In the wake of a recent appeals court ruling challenging the Securities and Exchange Commission’s (SEC) oversight authority, private fund associations have called for the withdrawal of three proposed regulatory measures targeting investment advisers.
The Managed Funds Association and five allied groups formally petitioned the SEC on Tuesday to abandon proposed rules concerning artificial intelligence (AI), cybersecurity, and outsourcing. Their request follows a decision by the 5th U.S. Circuit Court of Appeals, which invalidated an SEC regulation that aimed to enhance fee transparency among private funds.
Legal experts and industry representatives underscored that the appeals court’s ruling specifically questioned the SEC’s mandate under the Investment Advisers Act, asserting that the agency had overreached its regulatory boundaries.
“We respectfully urge the Commission to withdraw the proposed rules given the limits of its authority,” the trade groups emphasized in a letter submitted as an official comment.
Tuesday’s letter underscores broader implications of the appeals court’s decision on the SEC’s regulatory purview, amidst mounting legal challenges from corporate sectors. Recent Supreme Court rulings further compounded setbacks to the agency’s enforcement and regulatory capabilities, legal analysts noted.
Responding to inquiries, an SEC spokesperson refrained from direct comment on the letter but emphasized the agency’s commitment to thorough review and public engagement.
Among the SEC’s proposed rules are initiatives aimed at addressing technological advancements in fund management. The proposed AI regulation seeks to mitigate conflicts of interest arising from AI-driven investment predictions, while the outsourcing rule aims to restrict certain advisory functions outsourced by fund managers.
Additionally, the third proposed rule mandates the adoption of comprehensive cybersecurity policies by advisers and funds to mitigate cybersecurity risks.
