House Subcommittee Chairs Ask SEC to "Re-Conduct" Economic Analysis on Private Fund Proposal
Commentary by Steven Lofchie
House Financial Services Subcommittee on Oversight and Investigations Chair Bill Huizenga (R-MI) and Appropriations Subcommittee on Financial Services and General Government Chair Steve Womack (R-AR) requested a briefing from the SEC as to whether it has conducted a "sufficient" economic analysis of proposed regulations on the private fund market.
In a letter addressed to SEC Chair Gary Gensler and SEC Chief Economist Jessica Wachter, the legislators expressed concern with an SEC proposal for extensive new regulation of private fund advisers under the Advisers Act (see previous coverage). The legislators expressed concern that the SEC failed to (i) conduct a sufficient economic analysis, notwithstanding a directive from Congress to reconduct the analysis pursuant to the Consolidated Appropriations Act of 2023, and (ii) assess the impact of the proposal on underserved businesses and communities, including emerging minority and women-owned asset managers. The legislators highlighted comments on the proposal submitted by market participants asserting that they would "not [be] able to manage these new regulations" along with the accompanying "steeper compliance costs and demands that will hurt smaller funds." The legislators requested a briefing from the SEC by July 14, 2023.
Commentary
Of course, the question of whether the SEC has done sufficient economic analysis in general is far broader than the rule proposal under immediate consideration. The SEC proposal that would expand the definition of broker-dealer; the SEC ignores the very significant cost of capital for firms that would be subject to Exchange Act Rule 15c3-1 ("Net capital requirements for brokers or dealers") if they were required to register as broker-dealers.
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The SEC proposed extensive new regulation of private fund advisers under the Adviser's Act.
