Issa Hanna, a partner at the law firm Eversheds Sutherland LLP, recently sat down with PLANADVISER for a wide-ranging discussion about the regulatory activities of the U.S. Securities and Exchange Commission.

In Hanna’s view, the SEC has been highly active during the early part of President Joe Biden’s first term in office, and the same can be expected for the next two years. For context, Hanna assists broker/dealers, investment advisers, investment funds, insurance companies and insurance distributors in navigating the regulatory requirements applicable to their businesses. As Hanna emphasizes, these requirements have shifted substantially in recent years, and they can be expected to continue to do so.

“One easy prediction to make is that the next few years of SEC activity under Chair Gary Gensler are going to be all-hands-on-deck,” Hanna says. “Clearly, President Biden has a very ambitious rulemaking agenda when it comes to the financial services sector, and the SEC’s leadership and staff are working hard to live up to this vision. In fact, my understanding is that the staff at the SEC has been instructed to really focus on the forward-looking agenda and to not spend too much time on other initiatives that have already been undertaken.”

As an example of this, Hanna cites the SEC’s marketing rule updates, which were finalized in the closing days of the prior administration. The finalized amendments created a single rule to replace the prior advertising and cash solicitation rules. According to the SEC’s leadership at the time, the final rule has been designed to “comprehensively and efficiently regulate investment advisers’ marketing communications.” The prior SEC leadership said the reforms would allow advisers to provide investors with useful information as they choose investment advisers and advisory services, subject to conditions that are reasonably designed to prevent fraud.

“At this point, though there was a lot of initial enthusiasm for the rule changes, a lot of our clients are actually struggling to get into compliance with the new marketing rules,” Hanna notes. “This is because they feel they have not gotten much supplemental guidance and compliance support coming from the SEC side. We haven’t seen the development and distribution of compliance guides and FAQs—the sort of sub-regulatory actions that help practitioners achieve compliance.”

Hanna’s clients continue to be excited about new marketing opportunities, he adds, but they fear making mistakes or misinterpreting the updated regs.

“They know the SEC still has plenty of ammunition to go after potentially misleading testimonials, for example, and so they are being cautious,” he says. “They haven’t gotten the typical back-and-forth they would have expected to see, to help clear up those interpretive issues that inevitably arise under new regulations.”

Hanna’s viewpoint is that this pivot is by design, though not necessarily desired, on the part of the resourced-constrained SEC.

“It seems clear that the top-level leaders of the SEC are saying that the regulator needs to use its limited resources to focus on new things, on the Biden administration’s biggest priorities,” Hanna observes. “I think it’s a staffing issue and that time is of the essence. They know it is ultimately a short time window which they have to do the big things they want to do.”

As a prime example of a new priority, Hanna points to the recent proposal of regulations pertaining to the reporting requirements placed on private fund advisers. Specifically, the SEC has proposed substantial amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds. The SEC’s leadership says the proposed amendments are designed to enhance the Financial Stability Oversight Council’s ability to assess systemic risk, as well as to bolster the Commission’s regulatory oversight of private fund advisers and its investor protection efforts, in light of the growth of the private fund industry.

“In my view, the first thing to take away from the private fund rulemaking proposal is that it is the most significant expansion of the regulation of private fund advisers since they were first required to register with the SEC as a result of Dodd-Frank Act,” Hanna says. “Standing alone, even a single aspect of this new proposal would be viewed as being very significant—for example the requirement that private funds give their investors a quarterly statement with all of the expenses and fees associated with the fund. That, standing alone, is a big deal, and its just one part of this ambitious package.”

Another part of the proposal would require that advisers file reports within one business day of events that indicate significant stress at a fund that could harm investors or signal risk in the broader financial system. The proposed amendments would provide the Commission and FSOC with more timely information to analyze and assess risks to investors and the markets more broadly. The proposal also would decrease the reporting threshold for large private equity advisers from $2 billion to $1.5 billion in private equity fund assets under management.

The SEC’s leadership argues that lowering the threshold would result in reporting on Form PF that continues to provide robust data on a sizable portion of the private equity industry. Finally, the proposal would require more information regarding large private equity funds and large liquidity funds to enhance the information used for risk assessment and the Commission’s regulatory programs.

“What the SEC is getting at here is that they feel they cannot rely on the private fund industry itself to make adequate disclosures under the current framework,” Hanna says. “Parts of the rulemaking seem to require that certain private fund advisers engage a third-party to provide fairness assessments regarding how the fund is constructed and distributed, while other parts would require that new disclosures are made to all investors in a fund about any side letters or communications certain other investors are receiving. Again, it’s a very ambitious package.”

Hanna says one clear conclusion to be drawn from the SEC’s recent activities, including the proposal of cybersecurity-focused regulations, is that Chair Gensler “doesn’t seem afraid of a difficult fight or making tough, potentially controversial decisions.”

“He is not somebody who cowers from all that,” Hanna says. “Overall, if the financial services industry leadership has not already, they need to see the past few months of regulatory action as a harbinger of what is to come across many different areas. For example, there is now an outstanding request for information and comment on advisers’ and fund providers’ digital engagement processes. I expect that we could see an ambitious proposal on this front any time now, one that could really impact the way certain firms do business, including the most popular app-based trading platforms.”