Risk Alert”) identifying compliance issues observed by Exams staff (the “Staff”) in examinations of registered investment advisers that advise private funds.

The 2022 Risk Alert indicates that it builds on an earlier risk alert (“2020 Risk Alert”) issued by Exams that addressed deficiencies commonly identified by the Staff in examinations of private fund advisers, and was issued due to the “significant role of private fund advisers in the financial markets” and the “substantial growth in reported private fund assets.” As summarized here, the 2020 Risk Alert cited deficiencies that fell into the following general categories:

• Conflicts of interest;
• Fees and expenses; and
• Policies and procedures relating to material nonpublic information.

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SEC Proposes Significant Amendments to Private Fund Manager Reporting on Form PF 

On January 26, 2022, the SEC voted to propose significant amendments to Form PF. Form PF, which was adopted in 2011 in connection with the Dodd-Frank Act, requires large registered investment advisers to file reports with the SEC regarding private funds managed by such advisers and to allow the Financial Stability Oversight Council to assess systemic financial risk to the U.S. financial system. Currently, reports on Form PF for large private equity fund managers (usually including real estate and private credit within this category) are filed annually and for hedge funds quarterly. Unlike many other SEC filings, Form PF filings are not public.

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Private Fund Advisors 

Private fund advisers; Documentation of registered investment adviser compliance

• View comments received

Risk Alert: Observations from Examinations of Private Fund Advisers (January 27, 2022)

Cybersecurity

Cybersecurity Risk Management for Investment Advisers, Registered Investment Companies, and Business Development Companies

• Comments due April 11, 2022
• View comments received

Form PF 

Amendments to Form PF to Require Current Reporting and Amend Reporting Requirements for Large Private Equity Advisers and Large Liquidity Fund Advisers

• Comments due March 21, 2022
• View comments received