2024's SEC regulations will intensify; firms must prepare now.
As 2024 unfolds, U.S. investment management firms are bracing for a significant uptick in regulatory scrutiny. This heightened oversight is driven by an ambitious agenda from the SEC, which plans to finalize 21 new rules that will introduce fresh industry requirements. This surge in regulatory intensity is underscored by the SEC’s plans to increase its budget and workforce to unprecedented levels, reinforcing their capacity to enforce compliance.
Given these developments, investment management firms must prioritize regulatory readiness. One effective strategy involves setting up cross-functional teams dedicated to regulatory assessment and response. These teams, which could be dubbed Regulatory Assessment and Response Execution (RARE) teams, are instrumental in navigating the complexities of new regulations. They help firms assess the impact of regulatory changes, prioritize their responses, and ensure a comprehensive understanding of the rules.
The role of technology in managing these regulatory challenges cannot be overstated. Firms with advanced technological capabilities will find it easier to comply with the new requirements for transparency and data reporting. It's advisable for firms to conduct thorough reviews of their technological infrastructures to ensure they can handle the demands of the new regulations, which include more detailed disclosures and data collection.
This year, firms have been provided approximately 46 days on average to comment on rule proposals—a reduction from previous periods. This shorter timeframe underscores the need for investment management firms to be agile and responsive. The pace at which new proposals are introduced—covering areas from fund disclosures to emerging technologies and third-party oversight—demands that firms maintain a state of continuous regulatory engagement and readiness.
Looking ahead, the ongoing intensity of regulatory changes necessitates a structured approach to compliance. Firms should consider adopting a framework that includes stages such as sensing and influencing, planning and prioritizing, and implementing a compliance change management program. Such a framework will help firms remain agile and responsive as they navigate through a dynamic regulatory environment.
Moreover, with the SEC reverting to a stricter enforcement regime, evidenced by record penalties for non-compliance, investment management firms must bolster their compliance systems to avoid hefty fines. The rising costs of non-compliance, coupled with the SEC's increased capacity for enforcement, highlight the critical need for firms to enhance their regulatory frameworks and operational strategies.
To effectively manage these challenges, investment management firms should foster a culture that emphasizes proactive planning, cross-functional collaboration, and technological adeptness. By integrating these elements into their regulatory strategy, firms can ensure compliance, mitigate risks, and maintain their competitive edge in a rapidly evolving financial landscape.
