Introduction: The U.S. Securities and Exchange Commission (SEC) published its semi-annual Spring 2024 regulatory agenda on July 9, 2024, providing valuable insight into the agency’s rulemaking priorities for the coming months. This blog will break down the key components of the agenda, highlight significant trends, and offer practical guidance for companies navigating the evolving regulatory landscape.

Understanding the Agenda Structure: The SEC’s regulatory agenda is divided into three main categories:

1. Proposed Rule Stage: Rules expected to be proposed within the next 12 months.
2. Final Rule Stage: Rules expected to be finalized within the next 12 months.
3. Long-term Actions: Rules anticipated to take longer than 12 months to develop.

This year’s agenda includes 34 items expected to be completed within 12 months, down from previous years, indicating a possible strategic slowdown ahead of the upcoming election.

Key Trends and Proposed Rules: The Spring 2024 agenda includes several noteworthy proposals:

1. Investment Advisors Under the Bank Secrecy Act:
   • For the first time, the SEC proposes to classify certain investment advisors as “financial institutions” under the Bank Secrecy Act. This extension is designed to enhance anti-terrorism efforts by requiring these advisors to implement “know your customer” procedures.
2. Corporate Board Diversity and Human Capital Disclosure:
   • Continuing from previous agendas, the SEC is focused on enhancing corporate board diversity and human capital disclosure requirements. This includes refining the metrics for diversity reporting and expanding disclosures on human capital management beyond the changes made in recent amendments to Regulation S-K.
3. Amendments to Rule 144:
   • Proposed changes to Rule 144, which would prohibit the tacking of holding periods upon the conversion of variably priced securities, remain on the agenda despite significant opposition from market participants.

Final Rule Stage Highlights: Several critical items are in the final rule stage, indicating they may soon be implemented:

1. ESG Investment Practices:
   • Amendments to the Investment Advisers Act of 1940 and Investment Company Act of 1940 to require additional disclosure of environmental, social, and governance (ESG) investment practices are poised for finalization. This continues the SEC’s focus on increasing transparency and accountability in ESG-related investments.
2. Cybersecurity Risk Management:
   • The SEC is also set to finalize rules requiring market entities to address cybersecurity risks more comprehensively. This includes enhanced disclosure requirements for cybersecurity incidents and governance practices.
3. Equity Market Structure Reforms:
   • Reforms related to payment for order flow, order routing, and best execution are nearing completion. These rules aim to improve market transparency and address conflicts of interest.

Long-term Actions: The long-term actions section remains relatively light, with only seven items listed. These include ongoing considerations such as amendments to the transfer agent rules and proxy process reforms. The consistent presence of these items on the long-term list indicates that while they are important, they are unlikely to see immediate action.

Conclusion: The SEC’s Spring 2024 regulatory agenda reflects a strategic approach to rulemaking, with a focus on key areas such as ESG, cybersecurity, and market structure reforms. As these proposed and final rules take shape, it is crucial for companies to stay informed and proactive in their compliance efforts.

For businesses and legal professionals navigating these changes, understanding the implications of each item on the agenda is essential for maintaining compliance and mitigating risks. As the regulatory landscape continues to evolve, staying ahead of the curve will be key to successfully managing the challenges and opportunities that lie ahead.