2023 investment management regulatory outlook

Addressing investment management compliance requirements now

The investment management industry is facing a tidal wave of regulatory change, the impacts of which will be felt throughout firms and markets in 2023. In our outlook, we explore three key themes that organizations can consider to address changing compliance requirements.

Regulatory churn

In 2022, regulators developed approaches to investment management regulation related to emerging technology, outdated rules, and progressive topics. Most of the activity was led by the Securities and Exchange Commission (SEC), which approved more than 30 proposals to amend existing or create new regulations.

Within the group of proposals, we identify two categories impacting investment management firms: (a) transformative proposals and (b) overlapping requirements.

Transformative proposals

  • Swing pricing: The SEC has approved two rule proposals to bring swing pricing to US funds. The first proposal, issued at the end of 2021, applies to certain money market funds, and the second proposal would bring swing pricing to certain types of open-end funds.
  • Proposed reforms to private funds: In 2022, the SEC approved a proposal to increase the regulatory compliance obligations of private fund advisers. The SEC is proposing a one-year compliance period for firms to implement these changes following a final rule.
  • Amendments to the definition of broker-dealer: Two “definitional” proposals expand the scope of entities required to register with the SEC. In effect, these proposals would stretch the regulatory perimeter to new entities.

Overlapping regulatory requirements

  • Environmental, social, and governance (ESG): In 2022, the SEC approved three separate ESG proposals: one for public company issuers and two for investment advisers. Together, these proposals create overlapping requirements related to firms’ ESG obligations.
  • Cybersecurity: In 2022, the SEC approved two cybersecurity rule proposals: one for public company issuers and another tailored to investment advisers and investment companies. Advisers that are also public company issuers will need to comply with the requirements in both rules assuming each becomes effective.
2023 Investment Management Regulatory Outlook

Reinvigorated enforcement

In 2022, the number of enforcement actions brought against investment and wealth management firms increased, and regulators also leaned heavily on existing rules to enforce where new regulations are pending in areas such as ESG investing and cybersecurity.

On the regulatory horizon

Despite the volume of new topics undertaken by regulators in 2022, we expect several new topics to be on the regulatory horizon in 2023, including overhauls of firms’ digital engagement and custody practices. In October 2022, the SEC approved a proposal to establish minimum requirements for investment advisers that outsource certain functions, including those “necessary to provide advisory services in compliance with the federal securities laws.”

Looking ahead

While regulatory changes should be atop the C-suite and board agenda in 2023, what could be viewed as a tumultuous period from a regulatory perspective could also be an opportunity to evaluate strategy more broadly. Learn more by downloading our report.

Continuous change, delays, and additions can make it tough for financial services organizations to navigate the regulatory landscape in 2023. While every organization may want to dynamically adapt to change and succeed, those acting proactively now by linking their strategic goals with regulatory expectations will likely lead. Discover actionable insights in our regulatory outlooks collection.

2023 Financial Services Regulatory Outlooks Collection 

If you are interested in learning more about the investment management industry, check out our recently released 2023 investment management industry outlook here.

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