SEC taps out on 14 stalled rule proposals

The SEC has abandoned a total of 14 unfinalized rules proposed during the tenure of former SEC chair Gary Gensler, including fund-focused proposals to regulate cybersecutiry, artificial intelligence, outsourcing by investment advisers and ESG investment strategies.

Withdrawing even a long list of high-profile, heavily debated rule proposals is unlikely to have much of an impact on fund advisers or, more importantly, the issues fund boards are likely to have to deal with under the tenure of current chair Paul Atkins, according to Carolyn McPhillips, president of the Mutual Fund Directors Forum (MFDF).

“It isn’t surprising that they want to take a step back from the Gensler era and look forward with the new Atkins priorities,” she said. “It was a pretty long list of rules that do ultimately affect the way funds operate. But they were also at the proposal stage, so they’re not changing anything that has already gone into effect.”

Many of the rules being withdrawn had been effectively marked for deletion or delay even before results of the presidential election became clear.
The fund-focused proposal to regulate ESG-focused funds to avoid greenwashing and other potential problems was never as controversial as the climate-risk-disclosure rule that turned Gensler’s time at the SEC into a non-stop battle with the energy and manufacturing industries.

It did generate a lot of opposition from investment companies, which pointed out significant problems with the way the rule would be implemented, McPhillips said.
The SEC had also hinted that it would back off on the cybersecurity rule that would have required investment companies to create and document security procedures.
“Obviously no one wants to get hacked, so not having a rule doesn’t mean companies don’t already have security in place,” she said.

SEC officials were also careful to point out they could write and re-propose rules covering similar topics in ways that make sense to the new administration, so a withdrawn rule is not the same as a complete retreat on a particular topic.
“The digital assets custody proposal was withdrawn, but we’ll undoubtedly see that addressed in whatever commissioner [Hester] Peirce comes out with from the Crypto Task Force,” McPhillips said.
“I don’t expect to see a huge practical impact from withdrawing proposals whose outcome was already uncertain,” McPhillips said.