SEC delays compliance, may weaken private-fund disclosure rules

SEC commissioners voted June 11 to delay expanded disclosure requirements for private-fund managers, but warned they will consider changing or reversing other parts of the rule as well.

Commissioners voted three-to-one to delay compliance with changes to the confidential disclosures required on Form PF until Oct. 1, after having previously pushed back the deadline from March 12 to June 12.

Atkins instructed the SEC staff to undertake a significant re-evaluation of the rule to determine whether the cost and effort required of advisers is worth the benefit of the degree of market insight the information would give the SEC and investors.

Why should 40-Act fund boards care?

The willingness to delay implementation of the rule and revisit or eliminate some of its requirements follows the policy goals articulated by new SEC chair Paul Atkinson, who has advocated lowering the barriers limiting the access of retail-investor-focused 40-Act funds and the private-fund market.

The potential to lower those barriers and allow more mutual-fund and ETF investment in private assets, makes the regulations affecting private-fund advisers more relevant to boards overseeing 40-Act funds.

Pros and cons

The Investment Adviser Association (IAA), which had previously asked the SEC to delay implementation until Sept. 12 to allow more time for advisers to make the technical and reporting-system changes required for accurate disclosure, posted a letter praising the decision as an important step in quality control.

It also suggested that the “broad scope” of some definitions in the amendments might be eligible for change to lessen the burden on advisers doing the reporting and to focus disclosures on only the most relevant players, rather than “indirectly related legal entities” that fall under the current rule’s definition of a “trading vehicle.”

“Many of our pension fund dollars are [also] invested in private funds, so understanding risks in this market is important for American retirement savings,” SEC commissioner Caroline Crenshaw posted in a dissension in which she argued that changes to private-fund regulations are important to small, retail investors.

“By preventing these amendments from coming online, we are willfully blindfolding the Commission and similarly hobbling our and other financial regulators’ ability to conduct more precise and effective analysis of private markets,” she argued.

During discussions before the vote Crenshaw did get Atkins to acknowledge that, since the CFTC and SEC adopted the changes jointly, the SEC would need approval from the CFTC to delay compliance.

Atkins said during the meeting, however, that even if the CFTC did not approve the move, he would direct SEC staff not to recommend enforcement against violators or make the relevant version of Form PF adopted in 2023 available to filers, according to an analysis posted June 11 by Proskauer Rose LLP.

The delay, and Atkins’ suggestion that the commission would reconsider many of the requirements of Form PF and its amendments, amount to another in a series of efforts by the current commission to reverse regulations and investor-protection steps instituted by the two previous commissions without having to go through the public-disclosure and comment requirements laid out in the Administrative Procedure Act.

“The truth is that we are here to extend this compliance date not because firms actually need additional time to comply, but to allow for reconsideration of these amendments more broadly,” she wrote.